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A rising tide of economic nationalism in China is deterring investment by European companies and hampering access to the domestic market, the European Union Chamber of Commerce in China said on Tuesday.
EU businesses remain optimistic because of China's strong economic growth but face increasingly sophisticated protectionism based on lobbying by domestic special interest groups and a tendency to favour local companies, according to the chamber's annual position paper.
"Economic nationalism is rising. That's quite a concern to us," Joerg Wuttke, the chamber's president, told a news conference. "Nationalism basically shows up as protectionism." He said Coca-Cola Co's planned $2.5 billion purchase of China's Huiyuan Juice Group would be a litmus test of Beijing's attitude toward foreign business.
"We are really watching the ongoing Coca Cola/Huiyuan case very closely in order to see if that is dealt with by the law or if it is dealt with in respect to media and public concerns," Wuttke said. The official China Securities Journal said on Tuesday that competing domestic juice makers might lobby the government to block the purchase, but it quoted legal experts as saying the deal had a good chance of being approved under China's new anti-monopoly law.
Wuttke noted that no European company had made a major acquisition in China and said protectionist barriers closed off foreign direct investment in a number of keys sectors. This was one reason why the 27-member EU now accounted for less than 5 percent of China's FDI. "We would like to do more, but the investment climate in some areas is not giving us the chance to bid for big companies," he said. "FDI cannot come in order to buy a steel company or a car company."
He said foreigners were largely excluded from China's standards-setting process, while European energy companies had lost infrastructure contracts to local rivals even though they offered lower prices and better technology.
"Economic nationalism is primarily driven by economic interest groups that want to either maintain monopolies or gain monopolies that try to exclude foreigners as a competitive force," Wuttke said. He also criticised a boycott earlier this year of the local stores of French retailer Carrefour in retaliation for anti-Chinese protests in Paris during the relay of the Olympic torch. "This kind of sentiment sometimes you can understand, but it's hard to believe that it leads to the boycott of a whole supply chain," Wuttke said.
"French business is back on track, but they certainly have suffered. The European Chamber feels very strongly that any kind of boycott of that nature, either against European or Chinese companies, is ill-advised and counterproductive," he said.

Copyright Reuters, 2008

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