European businesses have benefited greatly from increased access to the Chinese market

Jörg Wuttke, President of the EU Chamber of Commerce in China (Photo provided to Guangming Online)

Guangming Online: China has been committed to providing more open and fair regulations, markets and business environments for multinational enterprises in China. Please tell us briefly, how does this benefit EU enterprises in China?

Jörg Wuttke: As part of its WTO accession China began a programme of opening up and reform, which included committing to provide a more open, fair and rule-based business environment for foreign enterprises operating in China. These reforms have provided huge benefits for European enterprises operating in the PRC, but also for China, whose economic growth accelerated from 2001 onwards. European businesses have benefited greatly from increased access to the Chinese market, China’s traditional strength as a manufacturing and production powerhouse, and more recently from its thriving innovation ecosystem. For its part China has been able to attract huge amounts of foreign direct investment, move up technology and value chains, and cement its place as the number one trading partner for many nations.

Despite this, in recent years question marks have been raised over whether China remains as committed to developing an open, rules-based market environment as it did at the time of its WTO accession. At the highest-level, China has pledged its commitment to multilateralism at high-profile platforms, including last year’s China International Import Expo and this year’s World Economic Forum Davos Agenda. Following the publication of documents such as the 14th Five-Year Plan, however, European businesses find themselves wondering if such commitments are just rhetoric as there are indications that China is looking to turn inwards.

The European Chamber believes that it is in China’s, and the world’s, interests to continue developing a more open, fair and market-based business environment. For EU businesses, the dynamism and scale of the Chinese market mean it is vital to have a presence here. For China, data indicates that following a path of bold reforms would increase economic prosperity. For instance, World Bank projections show that should China follow a path of comprehensive reform and opening between now and 2050, its GDP per capita would be 65 per cent higher by the middle of this century than if it only implements limited reforms.

Guangming Online: How do you evaluate the role of member enterprises of the European Chamber of Commerce in China in China's economic development in the past year? How do you think the European Chamber of Commerce in China will help promote the common economic interests of China and the EU?

Jörg Wuttke: Throughout 2021,against a backdrop of increased political tensions, the COVID-19 pandemic and further decoupling, European businesses showed a strong commitment to the Chinese market. As our Business Confidence Survey 2021 indicates, members reported the lowest desire to leave China on record. Our members have contributed enormously to China’s economic development throughout 2021, and moving forward are looking for opportunities to increase their investments, contribute technological expertise and partner with local enterprises where it makes sense. However, for this to be possible, China needs to create the right conditions by continuing to develop an open, fair and transparent business environment.

The European Chamber of Commerce will continue tofoster bilateral discussions, provide platforms for engagement, and highlight the areas where there are opportunities and challenges. This includes holding high- and working-level discussions with Chinese and European government stakeholders; through the publication of frequent reports (such as our annual Position Paper which last year included 930 constructive recommendations); and, through the launch of new forums such our Sports Forum, launched last year, which signed an MoU with the General Administration of Sport of China.

Guangming Online: Despite the uncertainties in the COVID-19 pandemic and geopolitical turbulence, China has continued to improve its market economy and provided many business opportunities for multinational enterprises. China has achieved rapid economic recovery in the pandemic and severe recession of the world economy. In the post epidemic era, what opportunities and challenges are there for EU enterprises in China?

Jörg Wuttke: During the height of the pandemic, while much of the rest of the world locked down, China came back online far quicker than expected. This meant that the China operations of our member companies were able to offset losses incurred in other markets.

However, it is now not clear if China’s persistence with a zero-tolerance COVID-19 strategy is sustainable, particularly following the emergence of the Omicron variant.

As the rest of the world now looks increasingly set to live with COVID-19 China remains largely closed off, and continues to implement onerous travel restrictions. This was the biggest business challenge facing European companies in 2021, and all signs indicate that it will continue to be a major concern throughout 2022. China’s travel restrictions, long-quarantine periods and inconsistent rules that are subject to sudden changes are a huge source of business uncertainty. Certain business functions, especially those that require face-to-face contact, need boots on the ground, something that’s often not possible. If China deems mass further lock-downs necessary—as we recently saw in Xi’an—this will wreak havoc on production and supply chains, which risks negatively impacting China’s economic growth and vastly diminishing its standing as an investment destination.

Guangming Online: While the zero-tolerance COVID-19 strategy of China may bring risks and negative impacts to China’s global business, in fact, it also makes China the only one among the major economies to achieve positive economic growth in the post-pandemic era. Please kindly offer your comment.

Jörg Wuttke: Indeed, China’s tight control allowed it to achieve positive growth in 2021, a very impressive result. However, this was attributable in large part to its growth in net exports that were absorbed by other countries as they battled their own COVID-19 outbreaks. As many of those countries have dealt with COVID-19 in their own more open way, their economies are now returning to full strength. China now faces two challenges: 1) relying on its own domestic demand for growth; and 2) facing the same COVID-19 challenges with its closed approach while the rest of the world opens up. The concern is that continuing with a zero-tolerance approach may have a detrimental impact on its longer-term growth prospects. The International Monetary Fund has already downgraded China’s expected growth rate for 2022 due to the impact of “pandemic-induced disruptions related to the zero-tolerance COVID-19 policy.”

The pandemic is an evolving situation that demands dynamic responses. The Omicron strain has proved to be highly transmissible yet far less deadly than previous variants. This has allowed countries that have high inoculation rates—being at least double vaccinated with highly effective vaccines—to slowly reduce social and travel-related restrictions. Cases in these countries have remained high, but with far fewer people developing serious conditions requiring intensive medical treatment, meaning that the additional strain on health systems has been manageable.

Guangming Online: Carbon neutrality, climate change, international standard setting and sustainable development have long been topics of common concern of China and the EU. 2022 will usher in the 20th National Congress of the Communist Party of China. In the new era, China will continue to promote opening-up and cooperation. Please make a prospect on how the European Chamber of Commerce in China will continue to play its role.

Jörg Wuttke: As you rightly point out, there are numerous areas where the EU and China share common concerns and objectives that are ripe for deeper cooperation. To ensure this happens, however, it is important that both sides continue to demonstrate the political will to actively engage with one another. The 20th National Congress will signal the direction of the Chinese economy over the next five years, and we hope that China will indeed follow this important meeting by issuing concrete reform and opening measures.

The European Chamber and its member companies will continue to proactively engage with stakeholders at all levels of the Chinese government to highlight opportunities for cooperation and to make constructive recommendations as to how China’s business environment can be optimised.