The European chamber of commerce in china

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Nicha Tatsaneeyapan 6185583329
The European Chamber of Commerce In China criticized the Chinese industrial development
policy toward the new era of industrial revolutions and made several comments. The paper
wrote about what China needs to do to surpass the middle-income country to be high income
economy. It also suggested the ways how each industry need to do
Figure1: Foreign firms in advanced manufacturing in China are entering a period of
tightening regulations and increasing market competition
I personally agree with EU Chamber of Commerce Recommendation. Chinese government
should stop subsidizing industries in all aspects and prepare those firms to be ready in a fully
competitive market. In fact, eliminating the subsidies for the industry that do not need funds
and go for the industry that they are really need. One of the examples that I found in the
article is instead of preparing the money to go for the M&A but going for R&D. Chinese
firms should learn to do business with quality and efficiently. Given its weak innovation
capacity and low R&D intensity, Scientific research is really needed. Another example is
that in order for European company to get market access to China, Chinese government
should give more room to them to have a market share in the market. They needed not to
control that much as suggested in the article. By this way, Chinese can learn another
perspective to get some knowledge spillovers from European Company instead of jotting
down the things they don’t really need. And it also helps Chinese firms to go stronger given
that local companies have a chance to do business with European. So, they should go market
economy. In addition, Europe should receive equal treatment under Chinese law. Moreover,
government, academia and industry should be coordinated. Intellectual property right is
encouraged. Education for vocation is needed.

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Figure 2: Made in China 2025 strategic objectives to make China the leading
manufacturing country
CM 2025 summarized ten key sectors that should receive special attention. The 10 industries
are Next generation IT, high end numerical control machinery and robotics, aerospace and
aviation equipment, maritime engineering equipment, advanced rail equipment, energy-
saving vehicles and NEVs, electrical equipment, agricultural machinery and equipment, new
materials, and biopharmaceuticals. With all these sectors, market share has to be clearly
measured in order for them to reduce its foreign reliance. China should also have three of the
top five companies with the reputation of its value-added surpassing joint ventures.
A balance of market share and indigenous innovation have to be cleared. There is a concern
about import-substitution aimed at nationalizing key industries and ending the position of
foreign business.
In terms of policy tools to support of CM2025, there are 10 key policies that China’s central
and local government are using forced technology transfer in exchange for market access,
market access and government procurement restrictions for FIEs, standards, subsidies,
financial policy, government-backed investment funds, support from local government,
technology-seeking investment abroad, M&A and public and private Partnership. These 10
ways are really shown that it is not a market-based tools. The first three really have direct
impact on European business and the remaining seven having a more indirect impact. It
impedes the way China go internationally and impede European business to get compete with
China. This corresponds to the European investment in China declined to EUR 8 billion in
2016 from over EUR 10 billion in 2015. This also show a politically unsustainable and
underlines the lack of reciprocity in bilateral investment relations.

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Figure 3: market shares target to realize guarantees of self-sufficiency and to achieve a
clear decline in China’s dependence on foreign technologies
Opportunities and challenges can be made in 5 keys; next generation IT ( cloud computing,
telecommunications equipment and semiconductors), robotics, advanced rail equipment,
energy-saving vehicles and NEVs, and biopharmaceuticals and high performance medical
services.
For the next generation IT, Chinese state should allow firms to it select IT products from
international perspective that correspond to the business needs. State should allow firms to
produce what they want not what state needed. International firms should have less regulatory
burden such as security review. Product design and source codes have to be submitted. If
these continues happen, a market competition is reduced and China’s capacity to drive
innovation is not achieved.
For cloud computing, given its limit on European business access to China cloud computing
market such as Iaas and its limit network data within Chinese territory. This avoids a
completely and effectively communicating way to address the problem. So, China need to
allow European companies doing business in China to select its own service providers.
For telecommunication equipment, export credits given by government agencies helps them
to win contracts in international markets. Such export credits are preferential tax rates and
low-interest loans from state own banks. With these help, Chinese telecommunication can
make a significant investment in R&D and basic research. European government are barred
from providing to their own domestic companies under OECD export financing rules. In
order for them to be competitive, government help should be eliminated and China should
join OECD export financing rule.
For semiconductors, overcapacity is a major concern in this area. It depressed profit margins
and technological development. Although it is one of the world’s most research-intensive
industries with new generations of technology, roughly half of electronics globally are
produced in china and purchasing decisions are made by internationally companies with
Chinese contractors. Chinese government institutions and SOE are not strong drivers of
demand.

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Figure 4 : China is increasingly meeting its needs for advanced technology through
investment abroad, often through complex structures that hide the role of the state.
Consolidating small firms together is not a good thing to bring out R&D capacity. Larger
firms will not well managed. M&A is another important issue. The amount of money attempt
to merge the company is poorly allocated. It goes to ownership that was unclear.
Figure 5: China manufacturing capabilities ranked the lowest compared to developed
countries
The case of robotics is emerging because of serious overcapacity. Industrial robotics has
recently become a hot industry in China. It is in the low and mid-tiers of the industrial
robotics market. Government gave subsidies to them a lot of money. Many local authorities
attempt to evaluate companies before they receive support they do not always possess the
necessary information. Some leading companies depend on government subsidies for 30 to
68 percent of their profits. The capacity needed to integrate robots into manufacturing and let
them work with other components is also a major issue.
For NEVS industry, foreign cannot access to Chinese market although much of European
technology were spilled to Chinese firms. Government also subsidized a lot given that these
firms are strong. Sometimes, company overstates the number of production figures and

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technological capacity. Chinese government also controlled for JV production ; when they
sold the products in China ,they have to give a new brand name. China sometimes go against
with WTO agreement not to condition investment on technology transfer. The
recommendation for this issue is that credit trading system which is the most effective way to
ensure government neutrality on the technology development, canceling the requirement for
FIE to transfer technology, permit domestic companies and JVs to select the product itself,
provide domestic companies and focus more on government support.
For advanced rail equipment, it is a good example for showing negative consequences that
Chinese industrial policy may have an impact on European business. The projects sometimes
have been taken on political reason means that there is no profit margin.
For biopharmaceuticals and medical services, both have unclear bidding for public
procurement tenders. The slow pace of drug approvals hinders innovation in the industry.
European received an unfair treatment to accept a must price cuts at least 5% before having
price negotiations for tenders proceed. Approved indications, safety data and product profiles
have the same therapeutic benefits. Medical service is an ongoing process to nationalize.
European companies are prevented from competing for public procurement contracts on a
level playing fields. Hospitals are prevented from purchasing of what they really need. There
is also a room for M&A. Price for clinical service is expensive. With eliminating the
European market, domestic enterprise will lose competitiveness and innovation capacity.
Focus on the perceived nationality of the brand may divert them from what they are really
need. These reduce the FDI in China. The key recommendation for these cases are that
implementation the commitment made by the State Council to reform procurement, refraining
from using industry catalogues, using the catalogues that correspond to what they needs,
directing state towards facilitating the long term investment in R&D, and allowing firms to
determine the market segments in which they are best positioned
For the labor market, advanced skill laborer is needed. Chinese vocational educational system
needs to improve to prepare for exactly for the scenario. Educational institutions should focus
on developing skillsets in graduates and should offer formats for continuing education with a
system that supports ongoing needs. With this, it is very hard for China to compete on the
basis of quality.
Regarding these recommendation in various industry shown above, other recommendations
have been made;
 Reform systemic and institutional structures
 Establish a fair market condition for competition
 Establish a supportive financial system
 Create a tax incentive system
 Develop education program for training levels
 Improve regulatory for small, medium-sized and macro business.
 Open up manufacturing sectors
The aforementioned summarize of the article can imply the trade and investment in China in
next 10 years. From my perspective, looking for the three to four years ahead, China can have
trade problems with many other countries. China’s efforts become a dominant player in
advanced technology as a national security problem. Facial-recognition software, 3D

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printing, virtual reality systems and autonomous vehicles are a threat because of their blurred
line between civilian and ministry technologies. US also mentioned that Chinese recruitment
of foreign scientists is theft with intellectual property. Chinese also aims to take the owners of
supply chains for example the cobalt industry, can lead them a superior of geopolitical power.
Subsidizing the market and dumping the market distorts the global market price system. It
leas to overproduction. Trump administration investigation under Section 301 of the 1974
Trade Act concluded that China action was unreasonable and discriminatory. Chinese trade,
investment and currency policies created for U.S. trade deficits.
Products exported from China would be banned from other countries. For example, Trump
use executive powers to ban tech-related acquisitions by firms with at least 25 percent
Chinese ownership and impose new export controls on critical technologies. Tariffs and other
trade remedies would be more applied. Examples of that tariffs on solar panels and steel and
aluminum imports due to Chinese production. There would also be a ban from Huawei and
ZTE threats to US.
Figure 6: Australia was ranked as the second highest source of China’s FDI
Australia has been the second largest recipient of investment from China since 2007. But
with China manufacturing plan, it come with a result that a rejection of Canberrra bids to buy
Australian agribusiness and electricity grid from Chinese. Germany has been reviewed for
European wide investment review body. It also reviewed China as a key top investment
destination in Europe.
The EU has filed complaints against China at the WTO and imposed anti-dumping measures
on many products.
Trade deals between US and China is not conclusive. China want all tariffs on Chinese
imported added by US during the trade war to be removed. But Trump still pause placing
tariff up to 25 percent on addition US$ 300 billion of Chinese imports. These tariffs would
result in bilateral trade frictions. The deals have to be fair and balance Agricultural products
would be an important issue to be discussed. China also cuts USA purchase such as soybeans.

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Issues such as China purchase of American goods to narrow trade imbalance, the US
demands that China end forced technology transfers and better protection of intellectual
property are a major concern. Huawei ban should be delisted. Beijing signaled to open up
domestic financial market, a key US requirement for trade deal. According to Premier Li
Keqiang announced on Tuesday that China would eliminate cap on foreign ownership in the
domestic financial industry sectors from 2020.
China and the US are each other’s largest trading partner and important source of investment.
In 2018, bilateral trade in goods and services exceeded US$750 billion, and two-way direct
investment approached US$160 billion. In 2018, the US was China’s largest trading partner
and export market, and the sixth largest source of imports. This gives a hindsight why both
countries are in a better position if they can reach agreements.
Given these increasing abilities and potential of China, I think China would become the
world’s largest economies. According to World Bank data, many reasons are behind. First,
China’s per capita gross national income of $290 in 1985 had nearly doubled to $540 by 1995
,more than tripled to $1,760 by 2005 and quadrupled to $8,100 by 2016. Morgan Stanley
forecasts that China will break out the middle-income trap and join the high-income society
attaining per capita GNI of above$12,500 by 2027.
Figure 7: China is expected to achieve high income status by 2027
But the concern remains on government debt. Despite its continue high debt, it cites three
major factors. Firstly, China’s own savings have funded its debt, which has gone to
investment. Secondly, the government enjoys strong net asset positions both domestically and
internationally. Third, it has strong macro positions such as current account surplus, high
level of foreign currency reserves and a lack of significant of inflationary pressures.

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Figure 8: Debt to GDP (%) Pace of Increase Expected to Slow
Forth, The slowdown is on its way. GDP growth has trended lower every year since 2010.
From 2010 to 2015, real GDP growth averaged 7.9%. It is expected to fall by 4.6% from
2021 to 2025 and 3.1 $ by 2026 to 2030. China can move into high value chain in economic
activities, closing down redundant industries, and emphasizing on the high value added
economic activities in sector such as healthcare, education and environment services.
Consumption and service will dominate China economic landscape. The consumption would
be richer, older and tech-savvy. By 2030, according to analysts, household disposable income
will reach &8,700 and internet penetration will increase to 75 % compared to $5,000, 37%
years old and 52%, respectively in 2016.
Figure 9: Private Consumption to Keep Rising
Half of population ,by 2030, will gain benefit from the sprawling eCommerce infrastructure,
eCommerce is likely to remain a key driver of China’s consumption. There would be a tech-
trade war between some countries with China. On the one hand, auto, vocational travel,
healthcare, household and electrical appliance, jewelry and sportswear are likely to grow. On
the other hand, food and beverage, home and personal care and apparel and footwear will
need to adapt. A concern of aging population and high tech skillsets and a wealthier, savvier
should concern.

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Given trade dispute among two giant nations, the global supply chain is divided into two ;
one from China and one from USA. China would have to create their supply chain to avoid
themselves from USA. Policy tools such as subsidies and state-backed investment funds will
lead to a negative response from international trade and investment. Overcapacity created
problems to Europe. A distortion of global M&A markets through state-fund could yield the
same negative response.
Looking these areas, trade and investment in China in the next 10 years would be market-
based reforms. It is important for proponents to point the benefit gain from social perspective
when they trade with China. According to President Xi Jingping, China’s development will
begin to open the door for China. The Chinese government should play a leadership role in
developing new international investment that will ensure that interests of the country is not
publicised. Doing so would fit with non-binding G20 Guiding Principles for Global
Invesment Policymaking that was proposed in Shanghai during G20 Trade Minister’s
Meeting in July 2016.
Figure 10: One Belt One Road Initiatives
The Chinese government launched the Belt and Road Initiatives which is ambitious
development for China to boost trade and foster economic growth across the globe. China
plans to pump $140 bn into projects each year. Plans for pipelines and a port in Pakistan,
bridges in Bangladesh and railway to Russia aimed to created China a modern silk road
trading route.
It had two main prongs; one is called “Silk Road Economic Belt” and the other “21st
Century
Maritime Silk Road”. It is a sea route linking China’s southern coast to east Africa and the
Mediterranean. The belt connects China and Europe, via Central Asia and the Middle East,
This economic plan was so important to China because it open up and created new markets
for Chinese goods and technology. It can shift factories open overseas to less developed
countries. From political perspective, China use to seize the strategic control of Indian ocean.
Prime Minister of India Narendra Modia accused Beijing of trying to undermine India’s
sovereignty.
With these initiatives, responses from ASEAN to new industrialization, modernization and
regionalization can be thought from “Five links”. Five links refers to policy coordination,
facility connectivity, unimpeded trade, financial integration and people-to-people bond.
According to the search of the group in Beijing University, there are five comparative
analysis. The first is policy coordination. Bilateral policy coordination between China and

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ASEAN is the most important prominent among member countries. While policy
coordination of China with Malaysia, Thailand, Laos, Cambodia and Indonesia remains
strong, the political upheaval and government is the main hinder factor for influencing the
quality of policy coordination. China and Singapore have a good relation despite the
Singapore regime is stable. Vietnam and Myanmar have sound political mechanisms for
coordination but the validity of policy coordination has not been improved.
The policy coordination between China and Brunel and the Philippines is poor. Brunei had
high political stability. The Philippines has more diplomatic institutions with China. Brunei is
a small country with weak international influence so there is so much strong demand in terms
of bilateral trade relation. The Philippines has trade dispute with China that mean the bilateral
policy coordination with China has become the weakest link in the ASEAN region.
The second is facility connectivity. The overall rank is very low. Although China has good
infrastructure connectivity with Malaysia, Vietnam and Indonesia, the communication and
energy facilities which are in these countries remain poor. The telephone line construction
connecting China. The energy infrastructure and facilities for delivering oil, natural gas and
transmitting are less developed.
China has poor facility connectivity to Myanmar, Singapore, Brunei, Thailand and the
Philippines, Cambodia, and Laos but there is a room for potential. Having direct flight and
sea links with China, the facility in other areas is low. Long term rail way network plan in
2008 and Plan for railway construction during the 11th
Five-year plan which covers parts of
China’s territory with three schemes of the Pan-Asian Railway and the construction of
facility between China and ASEAN are promoted.
The relatively connectivity backward is because ASEAN is the region with the most stringent
and geopolitical competition in the world. Construction of cross border facilities are covered
with wide range of projects and vulnerable to the most country’s environment. Some ASEAN
countries have poor political stability with frequent social turmoil. Infrastructure construction
required large capital demand, less economic benefit and long payback period.
The third is unimpeded trade. The level of unimpeded trade is higher compared to other
countries participating in the B&R initiatives. There is a higher non-tariff barriers between
China, Malaysia and Thailand.
China has good levels of unimpeded trade with Vietnam, the Philippines, Cambodia and
Myanmar. The lower direct investment is another concern factor. The higher bilateral non-
tariff barriers between China and Cambodia and Laos, the low bilateral investment between
China and the Philippines are affected the unimpeded trade.
Brunei is the only country in ASEAN that are classified as a potential country. The economic
volume of Brunei and performances index indicates a limited potential of building unimpeded
trade between China and Brunei.
The fourth is financial intermediation. This is above average overall and the best of all 5
comparatives. China, Singapore, Thailand, Malaysia and Indonesia have a smooth in terms of
financial integration. The financial integration of China with Brunei, Vietnam, Laos and the
Philippines are good with distinct differences among different countries. China and the four

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countries have received some financial supervision except the Philippines. The currency
swaps have not yet cooperated. The credit is not convenient. Brunei and Laos have low
reserved of foreign exchange. Vietnam is not convenient for credit.
The fifth is people-to-people bonds. China and Singapore, Thailand , Malaysia and Indonesia
have a good people to people bonds among those countries. Singapore has shown a distinct
advantage in all aspects. Thailand is very prominent in tourism-related areas.
China and Cambodia and Laos have good people to people bonds but an unbalanced index.
The level of R&D remains low. There are few tourists from these countries travelling to
China. Chinese Internet users pay lower attention to these countries.
There is potential to develop these areas. Vietnam and the Philippines has a bright spot in the
bilateral relationships. Tourism-related activities and scientific research cooperation are
areas with potential development. For Myanmar, building friendly city relationship are the
only bright spot in Sino-Burmese relations.
With all these comparative analysis, regional economic integration and regional production
network construction will enhance the level of unimpeded trade. There are differences of
China and ASEAN in terms of unimpeded trade are; the established and upgraded China-
ASEAN Free Trade Agreement, the continuous improvement of the East Asian Production
Network and the ever deepening interdependence between China and ASEAN, ASEAN
internal market limitations and China’s economic transformation have formed restraints to
the development of bilateral trade and lastly unbalanced of economic development in
ASEAN region led to an uneven pattern of unimpeded trade.
The construction of regional financing channels has ensured the steady improvement of
financing in the ASEAN region. There are also relatively weak countries. The specific
reasons include; the Asian Infrastructure Investment is established and other regional
financing channels have been providing financing supports to relevant countries under the
B&R for their infrastructure construction, resource development, industrial cooperation and
so on, and so provided a strong stimulus to the construction of financial integration between
ASEAN and China, the differences in economic and financial levels in the ASEAN region
result in a different level of financing among countries. Cambodia and Myanmar cannot make
an effective docking due to their lower economic development and lack of financial market.
With the China 2025, ASEAN should prepare themselves be ready for the effects of trade
relation between US and China. ASEAN must maximize its efforts to develop and maintain
common positions in dealing with China’s case. Secondly, ASEAN needs to look boldly both
east and west- Pacific and the Indian Ocean. Half of the member states of ASEAN face the
Indian Ocean. ASEAN connect with sea transportation corridor between Northeast Asia,
South Asia, the Middle East, Africa and Europe. Both China and US interest in this area. A
well strategic concept is needed.
ASEAN ca no longer afford to rely on its regional power. It must beyond Southeast Asia,

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References
https://asiasociety.org/sites/default/files/2019-
01/The%20United%20States%2C%20China%20and%20South%20East%20Asia.pdf
https://www.scb.co.th/content/dam/scb/corporate-banking/chinese-investment-
knowledge/the-belt-and-road-initiative.pdf
https://theaseanpost.com/article/chinas-belt-and-road-gets-makeover
https://www.theguardian.com/world/2017/may/12/the-900bn-question-what-is-the-belt-and-
road-initiative
https://www.iotworldtoday.com/2019/05/01/made-in-china-2025-plan-still-controversial-in-
the-west/