European firms in China expect tougher policies

European companies in China expect to face even tougher regulatory policies in the next two years, a survey released yesterday showed, as fears mount that Beijing is trying to shut out overseas firms.

While most of the more than 500 European companies surveyed said they were optimistic about the growth outlook for China, they were worried the country's communist leaders would become more discriminatory against foreign firms. Companies polled by the European Chamber of Commerce in China warned their commitment to the world's third-largest economy was not "unconditional", suggesting they would consider leaving if conditions deteriorated.

"If things turn sour, China is not necessarily a must for them," Jacques de Boisseson, President of the European business group in Beijing, told a news conference. "Nobody should take for granted that European firms will continue investing whatever the business environment."

The survey – conducted in March and April – showed about 40 per cent of respondents expected regulatory conditions in China to worsen in the next two years, while only 10 per cent anticipated any improvement.

Their main concerns were "discretionary enforcement of laws and regulations, while registration processes, intellectual property rights issues and inconsistencies in the local implementation of national standards continue to frustrate," the survey said.

Nearly 80 per cent of European businesses surveyed said they were optimistic about China's growth prospects, up from 65 per cent last year, but only 34 per cent were upbeat about the outlook for profits.

Less than 60 per cent of companies polled said they were currently profitable, compared with more than 70 per cent in 2008.

More than two-thirds of companies said they planned to boost profitability by expanding their market share in China rather than cutting staff numbers or closing facilities. The survey echoed concerns expressed by US companies earlier this year that China was skewing its business playing field away from foreign firms, and comes after high-profile disputes involving Anglo-Australian miner Rio Tinto and search giant Google.

The US Chamber of Commerce in China released a member survey in March showing a growing number of American businesses felt unwelcome because of what they saw as unfair policies.

Faced with growing complaints from foreign executives about discriminatory regulations, Premier Wen Jiabao in March pledged China remained open to overseas investment. But while top leaders appear to have heard their concerns, Boisseson said European businesses remained "really concerned… really worried about the way they are treated".

"We look forward to the premier's words translating into deeds," Boisseson told reporters.