By Song Shengxia
The perception of unbalanced market access between China and the EU risks fueling protectionist backlash against Chinese overseas investment and creating new sources of friction. Chinese policymakers need to heed the calls of the foreign business community for greater openness and reciprocity, particularly at a time of rising protectionism and weak global economic recovery.
According to the latest report by Rhodium Group and the Berlin-based Mercator Institute for China, Chinese companies invested more than 35 billion euros ($36.83 billion) in the EU in 2016, up 77 percent from 2015. In contrast, EU direct investment transactions in China fell for the fourth consecutive year to 8 billion euros last year, less than a third of the value of Chinese investment in the EU.
The growing imbalance is a concern for many EU economies and has given rise to campaigns against Chinese investors. Such rhetoric has even been turned into action. Germany withdrew approval for the Chinese takeover of German semiconductor equipment maker Aixtron last year. If this trend continues it will negatively impact Chinese overseas investment and China's economy. One of the major qualms from the EU is lack of reciprocity in China where a number of sectors are restricted to foreign investors.
In fairness, China has made significant efforts to lift restrictions on foreign investment. The latest draft version of the foreign investment catalogue issued in December will reduce restricted industries from 93 to 62.
Realistically speaking, China needs to step up efforts to loosen restrictions to foreign investment and further liberalize the domestic market amid a continuous economic slowdown. The fact that some foreign firms are moving operations from China to lower cost countries, such as ASEAN countries and India, given rising labor costs and a decline in investment returns in some sectors adds to the urgency.
Data from China's Ministry of Commerce showed that in the first 11 months foreign direct investment to China grew at a slower rate than in the first 10 months. Additionally, foreign investors have shifted their focus from traditional manufacturing to high-tech services and high-tech manufacturing, with a particular interest in information technology, digital content and medical equipment and instruments.
While the rest of the world are putting up barriers to protect their domestic industries, China needs to do the opposite and should make every effort to make foreign investors feel as welcome as possible. The country should further cut red tape and attract more investors to the services and consumer markets. A freer market will allow China to gain more even as other countries turn to protectionism. China needs to reform first and then further the liberalization of its domestic market if it wants to stem the pervasion of protectionism globally. To do that, China needs to get the voices of foreign investors heard on a higher level.
The author is a reporter with the Global Times. firstname.lastname@example.org