China’s service sector has been given increased importance since the launch of the China (Shanghai) Pilot Free Trade Zone (CSPFTZ) and its Negative List approach and the subsequent Third Plenum Decision last year.
It is notable that the Negative List underwent a revision on 1st July, 2014, with the removal of 51 items—a reduction of 27 per cent. However, although we view these developments as generally positive: 23 of the items were combined with others, which means they basically still remain; 14 were removed as they pertain to activities that are not actually permitted in the CSPFTZ; and only six were related to the service industry. The list must be further reduced in scope and speedily rolled out on a nationwide basis if the service sector is to give the Chinese economy the growth impetus it needs.
European companies can offer a lot of expertise to China’s service industry. For the Chinese Government to leverage this it should further engage with the WTO, for example, by acceding to the Government Procurement Agreement (GPA) with a reasonable offer or by further engaging in the currently ongoing WTO Trade in Services Agreement (TiSA) negotiations, as well as, of course, continuing with the EU-China Bilateral Investment Agreement negotiations.
As echoed by the findings of our Business Confidence Survey,European companies operating in China’s service industry are facing a multitude of challenges. Nearly half (48 per cent) of financial services companies believe that the ‘golden age’ for multinational companies in China is over, and 68 per cent believe that foreign-invested companies are treated unfavourably compared to domestic Chinese companies.
Sixty-three per cent of European financial services companies also indicated that their most significant competitors are SOEs. Having discussed this result with our members in this sector, it can be inferred that SOEs continue to influence the regulatory and governmental environment for foreign companies in this sector in order to maintain their own preferential, partisan treatment. Were European financial services companies to be afforded greater market access 63 per cent of them indicated that they would be more likely to increase their investment in China. Figures like these are extremely significant and we are hopeful that they will help the Chinese Government to understand the benefits of creating an investment environment that treats domestic and foreign-invested companies in an even-handed manner.
As scandals in recent years have dented the public’s confidence in the quality of domestic foodstuff, it is important for the Chinese authorities responsible to assure adherence to the highest quality standards in the agriculture, food and beverage (AFB) industry. European business is a prime interlocutor in this respect, coming from a highly regimented environment where food is judged to the most discerning standards. Our recommendations for the AFB industry that will be given in our annual Position Paper—set to be released in early September—are intended to help improve consumer safety in China, and should be heeded by the Chinese authorities. Healthcare and Food Safety is of course one of the Chamber’s lobbying priorities for the current year.
China’s increasingly demanding urban middle class are spending more on imported foods with each passing year, due in part to an increased awareness of foreign brands as well as a perceived higher level of quality and safety of foreign foodstuffs. Although this points towards increased investment opportunities for foreign-invested enterprises in China’s AFB industry, many European companies (42 per cent) perceive the market to be tipped in favour of domestic operators. Were the playing field to be levelled, 39 per cent of European companies in the AFB industry would be more likely to increase their investment in China.
Another area that requires serious attention is the current operating environment for foreign legal services providers. Foreign law firms are still unable to practice Chinese law despite repeated calls from business, civil society and the government that increased rule of law is required. It comes as no surprise that over 90 per cent of companies in the legal services sector believe that they are being discriminated against by the Chinese Government. This is in stark contrast with the ease with which Chinese law firms can establish themselves in the European Union (EU). The Chamber will certainly continue with our lobbying efforts in this respect.
The service sector in China will likely become increasingly vibrant over the course of the next decade. However, this hinges on the speedy and comprehensive implementation of free market reforms. As mentioned earlier, this largely depends on the CSPFTZ Negative List approach being rolled out nationwide, and the Chinese Government further contributing to the TiSA and improving its GPA offer.
Last but not least, when speaking about services, as our members, you can always rest assured that the European Chamber is and always will be ‘at your service’.
President of the European Chamber of Commerce in China