Market access barriers in the burgeoning market of Southwest China
The eastern and southern regions of China have long been the traditional powerhouses for foreign investors, leading to a large disparity with more inland regions in terms of market development. China has sought to rectify this imbalance through initiatives such as the Western Region Land-Sea Corridor, Belt and Road projects and the Western Region Development Strategy. From January to August 2022, the western region reported a 43 per cent surge in foreign investment. Despite this, such levels need to be placed in context: the low base of foreign investment in the region the previous year is a factor in this disproportionately high level of growth.
The implementation of the Chengdu-Chongqing Economic Circle, identifying Chengdu, 27 districts and counties in Chongqing, and 14 other Sichuan cities as China’s fourth economic city cluster, indicates further strengthening of the region’s economic influence is envisioned. Despite this, certain market access barriers still exist in the region. Shane Farrelly, chair of the European Chamber Southwest China Chapter’s Investment Working Group, discusses what can be done tackle them to alleviate the concerns of European investors.
The creation of the Chengdu-Chongqing Economic Circle (Economic Circle), announced by the National Development and Reform Commission in June 2021, is supposed to create more business opportunities. The plan is to achieve this through improved regional coordination by aligning policies and regulations, and expanding key infrastructure (especially transport, telecommunications and utilities), among other goals.
However, for the plan to be effective, the two cities need greater levels of cooperation in all areas to ensure that any Economic Circle policies developed are sound and implementable. This will entail soliciting input from businesses operating in the region, both Chinese and foreign.
However, despite one of the overarching goals of the Economic Circle is to become a centre of reform and opening-up, none of the high-level policy documents published mention the role that foreign investment can play in the development of the region.
Therefore, the European Chamber recommended in its Southwest China Position Paper 2021/2022 that an Economic Circle Task Force involving policymakers and businesses—both Chinese and foreign—from Chongqing and Chengdu be established, in addition to establishing an official channel for sharing information on the Economic Circle, including on tenders for new projects.
Implementing these policies would go a long way towards helping to build business confidence as well as allowing foreign capital to contribute to the development and construction of the advanced infrastructure needed to successfully complete the Economic Circle.
In the European Chamber’s Business Confidence Survey 2021, a mere 28 per cent of respondents based in Chengdu reported that the information available on local government websites was easy to find and met their companies’ needs in terms of updating and maintaining up-to-date information, with respondents in Chongqing indicating that difficulties communicating with the local government had become the highest concern for local member companies.
For example, in Chongqing, while certain information regarding local government policies is easily accessible online, there are often mismatches between the details provided on municipal government websites and that provided on district-level government websites. There are also discrepancies between the policy information made available in Chinese and English, with the English version often providing more of an overview of the policy than a comprehensive translation. This means foreign companies have to cross-check the details available to obtain a clear picture, which creates additional administrative burdens and costs, as well as difficulties in formulating strategies with their headquarters.
Local government sites can be critical in ensuring European companies feel welcome and valued when doing business in China. The absence of effective communication channels between government and industry is likely to lead to damaged business sentiment, as European companies are being deprived of opportunities to provide feedback to the authorities on the local business environment, which can help it develop and internationalize as well as attract further investment.
Implementing increased channels of communication would also assist the region in meeting goals outlined under the Economic Circle initiative, namely to become a new spearhead for reform and opening up. In addition, it would be beneficial for all concerned if government departments designated a single, clear contact point for foreign businesses to liaise with. This would allow concerns on both sides to be communicated and addressed more efficiently, and provide more certainty for foreign investors.
In this regard, thanks to the continuous efforts of the European Chamber Southwest China Chapter, there has already been some progress on the key recommendations of the Southwest China Position Paper 2021/2022, as the Chongqing Commerce Commission recently established a website to provide services to foreign companies and strengthen relations with business chambers. Companies can now submit information online if they encounter issues or barriers that affect their operations.
Having a platform for submitting comments and reviewing feedback from stakeholder groups increases transparency in policymaking. It also helps in the formulation of concrete policies that leverage industrial expertise and technology to meet common challenges.
Difficulties in communication with government authorities, and the perceived lack of involvement in initiatives to develop China’s southwest region, are identified by local member companies as market access factors in both Chongqing and Chengdu. Such concerns underpins the content of the key recommendations presented in the Southwest China Position Paper 2021/2022. This report presents a comprehensive overview of the market, which (like most other regions in China) has gone through a multitude of changes in terms of access. These issues may have been elevated in prominence by the establishment of the Chengdu-Chongqing Economic Circle, which has alerted both domestic and foreign companies to the market potential, as well as some of the current disadvantages, of doing business in the region.
Should the local authorities continue to involve and take into consideration input from foreign enterprises operating in the region, Southwest China’s ability to achieve its development goals and reach new untold heights would increase. However, significant work remains to be done to realise such cooperation.
Shane Farrelly is chair of the Southwest China Chapter’s Investment Working Group, and one of the main participants in the drafting of the Southwest China Position Paper 2021/2022.
He is also legal advisor with D’Andrea & Partners Legal Counsel (DP Group), which was founded in 2013 by Carlo Diego D’Andrea and Matteo Hanbin Zhi, both of whom have extensive backgrounds in Chinese and EU law. DP Group services encompass a full range of foreign/overseas direct investment-related matters, with a special focus on business relationships between Europe and Asia, inclusive of topics such as cross-border mergers and acquisitions; scouting, relocation and negotiation with local government authorities; dispute resolution and corporate governance; intellectual property protection, litigation and arbitration; and employment and labour law, among others.
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