May 20, 2019

Many European companies have been benefited from a more open China. Sophie Bellon, Chairperson of the Board of Sodexo and Martin Boden, President of Sodexo China, are interviewed by CBN reporters

China Business Network (Gao Ya)

On May 20, European Union Chamber of Commerce in China (EUCCC) and Roland Berger co-published a Business Confidence Survey 2019 (hereinafter referred to as the Survey), revealing that market benefited from an important statement made by Chinese authorities on further opening up and relaxing market access in 2018. In spite of the challenge and pressure imposed by a global economic slowdown, European companies maintain their positions in Chinese market and keep an optimistic outlook in profitability.

"China and the EU commit to build their economic relationship on the basis of openness, non-discrimination, fair competition, transparency, and mutual benefits. The two parties commit to achieve in the course of 2019 the decisive progress required, notably with regard to the liberalisation commitments, for the conclusion of an ambitious China-EU Investment Treaty in 2020," said in the Joint Statement of the 21^st EU-China Summit co-released by China and EU a month earlier.

Charlotte Route, Vice President of EUCCC told CBN reporters in the interview, "The parties speed up the negotiation that is underway and expect to reach an agreement by 2020. We consider it as a pretty positive move conducive to strengthening our respective expectation and understanding about future investment."

 
     

European companies witnessing a more open China

The Special Administrative Measures for Admission of Foreign Investments (Negative List) unveiled in June 2018 made China more open by reducing restrictions for admission of foreign investments in services and manufacturing sectors in particular. And many interviewed European companies in China appreciated the preceding development made by Chinese authorities in relaxing market access over the past year.

As far as services are concerned, in finance for instance, the foreign ownership restriction in banking has been removed; the upper for foreign ownership in a securities firm, fund management firm, futures firm or life insurance firm has been raised to 51%; and all foreign ownership restrictions in financial sector will be removed by 2021.

As revealed in the preceding Survey, 68% of interviewed European financial service providers in China experienced a more relaxed market access and more than 50% of interviewed hotel companies felt a "markedly" or "slightly" more relaxed market access in the industry.

The preceding findings had been confirmed by Sophie Bellon, Chairperson of the Board of Sodexo - a French service provider, in the CBN interview earlier, who was confident about China's power to build a fairer and transparent business environment and pleased to see efforts made by Chinese authorities for the sake of fair international trade. "This regulation will do nothing but make us stronger," she said.

In addition, European cosmetics industry had a higher percentage (80%) of companies feeling a more open Chinese market than peers in other industries. It was owing to a simplified administrative approval for import of cosmetics for non-special purposes as specified in the Survey.

Most European companies considered the relaxed market access as a primary cause to the improved market environment. As a matter of fact, it was shown in the Business Confidence Survey for the past three years that increasingly more European companies believed that the Chinese market environment was more friendly than it was three years ago. Other primary causes include an improved communication with government, more complete regulatory system, facilitated licensing and certification and equal treatment to domestic companies among others.

In such an environment, 62% of interviewed companies rated China among the top three investment destinations at the moment and in the future and 56% of interviewed companies announced their plan to expand operation in China this year, which has been on the rise since 2016.

In the context of a slowdown in global economic growth, 75% of interviewed companies still made positive pretax earnings in 2018 and claimed that their profitability in China was no lower than that in other places of the world. By industry, professional service providers, law firms and medical equipment companies saw a significant increase in their incomes last year. It, as specified in the Survey, resulted from an increase in relevant business needs and public pursuit of advanced medical services.

It was also shown in the Survey that 65% of companies would be willing to increase investment and 50% of companies would be willing to add 5-10% of their annual incomes to investment given the easing of more restrictions of market access to foreign companies.

Markedly better innovation ability

In the Survey, the interviewed European companies recognized China's development in research & development and innovation environment.

In 2019, 38% of interviewed companies considered China's research & development and innovation environment to be better than the world's average and 150% better than it was three years ago. The Survey revealed that China's promotion in the innovation ability was mainly driven by a hefty spending in research & development. It was shown in the Survey that China's R&D spending in 2017 was RMB 17.6 trillion, up 12.3% compared with the prior year and close to that of the United States. In this case, it was predicted in the Survey that China would be bound to have a higher R&D spending than the U.S. in the following 5-10 years if maintaining this upward trend in R&D spending.

Apart from the government incentive, the huge size of the Chinese consumer market also benefited China's domestic companies. As predicted in the Survey, the size of the Chinese consumer market will surpass the U.S. to hit RMB 37.6 trillion in 2019.

In this respect, "I find that China can help us reshape our services and rebuild business models while comparing China with other European and American countries," said Sophie.

Martin Boden, President of Sodexo China, told CBN reporters that China has become a global service provider, "From where I am standing, China is no longer merely accepting international services; it is also developing professional services. And we and other knowledge and skill service providers can introduce its services to the European and American market."

More than 50% of the interviewed European companies considered Chinese domestic companies to have an equivalent and even higher innovation ability compared with themselves in Business Confidence Survey 2018, which rose to 62% in the Survey. In aviation for instance, European airlines considered China's online travel agents to take the lead in ticket purchasing interface and marketing.