Seeking fair playing field
The European Union (EU) remained China's top trading partner last year.
China Customs statistics show that bilateral trade hit $272.3 billion in 2006, accounting for 25.3 percent of the nations' total foreign trade - a growth of 25.3 percent year-on-year.
With a 26.7-percent increase in exports to EU, amounting to $181.98, China replaced the United States to become EU's biggest import source, while China's imports from EU reached $90.32 billion, up 22.7 percent year-on-year.
However, the boom in trade with EU has been overshadowed by the anti-dumping cloud. According to Xinhuanet, China's biggest trade partner also tops the list of WTO members that have filed anti-dumping cases against the country.
EU markets demand sound quality products with an innovative edge and competitive pricing, said Joerg Wuttke, president of the European Chamber of Commerce in China.
He said he is against unduly motivated anti-dumping measures that help sustain uncompetitive industries.
When inefficient industrial stakeholders seek trade defense instruments such as anti-dumping tariffs for their own protection, their move is to the disadvantage of customers, said Wuttke.
"The foremost group that has to be protected and supported is the customer," he emphasized, adding that, for the benefit of customers, both EU and China should keep their doors open and offer a level playing field.
He cited the purchase of a lower-priced China-made DVD player as an example to illustrate that with the money saved, European buyers will turn other EU-made consumer items, which in turn will spur growth of more local sectors.
"The market pie becomes bigger rather than shrinks when China-made commodities come in," he noted.
As the voice of EU businesses in China, the European Chamber will help European officials understand China better and facilitate talks on trade friction resolution between Brussels, where the EU is headquartered, and Beijing, the Chamber President said.
SMEs on the rise
Along with soaring bilateral trade, there has been significant growth in EU investment, especially by small and medium-sized enterprises (SMEs).
The share of EU SMEs' in the total EU-invested projects in China increased to 33 percent in 2006, from 13 percent in 2004, a high-ranking EU Commission official revealed at the Asian Investment Forum last November.
Wuttke described SMEs as "a powerhouse of innovation" and "the backbone" of a dynamic economy.
The European Chamber President said it is interesting that an Asian Development Bank study has found EU SMEs' concerns over investment environment to be identical with those of their Chinese counterparts.
The common concerns include transparency of laws, protection of intellectual property rights (IPR) and lack of human resources, such as foreign language-capable hands-on technicians.
Wuttke emphasized IPR protection, in particular, as the biggest issue in the current economic relations between China and EU. The two sides concluded a new agreement on IPR protection early this year.
Legal environment
Several studies worldwide have found that labor cost and tax issues, though serving as stimuli for attracting investment, are not the primary reasons that influence investment strategy, said Wuttke.
It is market size and growth potential that turn out to be the chief reasons for investment influx, he explained.
Despite lingering doubts over the draft labor contract law that is aimed at improving work conditions and yet, at the same time, expected to increase labor costs in China, the country last year secured 2,738 EU-invested projects worth $10.58 billion in investment value.
The surge in investment is a firm rebuttal against concerns about the new pro-employee law, the draft for which is currently undergoing the third round of discussions, may prompt a shift of foreign investment from China to other countries with lower labor costs.
The new law will not have a big negative effect on EU investment in China, as most of the European industries in China are not labor-intensive, said Wuttke.
Manufacturers even in labor-intensive sectors, which face potential increase in labor costs when the new law is implemented, will still maintain their competitive edge in pricing, he said.
Citing the shoemaking industry as an example, Wuttke said if a shoemaker exports his products at $15 per pair to the United States (of which $1.30 is labor cost), where the local retail price is $50, the huge difference makes even a 10-percent increase in labor costs in China insignificant.
"What goes beyond the law, which we would like to see coming, is the enforcement," Wuttke stressed, adding that authorities should take firm action to ensure implementation of the law across the board, including foreign-invested companies.
"The critical point is shortage of qualified human resources," he said. "The construction of the legal structure is there, but not enough people in the system are up to it." He advised strengthening the education and training of enforcement officials, especially at local levels.
An agreement on an EU-China law school, a major cooperative project of this year, has been signed recently. It is expected to promote exchange of legal information between the two sides and the introduction of EU's sound practice of law enforcement in China.
Another important measure concerns the reform of the Enterprises Income Tax Law. Under the latest tax law, all enterprises in China, irrespective of whether they are Chinese-invested or foreign-funded, are taxed at the same rate of 25 percent.
Instead of the past preferential treatment for foreign investors, tax favors now applicable to both overseas and domestic companies in special areas, such as clean energy and hi-tech sectors.
President Wuttke said he did not foresee a major outcry from Chamber members, and that his Chamber believes foreign and domestic companies should enjoy equal treatment, in line with one of the major WTO principles - National Treatment.
Tax relief "is a fact we lived with," he said. "We are not asking for favors; what we are lobbying for is a fair and level playing field."
Considering the competitive edge of foreign investors in technology innovation, they are expected to remain the main group enjoying the tax concessions in the next few years, experts noted.
With the progress in bilateral cooperation in energy efficiency and green technology, EU and China will achieve win-win results in terms of both enormous opportunities for the business community and sustainable growth of the two entities, Wuttke predicted.
(China Daily 05/09/2007 page19)
