European firms urge China to give market a bigger role

(BEIJING) - European firms in China called on the government Thursday to let the market play a bigger role as it carries out reforms aimed at ensuring long-term growth.

"The government is too dominant and needs to step back in order to strengthen market forces" in some areas, the European Union Chamber of Commerce in China said in its annual business position paper.

Reforms are needed to enable Chinese banks to become profit-sensitive "real banks" so that resources are efficiently allocated, it said.

State-owned companies' privileges needed to be curtailed and they should be realigned with public interests, while industrial policies and subsidies promoting "national champions" should be reduced, it added.

The paper also urged the government to cut its role as service provider and focus more on regulating to avoid conflicts of interest.

Government-affiliated service providers monopolise large sections of the quality and safety market, it pointed out.

"Not clearly separating the roles of regulator and fee-collecting service provider undermines China's quality and safety system and gives rise to opportunities for rent-seeking in one of the most important sectors," the paper said.

China has been hit by a series of food and product safety scandals in recent years, most notoriously when six children died and 300,000 fell ill in 2008 due to baby formula laced with the chemical melamine.

Davide Cucino, president of the EU chamber, said there have been signs of change, including liberalisation of the financial sector and simplification of foreign investment rules.

"This time we think it looks like a serious approach, and we believe there is not a big choice (for Chinese authorities) in the current situation," he told reporters at a presentation on the paper Wednesday.

"There are (a) few indications that even on government level there is a feeling that the state must step back in a number of sectors and domains."

The business position paper, this year listing more than 800 recommendations from 1,700 member companies, is presented to Chinese and EU policymakers each year.

The paper also criticised China's anti-corruption enforcement regime following scandals that have seen investigations launched into foreign pharmaceutical and food companies.

"A number of institutions are responsible for anti-bribery prosecution and enforcement," the paper said.

It cited "a lack of clarity between the roles" of the Communist Party's anti-corruption departments and the "government's legal system, creating the risk of unfair and inconsistent enforcement".

State media reported last month that the State Administration for Industry and Commerce was launching a three-month investigation into unfair competition in the pharmaceutical and other industries following bribery and price-fixing scandals.

News of the probe came amid a host of scandals involving foreign drugmakers and food companies, including a bribery probe into British firm GlaxoSmithKline.

Separately the National Development and Reform Commission, China's top economic planner, is investigating 60 foreign and domestic pharmaceutical companies over their prices.

Responding to the EU Chamber report, foreign ministry spokesman Hong Lei said China welcomes foreign investors and was "very attractive" for them.

He said China will "protect their legitimate rights and interests in accordance with law".

But Hong added that Beijing hopes foreign investors "will abide by China's rules and laws when doing business in China".

European Chamber in China Position Paper 2013-2014