Transcript Slide 1

Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Philip Bartley
Project Coordinator
Team Leader, EU-China Trade Project
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Why is this study important?
Increasing Opportunities…
…but also an increased challenge from
emerging Chinese competitors
only one approach acceptable to EU and China
WIN-WIN
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
I. STUDY OVERVIEW
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Stakeholder Participation
25 Senior Industry, Trade, Legal and other Experts
More than 200 industry-specific questionnaires
received…
…including almost 100 face-face interviews in
Beijing, Shanghai and in Europe
Conference in Brussels (07.07.2006) close to
400 participants
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Sectors Studied
MANUFACTURING






Machinery
Chemicals
Automotive
Pharmaceuticals
ICT equipment
Agriculture
SERVICES




Financial services
Distribution/ Retail
Construction
Telecommunication Services
An Emerging Sector
 Environmentally Sustainable Technologies and Services
A Horizontal Study
• Exploring China’s IP Environment
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
II. OPPORTUNITIES
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Where do Opportunities Exist for EU
Companies?
MANUFACTURING
Commoditised
Higher-End Market
Markets
Segments :
 12% p.a. avg growth
Specialised High
 €1,000 billion by 2010
Value-Added Markets
Open
Markets
Services
(excl. Banking) :
SERVICES
 14% p.a. avg growth
 €500 billion
by 2010
Closed
Markets
Environmentally Sustainable Technologies and Services:
A new cross-cutting opportunity for EU business
11th Five Year Programme:
 €98 billion by 2010.
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
European Business on Opportunities…
“Increased synergies between
EU and emerging Chinese firms
can lead to a strong relationship
and increasing European and
Chinese impact on the world
economy.”
-Automotive Sector
“We see tremendous opportunities,
in particular improvements in
healthcare, energy saving and
lifestyle perspectives.”
-Distribution Sector
“Producers have so far
focused on coastal areas they
are now definitely looking at
more rural areas to expand.”
- Pharmaceutical Sector
“Environmental sustainability
and energy efficiency is
something we could become
market leaders in – globally as
well as in China.”
-Construction Sector
“We are going to open a new office in China in order to catch the opportunity
of low cost labour and to increase opportunities of business.”
-Sustainable Tech & Services Sector
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
III. THE CHINA CHALLENGE
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
China’s Ascent Epitomises the Challenge
of Globalisation for EU Business
 Comparative advantage in cheap labour ensures
global dominance in price sensitive commodities
 Export driven strategies, supported by state
also impinging on international markets
Chinese companies are rapidly moving up the
value chain in sectors such as:
Automotives
Some
Chemicals
Electric &
Industrial Machinery
ICT Equipment
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
In responding, EU Business Can Draw on
Key Competitive Strengths
Innovation
and R&D
Design
Marketing
However, Market
Access
and Branding
Obstacles Prevent
European
Servicing (after-sales,
Companies from Competing on a
customised solutions)
Level Playing Field and Taking
Advantage ofManagement
their Competitive
Operating
Strengths
Systems
Superior Quality of
Goods and Services
Financial strength
(mainly multinationals)
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
European Business on Market Access Obstacles…
“The continued policy of
building national
champions worries us.”
- Machinery Sector
“It appears that the
trade barriers are getting
more subtle/refined.”
- Chemicals Sector
“We can only do what the
government allows us to do, and
given the current restrictive policy
environment our margin of
freedom is virtually nil.”
- Telecom Sector
“Our Chinese competitors
dont stick to the rules [in
labour & environmental
regulations]. This means we
can never offer the same low
costs as our competitors.”
-Automotive Sector
“The biggest obstacle to our
further expansion is the
foreign ownership ceiling of
Chinese banks. If this ceiling
was lifted we would like to
own a controlling stake.”
- Financial Sector
“More non-tariff barriers and policies to
favour local manufacturers will emerge. The
EU-China trade dialogue has to deepen and
the EU must become tougher”
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
European Companies Face Substantial
Market Access Barriers Including:
 Lax enforcement of Intellectual Property Rights







Subsidies
Lack of transparency and unfair treatment
Lack of uniformity of regulations
Government procurement practices
Equity restrictions on foreign investment
Standards and compliance regime (TBTs)
Environmental and labour standards not applied
Costs of Non–Tariff Barriers to European Operators:
Over € 21.4 billion.
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Quantification of Market Access Obstacles
Statistical Data, Sector Findings, Survey
Partial Equilibrium Model
Outputs
Figure 1: Simplified Overview of Partial Equilibrium Model
Step 1: Model Inputs
Step 2: PE Model
1. Qualitative Information
Sector Studies
2. Trade Data
3. Tariff & NTB Data
4. China Production
Output Data
Step 3: Scenario Outputs
1. Changes in Market Access
Costs of Non-Tariff Barriers
Composition of the Model
(Tariffs, ntbs, investment)
2. Impact on Consumption,
Model Calibration
€12.4 Billion
in traded goods
Domestic, Output and Imports
Model Testingin services and Diversion
€8.9 Billion
3. Impact on Trade Creation and
is Established
Total: € 21.4 billion
Assembly
of Data
Model
Experiments
Source: Technical Appendix
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Quantification of Market Access Obstacles
Statistical Data, Sector Findings, Survey
Partial Equilibrium Model
Outputs
Figure 1: Simplified Overview of Partial Equilibrium Model
Step 1: Model Inputs
Step 2: PE Model
Step 3: Scenario Outputs
1. Changes in Market Access
KEY FINDING: MARKET
(Tariffs, ntbs, investment)
2. Trade Data
2. Impact on Consumption,
Model Calibration
Domestic, Output and Imports
3. Tariff & NTB Data ACCESS OBSTACLES ALSO
on Trade Creation and
4. China Production
Model Testing
HURT
CHINA 3. Impact
Output Data
and Diversion is Established
1. Qualitative Information
Sector Studies
Assembly
of Data
Composition of the Model
Model
Experiments
Source: Technical Appendix
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Market Access Obstacles Hurt China by:
 Causing Imbalances in the Economy (e.g.
distortion of pricing; irrational competition;
overproduction; etc.)
Domestic consumption depressed by lack of
availability reasonably priced high quality
foreign goods and services
 Lax IPR regime reduces incentives for local as
well as foreign companies to conduct R&D in
China
This will reduce China’s chances of fostering
globally competitive companies in higher value
added industries
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Moving Towards a WIN-WIN Approach
 Chinese economy needs sustainable growth
-Value added manufacturing
-Services
-SMEs/ Private sector
-Stronger regional growth
-Restructuring Financial sector
-Higher consumer spending
 Europe can be a strong facilitator
-Currently EU Exports more to Switzerland
than to China (86bn v 63bn in 2005)
 The opportunities for long-term, reciprocal
and mutually beneficial trade benefits are
massive
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Positive scenarios: Fair trade conditions
Machinery: high value, precision, sustainable.
10% Sales growth till 2010
Chemicals: Financial strength, Specialty chemicals,
R&D, customer relationships.10.2% Sales growth
till 2010
Automotive: Production will be double domestic
demand 16 million vehicles by 2011.New designs
and auto parts. Emission reductions.
Pharmaceuticals: Preventative medicines. Deeper
penetration in regional markets. Reduction in
generics …..TCMs in home markets
ICT: Focus on innovation and design. Applications
across other sectors e.g.. Chemicals, auto, agric.
Market of US$130 billion by 2010
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Positive scenarios: Fair trade conditions
Agriculture: Requires continued market opening.
Move towards high quality/ value-added. Services
investments; irrigation, supply chains, rural economy
Financial Services:
2010 Non life/ Life (0.4% to 5% and 0.8% to 8%)
20% annual growth in consumer loans
50% annual growth in credit card business
15% annual growth in business transactions Banks
0.5% to 3.5% by 2010
Construction: Worlds largest construction market
2010; Quality and Sustainability within considerations.
Telecoms: Market all but closed
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
IV. RECOMMENDATIONS
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Policy Recommendations
Press China to fully implement the spirit
of its WTO commitments and support
further liberalisation of its economy
 Establishing a comprehensive EU-China
dialogue on strategic economic issues at
senior government level:
 Expanding the Commission’s local
presence across China:
 Enhancing awareness of risks associated
with investing in China:
 Stepping up efforts to meet the goals of the
Lisbon agenda
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Sector Recommendations: Highlights

Machinery: Public procurement and elimination of
subsidies

Chemicals: Adoption of intermediate notification
requirements

Automotive: Compulsory Certification System duplicates
international certification practices. Reduce capital
finance requirements

Pharmaceuticals: Pricing policies requires clarification.
Also improved IP Protection.

ICT: Indigenous standards v international standards

Agriculture: Significant improvement of SPS controls
and transparency
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
Sector Recommendations: Highlights

Financial Services:
Banking: restructure capital requirements
Insurance: Provincial barriers reduced. Licences given.

Distribution and retail: Non-discriminatory agreement
on the establishment of new outlets.

Construction: Negotiate permission for ‘registered
foreign contractors’ (Decree 32 prior to WTO)

Telecommunications and Value-added services:
Clarification of the upcoming Telecommunications Law
and reduction of regulatory risk
Future Opportunities and Challenges in
EU-China Trade and Investment Relations
2006-2010
THANK YOU