Jacques de Boisséson Vice President European Union Chamber of Commerce in China October 8, 2009

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Jacques de Boisséson

Vice PresidentEuropean Union Chamber of Commerce in China

October 8, 2009

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The Voice of European Businessin China

9th annual Position Paper

Over 500 recommendations from the 1,400 member companies of the European Chamber

Proposals developed over the last 6 months by the

European Chamber’s 34 industry-specific Working Groups and Forums

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1. Changes in the Last Year

• China rising in importance for European business, but market access barriers are rising too in some sectors

• Financial crisis has increased the threat of protectionism – Chinese government intervention and restrictions are growing

• In many sectors a slowdown – and in some cases partial reversal – of the reforms of recent years

• European business calls for further measures to create a more transparent, freer and fairer market environment

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The Position Paper 2009/2010 highlights progress:

• Laws: Food Safety, Postal, Insurance and the Circular

Economy Promotion Law

• Financial sector: foreign banks were granted the right

to trade RMB corporate bonds.

• IT sector: more competitive environment through the

3G licensing process.

• Tourism: lowered barriers for in-bound tourism.

1. Changes in the Last Year - Key issues

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The Position Paper 2009/2010 highlights also ongoing

problems in the areas of:

• Market access

• Transparency in the legislation and implementation

• Intellectual Property Rights (IPR)

1. Changes in the Last Year - Key issues

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2. Market Access

Market Access

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• European Chamber Business Confidence Survey 2009 highlighted rising importance of China’s market

• The barriers to trade & investment in China were estimated to cost EU businesses EUR 21bn in lost trade opportunities every year (2006 study)

• China ranked 83rd in the world in a World Bank study on “ease of doing business”

2. Market Access

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Example: JV requirement in the auto sector

• Chinese companies are acquiring EU car makers abroad - in

contrast, European companies must still enter 50/50 JVs in

order to manufacture locally, and have a cap of 2 plants

Example: JV requirement in the auto sector

• Chinese companies are acquiring EU car makers abroad - in

contrast, European companies must still enter 50/50 JVs in

order to manufacture locally, and have a cap of 2 plants

Joint venture (JV) requirements hindering market development

2. Market Access

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Public procurement process – a troubling absence

of equal treatment for domestic and foreign companies –

even locally incorporated foreign companies

Bids by 4 foreign-invested wind energy companies in Shanghai,

Shandong and Tianjin for a 5-bn-euro project for 25 sets of wind

turbine generators were rejected in the first round

Bids by 4 foreign-invested wind energy companies in Shanghai,

Shandong and Tianjin for a 5-bn-euro project for 25 sets of wind

turbine generators were rejected in the first round

2. Market Access

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Technical regulations & certification procedures blatantly discriminate against foreign-invested businesses

OSCCA (Office of Security Commercial Code Administration) certification for a locally incorporated foreign company in the commercial encryption technology industry

• The company was for many years the market leader in providing encryption solutions for Chinese banking, telecom and public transportation companies (mostly SOEs)

• This situation worked well, until new regulations suddenly required its clients to use products from OSCCA-certified companies

• Not one foreign company or foreign-invested Chinese company has to

date received OSCCA certification

OSCCA (Office of Security Commercial Code Administration) certification for a locally incorporated foreign company in the commercial encryption technology industry

• The company was for many years the market leader in providing encryption solutions for Chinese banking, telecom and public transportation companies (mostly SOEs)

• This situation worked well, until new regulations suddenly required its clients to use products from OSCCA-certified companies

• Not one foreign company or foreign-invested Chinese company has to

date received OSCCA certification

2. Market Access

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2. Market Access

Service sectorOutright exclusion of foreign companies is hindering both the development of domestic consumption and the improvement of service levels offered to Chinese consumers

Provision of foreign CRS (Computer Reservation Systems) to Chinese travel agencies and airlines

• Almost 7 years after China’s entry into WTO, no progress in opening

the CRS market to fair competition

• Approval processes required by the GATS commitments simply do not exist

• Without even the option of an approval process, European CRS providers have no way to access the growing Chinese market

Provision of foreign CRS (Computer Reservation Systems) to Chinese travel agencies and airlines

• Almost 7 years after China’s entry into WTO, no progress in opening

the CRS market to fair competition

• Approval processes required by the GATS commitments simply do not exist

• Without even the option of an approval process, European CRS providers have no way to access the growing Chinese market

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Transparency in Legislation and

Implementation

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3. Transparency in Legislation and Implementation

• Lack of transparency in the rule-making process, along with discretionary enforcement of laws and regulations

• Some improvement in terms of public consultation – e.g. two rounds of comments on the Anti-Monopoly law

• But problems in legislation and implementation processes remain – ranked #1 in the European Chamber Business Confidence Survey 2009 list of obstacles to doing business in China

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3. Transparency in Legislation and Implementation

Time granted for public consultation is inconsistent and short of international best practices

In 2008, average 24 Days - an improvement (21 days in 2007)

Still short of international best practices - WTO and European Commission recommend about 60 days

Lack of consistency

- Some calls open for 60 days and some for 2 days

In 2008, average 24 Days - an improvement (21 days in 2007)

Still short of international best practices - WTO and European Commission recommend about 60 days

Lack of consistency

- Some calls open for 60 days and some for 2 days

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3. Transparency in Legislation and Implementation

Limited consultation on draft regulations, and often only with selected groups

Public consultation is important because it allows the business community to understand government decisions and to contribute to finding solutions to technical problems

The Green Dam Mandate

• Promulgated in May without meaningful consultation with industry

• When given access to the software, industry quickly found issues

and problems

The Green Dam Mandate

• Promulgated in May without meaningful consultation with industry

• When given access to the software, industry quickly found issues

and problems

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3. Transparency in Legislation and Implementation

Not enough explanation and analysis of important decisions and key cases

Coca-Cola vs Huiyuan Merger case

• No substantive analysis or evidence supporting the rejection of this merger

• Not enough guidance on this complex law, which doesn’t help to dispel suspicions of protectionism

Coca-Cola vs Huiyuan Merger case

• No substantive analysis or evidence supporting the rejection of this merger

• Not enough guidance on this complex law, which doesn’t help to dispel suspicions of protectionism

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3. Transparency in Legislation and Implementation

Unfair enforcement of laws and regulations

European Chamber Business Confidence Survey 2009:

• 66% of respondents report that enforcement of the environmental

regulations on Chinese firms is weak, while just 18% reported that

China’s enforcement on foreign firms is weak.

• This is in essence a hidden subsidy for heavy polluting local

companies whose flouting of laws goes unpunished.

European Chamber Business Confidence Survey 2009:

• 66% of respondents report that enforcement of the environmental

regulations on Chinese firms is weak, while just 18% reported that

China’s enforcement on foreign firms is weak.

• This is in essence a hidden subsidy for heavy polluting local

companies whose flouting of laws goes unpunished.

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Intellectual Property Rights (IPR)

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4. IPR

• The National Intellectual Property (IP) Strategy has set the path for the development of Chinese IP rights. However, more needs to be done to improve the protection of IP rights so as to promote innovation

• European Chamber Business Confidence Survey 2009: Vast majority of companies consider the enforcement of these laws and regulations as inadequate (56%) or very inadequate (30%).

• In the long run, the lack of protection is discouraging and will continue to discourage European businesses from investing here.

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Leakage of confidential information during business developmentProject approvals, product certifications, patent filings, etc.

4. IPR

CCC (China Compulsory Certification) process, a precondition to

market access for 130 product categories

• Highly confidential information requested by testing laboratories that

goes far beyond the scope necessary for certification

• Unfortunately, leakage to Chinese competitors not uncommon

CCC (China Compulsory Certification) process, a precondition to

market access for 130 product categories

• Highly confidential information requested by testing laboratories that

goes far beyond the scope necessary for certification

• Unfortunately, leakage to Chinese competitors not uncommon

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4. IPR

• Draft rules of Patent Law will make European businesses less likely to do R&D in China

• The rules stipulate that companies must submit innovations for “confidentiality assessments” in China before filing for patents abroad

• Concerns about information leakage and ownership rights to these innovations

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Impact of EU Business in China

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5. Impact of EU Business in China

China is important for the EUbut also the EU is very important for China

• EU’s exports to China = 0.7% of EU GDP China’s export to the EU = 7% of China’s GDP

• About 40% of technology transfers introduced to China through imports and investments originated in the EU

• 20% of all Chinese exports in 2008 went to the EU (USA 17%, JP 9%)

• A 1% decline in EU GDP growth would lead to a 11.5% decline in Chinese exports (just 9.8% for US)

• EU’s exports to China = 0.7% of EU GDP China’s export to the EU = 7% of China’s GDP

• About 40% of technology transfers introduced to China through imports and investments originated in the EU

• 20% of all Chinese exports in 2008 went to the EU (USA 17%, JP 9%)

• A 1% decline in EU GDP growth would lead to a 11.5% decline in Chinese exports (just 9.8% for US)

EU Businesses are aligned with China on the importance of keeping EU markets open

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The Way Forward

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6. The Way Forward

A new round of opening up and reform with a clear timetable is needed to lead China to a sustainable economic recovery

• Economic crisis: a prime opportunity to restructure – China has always benefited in times past from opening up its market

• Further opening up & fundamental reforms – now needed

• Build a predictable, transparent, fair business environment for all companies operating in China

• Boost investment and domestic consumption and enable the Chinese economy to achieve its latent potential

• Economic crisis: a prime opportunity to restructure – China has always benefited in times past from opening up its market

• Further opening up & fundamental reforms – now needed

• Build a predictable, transparent, fair business environment for all companies operating in China

• Boost investment and domestic consumption and enable the Chinese economy to achieve its latent potential

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Q & A问 答