With the US hurtling toward a new era of protectionism with China and the European Union (EU) especially in its crosshairs and both sides reciprocating with increasingly punitive tariffs, China’s Premier Li Keqiang has set the record straight: China is open for trade with foreign partners, and sees ample opportunity in an economically sound Europe.
In fact, both Brussels and Beijing have clarified that open trade remains their primary goal. Most recently, this sentiment was reiterated at the seventh 16+1 summit between China and Central and Eastern European (CEE) leaders. China’s Prime Minister Li Keqiang emphasized that Beijing’s economic relationship with Europe goes both ways, assuring the group that Beijing would continue opening its markets and instigating further reforms to ensure broader opportunities for CEE countries.
China has already taken concrete steps to show it is serious about welcoming foreign investors by relaxing certain barriers which had long-perturbed international financiers. In June, China’s National Development and Reform Commission (NDRC) released an updated version of a list of industries where foreign investment is limited or prohibited. The new list contains 48 industries compared with 63 last year, and key national sectors, including railways, shipping and power grids, have been opened up to overseas capital.
These moves towards greater market openness are significant developments which signal a departure from previous policies. Given that the EU has criticized China’s lack of economic openness for years, the steps China has taken toward reciprocal market access are long-awaited by foreign companies operating within its borders. In 2016, the German embassy in Beijing said it was receiving an increasing number of complaints about exports and licensing issues from German firms struggling against a legal environment stacked against them. Likewise, an American Chamber of Commerce survey that same year showed that some 75 percent of member companies felt unwelcome in China.
While Beijing hails the progress made, less visible barriers to foreign investment will likely remain. Overseas investors are still expected to face strong headwinds in specific areas to protect local industries. More than half of European firms in China, for example, say environmental regulations are more strongly enforced against them than domestic competitors. If China is serious about capturing billions of euros in European capital, it needs to work harder to create a level playing field for foreign investors.
But for all the bad press China gets for restricting foreign firms’ operations, it is far from the only player in need of creating a fair business environment for international investors. In fact, many of the CEE countries Beijing met with last month have problems of their own in that regard. And while the issue is not as indiscriminately pervasive as in China, sectors like energy stand out as particularly affected.
This is not surprising, since energy is already among Southeast Europe’s biggest economic sectors, with further growth predicted as the region continues to integrate with the EU. The problem is sufficiently egregious that NGOs have lamented the extraordinary costs, wasted opportunities and distorted markets for years, warning that the energy sector urgently needs to be “de-Balkanized”.
Bulgaria has developed a particular reputation for making it difficult for foreign players to do business. Energy giants Enel and E.ON decided to leave the country’s “hostile climate”, citing over-regulation and political attacks as the main reasons for pulling out. Back in 2014, Sofia threatened to revoke the operating licenses of all three of its power distribution companies. In response, the three distributors, owned by foreign firms, filed suits against the Bulgarian state, seeking billions of euros in compensation.
Bulgaria has shown no signs of levelling the playing field in the intervening years. One of the three distribution companies, the Czech utility ČEZ, is trying to leave the Bulgarian market. Even exiting the market, however, has become complicated, as Bulgaria’s anti-trust authorities quashed a deal ČEZ had signed to sell its Bulgarian assets.
What’s more, Bulgaria has tried to renegotiate power purchase agreements (PPAs) with large foreign investors AES and Contour Global which were supposed to be valid until the mid-2020s, arguing that the PPAs were too costly—despite the fact that the two firms sell electricity at lower rates than the Belene nuclear plant Bulgaria is planning to build with Russian technology and Chinese financing. In order to strengthen its hand in negotiating the “iron-clad” contracts, Bulgaria took the unusual step of lodging a complaint against itself with the European Commission’s competition authority.
While Sofia is squeezing foreign companies out of the market through a combination of over-regulation and an unpredictable legal framework, various CEE countries make market access for foreign firms dependent on bribery payments. Albania’s government has already secured itself a dubious reputation following a years-long row with ČEZ, one which ended with the Balkan country revoking ČEZ’s distribution license and re-nationalising its power grid. During the ordeal, ČEZ withdrew over €160 million worth of investments from Albania, citing electricity prices, state institutions’ unpaid electricity bills and pervasive irregularities plaguing government tenders.
The thorny saga also included allegations that ČEZ was forced to pay bribes to government officials to enjoy a better business environment, which seems to be a common issue in Tirana.
Albanian officials are known to regularly hand out hydropower concessions in exchange for hefty bribes, or to friends and family members. A 2012 investigation found that tendering procedures run by the Ministry of Economy, Trade and Energy were riddled with problems. Of 110 tenders granted to build more than 300 power plants, only ten have been completed and connected to the grid. By the government’s own admission, several ostensible investors have turned out to be “ghost” companies.
In a similar vein, former Croatian Prime Minister Ivo Sanader was ultimately imprisoned for ten years in 2012 after he was found to have taken bribes from a Hungarian energy company and an Austrian bank in exchange for privileged positions in the growing Croatian market. It’s unclear whether the country has managed to turn a new leaf, even after its coveted ascension to the EU bloc in 2013, as Croatian firms and policymakers have continually made headlines for being involved in a number of discrimination and bribery scandals since then.
With China reaching out to Europe to counter Trump’s protectionism, there can be no doubt that China’s efforts to provide foreign firms with a more welcoming environment are a step in the right direction. But the shortcomings in European markets must not be overlooked. Free trade and business is a two-way street, and progress made from Beijing’s end only underlines how much work its CEE partners must face down in order to reach true reciprocity.