Doing Business in China: An EU Firm Perspective

Doing Business in China: An EU Firm Perspective

Anna Maria Tavanli (Deree – The American College of Greece, Greece)
DOI: 10.4018/978-1-5225-8980-8.ch004

Abstract

This chapter examines how the intersection of economy, politics, law, and culture in contemporary China influences the choices and alternatives of EU businesses seeking to invest in China. Although China recorded a tremendous growth of its trade volume with other countries, the institutional and regulatory frameworks of the Chinese economy have proven to be at least challenging to EU businesses. In fact, several disputes have arisen and many of them have been dealt with in the WTO Dispute Settlement Body. The chapter elaborates on one of them to explain in which ways China may not be the easiest place to conduct business.
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Introduction

China has experienced a record high FDI inflow over the past two decades. It has become the largest recipient of FDI among the developing countries as well as a major destination point for multinational companies (Awokuse & Yin, 2010). To a large extent this positive tendency has been the outcome of China’s progressive integration in the global trading and investment system (Alexandru & Gabriela, 2008). Over the past decades China has established collaboration various countries in the world. The European Union and the United States remain the key business partners (Hsieh, 2009). China has managed to become one of the European Union’s main trading partners since the Chinese economy nowadays is one of the fastest growing economies. For instance, the EU represents more than 19 percent of China’s external trade and European companies more specifically, have helped China develop its productive capacity because of the transfer of capital goods, knowledge and technology (Appendix). It is important to note that technology transfer from China to other countries has grown massively over the years (Nayaar, 2016). Due to the country’s size and development requirements, the China is one of the biggest importers of technology worldwide. Technology plays a vital role for manufacturing companies when it comes to creating a competitive advantage since technology is part of their organizational knowledge that gives to the company distinctive capabilities in order to compete (Bruun & Bennett, 2002).

Despite the many opportunities for businesses, it is inevitable not to have any challenges. Several authors stress that EU exports in China still face restrictions and tariff barriers such as labelling standards and product certification although the Chinese tariffs have gone down because of China’s 2008 accession in the World Trade Organization (Pranee & Hsieh, 2009). Because the Chinese national standards differ from the international ones, this results in high compliance costs affecting directly European firms. Thus, EU companies often face challenges when operating in the Chinese market. Nonetheless, the institutional, political and legal framework of China’s has given little incentive for foreign firms to innovate in the specific market let alone establish their companies abroad. Foreign investment regulations have a different regulatory framework than domestic Chinese investments (Liu, 2018). All of the aforementioned, consequently led to trading disputes between China and the European Union which has been in the scenery for several years (Voituriez & Wang, 2015). Both countries have tried over the years to set up constructive and preventive mechanisms in order to stabilize trade and, consequently, strengthen their economic ties. Although the EU’s prime objective with China’s integration in the WTO was for China to conform to the legal and regulatory framework of the WTO and thus, promote China’s growth as ‘liberal trade power’, China did not comply to such set of rules (Michalski & Pan, 2017). In fact, China acted as a passive actor and lead the EU to admit that China is not always an easy partner (European Commission, 2001, p.7).

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