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Investment In China

EU hits out at China’s economic nationalism

By Geoff Dyer in Beijing

Published: September 25 2008 19:49 | Last updated: September 25 2008 19:49

Economic nationalism is on the rise in China, the European Union trade commissioner said on Thursday, as he strongly criticised the restrictions faced by foreign companies investing in the country.

Peter Mandelson said inv­es­tment by European companies in China was falling despite the country’s growth. He said the EU might take up some of the obstacles to investment at the World Trade Organisation.

“On the street and in the boardroom, there is a growing sense in China that we are now strong enough to do it all alone which I think is wrong,” Mr Mandelson said in an interview on Thursday, although he added that this sentiment was not shared by senior leaders in Beijing. “China needs European investment and the technologies, management skills and capital that it brings,” he said.

The obstacles facing European companies were not just theft of intellectual property but also an “unpredictable” policy for mergers and acquisitions and barriers to market entry, including capital requirements, licensing and forced joint ventures.

He said he raised with Chinese officials on Thursday the fact that foreign car companies could enter China only through a 50-50 joint venture with a local company.

Chinese officials regularly complain that the country faces similar obstacles to investing in the EU.

Mr Mandelson’s comments are the latest in a series of recent warnings by international business and government leaders that China is becoming less attractive as a place to invest because of the restrictions companies face.

Mr Mandelson will raise the same issues this evening in a speech he will give in the Chinese city of Tianjin that contains unusually blunt criticism of China’s approach to foreign investors.

“China appears to have put out the mat for foreign investment, but the door is still half closed,” he will say. “In some cases it appears to be swinging shut.”

European companies often complain of encountering in China “an unspoken economic nationalism that implies that foreign investment is no longer wanted or needed. I suggest that such a mind set is a strategic economic mistake for China.”

According to the EU, European investment into China dropped from €6bn ($8.7bn, £4.7bn) in 2006 to €1.8bn ($2.6bn, £1.4bn) last year, and China accounted for only 2 per cent of all European foreign direct investment. Mr Mandelson said that since 2003, European companies had invested more in both Russia and India than they had in China.