China Must Open More to Foreign Investment, De Gucht Says

The European Union’s trade chief pressed China to allow greater foreign investment, saying Chinese barriers risk stoking protectionism in Europe.

“Important sectors in China remain closed or restricted to EU investors,” EU Trade Commissioner Karel De Gucht said in a speech today in Brussels. “The fundamental imbalance between our openness and China’s restrictiveness plays into the hands of those in Europe who see Chinese investments as a threat and argue that we should selectively screen Chinese investments.”

Businesses are turning to China to bolster sales as rising unemployment and government indebtedness damp confidence in developed nations. Chinese Premier Wen Jiabao said on Sept. 14 that the country, whose biggest export market is the 27-nation EU, will continue opening its economy to investors.

Foreign direct investment in China climbed 11.1 percent in August from a year earlier as the nation’s economic growth encourages companies from Volkswagen AG (VOW) to Caterpillar Inc. to expand. China’s economy grew 9.5 percent in the second quarter compared with a year earlier.

De Gucht criticized recent Chinese foreign-investment curbs resulting from national-security concerns.

“China’s new national-security screening mechanism was a retrograde step which risks further aggravating the detrimental effect on our bilateral trade,” he said.

Investment Treaty

The EU will seek the go-ahead for negotiations on an investment treaty with China at an Oct. 25 meeting of European and Chinese leaders, De Gucht said in response to a question after his speech. The goal would be to improve on agreements that individual EU nations have with China, according to him.

In his speech, De Gucht also said China’s procurement market is too closed to foreign companies.

“There is very little access to the market in China,” he said. “The problem is not so much what is foreseen in Chinese regulations, but that foreign actors are simply not winning contracts unless it is in China’s interest.”

The European Commission, the EU’s regulatory arm, will propose rules by the end of the year to force reciprocity in public procurement, De Gucht said during the question-and-answer session. He said a focus may be on contracts for environmentally clean technologies.

“The idea is to convince the others to open their market,” he said. “It is not a protectionist measure.”

Chinese Subsidies

In addition, De Gucht in his speech criticized Chinese subsidies to exporters, holding out the prospect of more EU tariffs to counter trade-distorting government aid. In May, the EU imposed anti-subsidy tariffs against China for the first time, targeting imports of paper with levies as high as 12 percent.

“They need to be addressed in order to ever achieve a level playing with Chinese companies,” De Gucht said. “We may also need to take increasingly measures to address the imbalances created by them, an issue that is very sensitive for China.”

On a separate front, China must bolster intellectual- property rights for businesses in practice, De Gucht said.

“Numerous infringements undermine not only European investments and technology transfer to China, but just as much China’s ambitions to become an innovative economy,” he said. “China’s laws and official language point in one direction, and a still very dire situation on the ground points in another.”

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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