Aim of investors in China should be to sell to Chinese market, says head of EU Chamber of Commerce

31 July 2006

Beijing, China, 31 July – The secretary-general of the European Union Chamber of Commerce in China, Giorgio Magistrelli, has said that the economic model of producing goods cheaply in China to export to other markets was now outdated.

In an interview with Macauhub he added that industrial investment in the future should focus on production for the Chinese market.

“I don’t see a future, or a present, for companies that come to China just to produce here and export later,” said Magistrelli, who pointed to a fall in production margins in the country as the main cause for an end to relocation of manufacturing to China.

The secretary-general of the European Union Chamber of Commerce in china (EUCCC), also said that Eastern Europe was increasingly competing with China in attracting European companies that wanted to save on production costs and later export products to European markets, but said that this change also reflected China’s increased capacity to attract long term sustainable investment.

“The development that I have seen especially over the last two years is that companies come to China not only to produce for the export market, but especially to produce for the domestic market,” Magistrelli told Macauhub.

The domestic Chinese market, according to figures from the chamber, has enormous potential for European goods. The number of consumers of products from the European Union currently stands at 75 million, but this number could increase to 200 million by 2015, according to the same source.

Despite this potential, European companies complain of difficulties in penetrating the Chinese market due to protectionist measures implemented by Beijing, such as the need to carry out technology transfers in order to take part in public tenders or the lack of transparency of the legal system which, amongst other things, requires drawn out processes in order to receive business licenses.

In the first half of 2006, China attracted US$28.428 billion in investment, a decrease of 0.47 percent against the same period of 2005, according to the Chinese government’s Statistics Department.

Magistrelli also warned that China needed to boost its measures to protect intellectual property rights in order to attract investments with greater value, such as the Research and Development units of multinational companies.

He also said that ensuring intellectual property rights were protected “is one of the challenges for China in the medium term,” particularly because the companies that lose most from the violation of those rights were Chinese companies, “who act as plaintiff in 90 percent of court cases for violation of intellectual property rights in China.”

“We are now seeing many multinationals coming to China to set up Innovation and Development centers, and it could be even more attractive to move even more centers from more companies if Intellectual Property right protection worked. Because companies would not lose the patents for products in which they have invested so much money,” he said.

“The greatest challenge in terms of intellectual property rights is not the creation or approval of legislation, but rather the execution and application of the law. Beijing and Shanghai are places where implementation is correct, but the big problems happen on a local level. So, when a company decides to come to China, it is very important for it to carefully analyze the place where it expects to locate production,” Magistrelli said.

Figures from the United States Department of Trade showed that international brands lost around US$60 billion per year in trhe Chinese market, due to sales of falsified products. The European car manufacturing industry has given signs that application of intellectual property laws is the biggest trade obstacle in China, and costs the sector some 10 percent of annual turnover.

“We are working together with the Chinese authorities to develop knowledge of protection of intellectual property rights through cooperation projects in the areas of information, raising-awareness and public education,” said Magistrelli.

The EU Chamber of Commerce in China is the largest influence group of European companies in China and has regular contacts with the central government, local governments and representatives of European companies in China.

‘We do not limit ourselves to asking for things for our members, we exchange the knowledge and skills of our members with the authorities, and so we are always called on to comment on the creation of legislation because the experience we have in Europe allows us to foresee the consequences of a particular law that is about to be approved,” Magistrelli explained.

The organization, which is privately funded, began its activities in 2000 with 50 members, two offices and 13 employees. It now has 920 members, 35 employees and seven offices in the cities of Beijing, Shanghai, Tianjing (Northern China), Guangzhou (capital of Guangdong province), Shenyang (capital of Liaoning province), Nanjing (capital of Jiangsu province) and Chengdu (capital of Sichuan province). (macauhub)