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EU business group demands Chinese state-owned enterprise reforms

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EU business group demands Chinese state-owned enterprise reforms

The European Union Chamber of Commerce in China sought reforms for state-owned enterprises in the country, stressing the need for a level playing field amid concerns that state-owned enterprises enjoy exclusive access or they effectively block foreign companies from competing with them.

According to a position paper published Sept. 24, which covers more than 800 recommendations for the Chinese government, the resurgence of state-owned enterprises, or SOEs, has dried up financing for the private sector as the share of loans to nonfinancial private firms plunged to 11% in 2016 from 57% in 2013.

In contrast, financial flows to SOEs rose to 80% from 35% over the period.

SOEs have also been imposing long payment periods on the private sector, which essentially work as loans from suppliers, eventually resulting in supply chain disruptions as EU firms' upstream suppliers and downstream purchasers struggle with securing enough operational funding.

Seventy percent of the business group's survey respondents reported that SOEs were present in their sector, with 18% saying that SOEs controlled at least half of the domestic market. Meanwhile, 20% said the private sector would gain opportunities at the expense of state-owned firms, versus 40% who said the opposite.

"The benefits that many SOEs currently enjoy from their vertical monopoly position comes at the expense of sound market competition," said Jörg Wuttke, president of the EU Chamber of Commerce in China, which has more than 1,600 member companies.

Wuttke also raised concerns about conflict of interest, claiming that SOE executives and regulators frequently switch hats over time.

The body called on Beijing to pursue "competitive neutrality" in a bid to end China's "economic caste system," which it said favors state-owned firms over both local and foreign private companies and local businesses over foreign.