1. 1 Jacques de Boisséson Vice President European Union Chamber of Commerce in China October 8, 2009

2. 2 The Voice of European Business in China 9 th annual Position Paper Over 500 recommendations from the 1,400 member companies of the European Chamber Proposals developed over the last 6 months by the European Chamber’s 34 industry-specific Working Groups and Forums

3. 3 1. Changes in the Last Year China rising in importance for European business, but market access barriers are rising too in some sectors Financial crisis has increased the threat of protectionism – Chinese government intervention and restrictions are growing In many sectors a slowdown – and in some cases partial reversal – of the reforms of recent years European business calls for further measures to create a more transparent, freer and fairer market environment

4. 4 The Position Paper 2009/2010 highlights progress: Laws: Food Safety, Postal, Insurance and the Circular Economy Promotion Law Financial sector: foreign banks were granted the right to trade RMB corporate bonds. IT sector: more competitive environment through the 3G licensing process. Tourism: lowered barriers for in-bound tourism. 1. Changes in the Last Year - Key issues

5. 5 The Position Paper 2009/2010 highlights also ongoing problems in the areas of: Market access Transparency in the legislation and implementation Intellectual Property Rights (IPR) 1. Changes in the Last Year - Key issues

6. 6 2. Market Access Market Access

7. 7 European Chamber Business Confidence Survey 2009 highlighted rising importance of China’s market The barriers to trade & investment in China were estimated to cost EU businesses EUR 21bn in lost trade opportunities every year (2006 study) China ranked 83 rd in the world in a World Bank study on “ease of doing business” 2. Market Access

8. 8 Example: JV requirement in the auto sector Chinese companies are acquiring EU car makers abroad - in contrast, European companies must still enter 50/50 JVs in order to manufacture locally, and have a cap of 2 plants Example: JV requirement in the auto sector Chinese companies are acquiring EU car makers abroad - in contrast, European companies must still enter 50/50 JVs in order to manufacture locally, and have a cap of 2 plants Joint venture (JV) requirements hindering market development 2. Market Access

9. 9 Public procurement process – a troubling absence of equal treatment for domestic and foreign companies – even locally incorporated foreign companies Bids by 4 foreign-invested wind energy companies in Shanghai, Shandong and Tianjin for a 5-bn-euro project for 25 sets of wind turbine generators were rejected in the first round 2. Market Access

10. 10 Technical regulations & certification procedures blatantly discriminate against foreign-invested businesses OSCCA (Office of Security Commercial Code Administration) certification for a locally incorporated foreign company in the commercial encryption technology industry The company was for many years the market leader in providing encryption solutions for Chinese banking, telecom and public transportation companies (mostly SOEs) This situation worked well, until new regulations suddenly required its clients to use products from OSCCA-certified companies Not one foreign company or foreign-invested Chinese company has to date received OSCCA certification OSCCA (Office of Security Commercial Code Administration) certification for a locally incorporated foreign company in the commercial encryption technology industry The company was for many years the market leader in providing encryption solutions for Chinese banking, telecom and public transportation companies (mostly SOEs) This situation worked well, until new regulations suddenly required its clients to use products from OSCCA-certified companies Not one foreign company or foreign-invested Chinese company has to date received OSCCA certification 2. Market Access

11. 11 2. Market Access Service sector Outright exclusion of foreign companies is hindering both the development of domestic consumption and the improvement of service levels offered to Chinese consumers Provision of foreign CRS (Computer Reservation Systems) to Chinese travel agencies and airlines Almost 7 years after China’s entry into WTO, no progress in opening the CRS market to fair competition Approval processes required by the GATS commitments simply do not exist Without even the option of an approval process, European CRS providers have no way to access the growing Chinese market Provision of foreign CRS (Computer Reservation Systems) to Chinese travel agencies and airlines Almost 7 years after China’s entry into WTO, no progress in opening the CRS market to fair competition Approval processes required by the GATS commitments simply do not exist Without even the option of an approval process, European CRS providers have no way to access the growing Chinese market

12. 12 Transparency in Legislation and Implementation

13. 13 3. Transparency in Legislation and Implementation Lack of transparency in the rule-making process, along with discretionary enforcement of laws and regulations Some improvement in terms of public consultation – e.g. two rounds of comments on the Anti-Monopoly law But problems in legislation and implementation processes remain – ranked #1 in the European Chamber Business Confidence Survey 2009 list of obstacles to doing business in China

14. 14 3. Transparency in Legislation and Implementation Time granted for public consultation is inconsistent and short of international best practices In 2008, average 24 Days - an improvement (21 days in 2007) Still short of international best practices - WTO and European Commission recommend about 60 days Lack of consistency - Some calls open for 60 days and some for 2 days In 2008, average 24 Days - an improvement (21 days in 2007) Still short of international best practices - WTO and European Commission recommend about 60 days Lack of consistency - Some calls open for 60 days and some for 2 days

15. 15 3. Transparency in Legislation and Implementation Limited consultation on draft regulations, and often only with selected groups Public consultation is important because it allows the business community to understand government decisions and to contribute to finding solutions to technical problems The Green Dam Mandate Promulgated in May without meaningful consultation with industry When given access to the software, industry quickly found issues and problems The Green Dam Mandate Promulgated in May without meaningful consultation with industry When given access to the software, industry quickly found issues and problems

16. 16 3. Transparency in Legislation and Implementation Not enough explanation and analysis of important decisions and key cases Coca-Cola vs Huiyuan Merger case No substantive analysis or evidence supporting the rejection of this merger Not enough guidance on this complex law, which doesn’t help to dispel suspicions of protectionism Coca-Cola vs Huiyuan Merger case No substantive analysis or evidence supporting the rejection of this merger Not enough guidance on this complex law, which doesn’t help to dispel suspicions of protectionism

17. 17 3. Transparency in Legislation and Implementation Unfair enforcement of laws and regulations European Chamber Business Confidence Survey 2009: 66% of respondents report that enforcement of the environmental regulations on Chinese firms is weak, while just 18% reported that China’s enforcement on foreign firms is weak. This is in essence a hidden subsidy for heavy polluting local companies whose flouting of laws goes unpunished. European Chamber Business Confidence Survey 2009: 66% of respondents report that enforcement of the environmental regulations on Chinese firms is weak, while just 18% reported that China’s enforcement on foreign firms is weak. This is in essence a hidden subsidy for heavy polluting local companies whose flouting of laws goes unpunished.

18. 18 Intellectual Property Rights (IPR)

19. 19 4. IPR The National Intellectual Property (IP) Strategy has set the path for the development of Chinese IP rights. However, more needs to be done to improve the protection of IP rights so as to promote innovation European Chamber Business Confidence Survey 2009: Vast majority of companies consider the enforcement of these laws and regulations as inadequate (56%) or very inadequate (30%). In the long run, the lack of protection is discouraging and will continue to discourage European businesses from investing here.

20. 20 Leakage of confidential information during business development Project approvals, product certifications, patent filings, etc. 4. IPR CCC (China Compulsory Certification) process, a precondition to market access for 130 product categories Highly confidential information requested by testing laboratories that goes far beyond the scope necessary for certification Unfortunately, leakage to Chinese competitors not uncommon CCC (China Compulsory Certification) process, a precondition to market access for 130 product categories Highly confidential information requested by testing laboratories that goes far beyond the scope necessary for certification Unfortunately, leakage to Chinese competitors not uncommon

21. 21 4. IPR Draft rules of Patent Law will make European businesses less likely to do R&D in China The rules stipulate that companies must submit innovations for “confidentiality assessments” in China before filing for patents abroad Concerns about information leakage and ownership rights to these innovations

22. 22 Impact of EU Business in China

23. 23 5. Impact of EU Business in China China is important for the EU but also the EU is very important for China EU’s exports to China = 0.7% of EU GDP China’s export to the EU = 7% of China’s GDP About 40% of technology transfers introduced to China through imports and investments originated in the EU 20% of all Chinese exports in 2008 went to the EU (USA 17%, JP 9%) A 1% decline in EU GDP growth would lead to a 11.5% decline in Chinese exports (just 9.8% for US) EU’s exports to China = 0.7% of EU GDP China’s export to the EU = 7% of China’s GDP About 40% of technology transfers introduced to China through imports and investments originated in the EU 20% of all Chinese exports in 2008 went to the EU (USA 17%, JP 9%) A 1% decline in EU GDP growth would lead to a 11.5% decline in Chinese exports (just 9.8% for US) EU Businesses are aligned with China on the importance of keeping EU markets open

24. 24 The Way Forward

25. 25 6. The Way Forward A new round of opening up and reform with a clear timetable is needed to lead China to a sustainable economic recovery Economic crisis: a prime opportunity to restructure – China has always benefited in times past from opening up its market Further opening up & fundamental reforms – now needed Build a predictable, transparent, fair business environment for all companies operating in China Boost investment and domestic consumption and enable the Chinese economy to achieve its latent potential Economic crisis: a prime opportunity to restructure – China has always benefited in times past from opening up its market Further opening up & fundamental reforms – now needed Build a predictable, transparent, fair business environment for all companies operating in China Boost investment and domestic consumption and enable the Chinese economy to achieve its latent potential

26. 26 Q & A 问 答