European Union (EU) Chamber of Commerce member companies are generally profitable in China and optimistic about their future here, according to a position paper released yesterday.

But the European Chambers' European Business in China Position Paper 2006/07 said European companies still face numerous obstacles in the country such as a lack of transparency in government regulation, and intellectual protection rights (IPR) protection.

The five-year accession period for China's entry into the World Trade Organization (WTO) will come to an end on December 11, 2006. "It is commonly agreed that China has implemented the majority of commitments on, or even ahead of, schedule and there is little doubt that WTO accession has brought many benefits to both China and the EU," said Serge Janssens de Varebeke, president of the European Chamber.

China's economic status and power continues to grow. In 2005, China surpassed the United Kingdom to become the world's fourth-largest economy and the world's third-largest exporter.

China's trade relations with the EU have also greatly expanded. The EU remains China's largest trading partner and China the EU's second largest.

EU imports from China reached US$158 billion in 2005, an increase of 24 per cent. At the same time, EU exports to China grew by 7 per cent year-on-year. The annual inflow of EU foreign direct investment into China for 2004 was US$3 billion, approximately the same as 2003 and 2002. In 2004, 56 per cent of China's global exports came from foreign-invested firms.

The European Chamber's paper is based on a survey of its 1,000 members. It indicated the vast majority of respondents, 92 per cent, are optimistic about the overall business outlook in China. The majority also believed China's economic reforms have contributed to an improvement of the business environment.

In terms of profitability, 83 per cent of respondents expected to be profitable in 2006. But of those who did not expect to be profitable in 2006, 71 per cent expected their operations to become profitable within three years. Although 23 per cent of respondents generated a net loss in 2005, only 7 per cent expected to generate a loss in 2006. Despite this, the European companies still face obstacles. "The same as last year, the most common obstacles are government regulation transparency and IPR protection issues," said Janssens de Varebeke.

And some of the companies felt more could be done by China to implement WTO rules and regulations. Although 71 per cent of the respondents believed China is willing to adhere to the principles and spirit of the WTO, 21 per cent said China is only willing to implement specific commitments such as those explicitly set forth in the accession document.

European Chamber members identified a lack of transparency as the largest obstacle to do business in China. They said it is not uncommon for drafts of new laws and regulations to be circulated only to Chinese partners of joint ventures or select companies that are given very short timeframes to reply. In addition, the time span between publishing new legislation and implementation is often too short to allow for timely compliance.

"I don't think China has gone far enough," said Joerg Wuttke, chief representative of BASF China. "As part of its commitment to the WTO, China is expected to open renminbi business to foreign banks by December 11, but now it has not taken measures in this respect with only a few months left, we are waiting for that."

Concerns also remained over an increase in China-specific additions to internationally accepted standards. The development of country-specific standards present obstacles to international trade and may be perceived as contrary to the WTO principles of freer and fairer trade, said the paper.

"China should create a level playing field, and non-tariffs should disappear," said Janssens de Varebeke.

Over the past year, progress has been made in various aspects of IPR protection. This includes the State Trademark Office's decision to provide free public access to its database, a key recommendation in the 2005 Position Paper.