China must improve the business environment for foreign companies if it wants to continue to attract EU investors. This is the message that was delivered simultaneously in Beijing, on 2 September, by both Catherine Ashton and the representative of European businesses operating in China. This suggests a new European approach aimed at convincing Beijing to open up further its market at a time when EU investments in the country are on the decline.

Concluding a week-long visit to China, the soft-spoken High Representative Ashton told Prime Minister Wen Jiabao about the potential influx of European investment in the country if Beijing responded positively to EU business’ demand. “I pointed out we could build on some of the issues in order to make it more possible for European businesses to invest long-term in China for the benefit of China and the EU,” Ashton told a group of journalist after meeting the prime minister.

Earlier in the day, the EU Chamber of Commerce in China was far less diplomatic when it presented its annual report on the situation of European businesses operating in the country. The position paper said uneven enforcement of laws and unfair restrictions on foreign investment were deterring overseas companies from expanding their operations in China, in particular in the auto, health care and telecoms sectors. “This is not because European companies do not want to expand their China operations but rather because they face obstacles or risks in excess,” said the President of the chamber, Jacques de Boisséson.

According to a report that will be presented to the European Commission, member states and Chinese officials, the profitability of EU companies on the Chinese market remains low. Only 34% of the EU businesses surveyed were optimistic about the profitability of their operations for the coming two years. However, 78% of the respondents were optimistic about the growth prospects in their sector. As Chinese leaders are shifting their priority towards strengthening their domestic market, foreign companies are wary of fresh unfair regulations. “Over the past year, the European chamber has witnessed too little progress in the economic opening up process,” added de Boisséson.

Ashton, who is fully aware of those challenges since she was trade commissioner in her previous capacity, stressed that the EU’s investment in China is “lower than it should be”. Over the last three decades, the EU has been an important source of investment that was instrumental in supporting China’s spectacular economic growth. Hence 40% of technology transfers introduced to China through import or investment originate in the EU. However, this trend has been declining over the past few years. In 2008, less than 3% of EU outbound foreign direct investment (FDI) went to China. The Europeans want to use that decline as a leverage to improve the business environment for their companies. “We talked about the importance of trade and investment,” said Ashton diplomatically. She added the Chinese premier responded positively. “He said he was aware that there was more to be done and that he wanted to create the environment where we have that investment.”

Ashton in China, not in White House

Ashton’s decision to stick to her long planned visit to China instead of attending the opening dinner of the Middle East peace talks in Washington has disappointed some member states, such as France, and triggered harsh comments from some members of the European Parliament. “Despite all the changes in the treaties and the announcement that the EU wants to play a leading political role on the international scene, when it comes to real business, the EU is not present,” complained Mário David (EPP, Portugal), chair of the EP Delegation for relations with the Mashreq countries. However, some experts came to the rescue of the high representative. Andrew Small from the German Marshall fund argued that “Beijing is worth a missed dinner”. “Despite some consternation in Paris, Ashton’s decision reflects a well-founded conviction that China policy is one of the few areas where the new post-Lisbon foreign policy machinery could make a real difference,” said Small.