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Smoggy Beijing Seen as Poor Climate for Foreign Business

FILE - Women wearing masks make their way amid the heavy haze in Beijing, Feb. 23, 2014.

European investors in China are complaining that little is being done to improve China’s investment climate and shape Beijing into a eco-friendly commercial center.

In a report published Thursday, the European Chamber of Commerce in China said foreign investors in the national capital face greater challenges from harsh regulatory controls, favoritism towards state-owned enterprises and heavy pollution as compared to other Chinese cities.

The group said unless authorities do more to change the situation, the national capital faces the risk of losing foreign investments because it has failed to live up investor expectations.

"It has been observed that foreign companies are moving part of their corporate functions or business units from Beijing to more tax friendly environments, such as Hong Kong SAR or Singapore," the European Chamber of Commerce said in its position paper.

The business climate in Beijing, which is controlled by both the central and local governments, is tougher compared to Shanghai, Mats Harborn, Vice President of the European Chamber said at a press conference.

"The government should not provide irrational subsidies to state owned enterprises. It is stifling the growth of the industry," Harborn said.

Many of China's 117 largest state-owned enterprises, or SOEs, are located in Beijing. Much of the companies’ decision-making happens in Beijing because government ministries control or interact with them.

One of the chamber's complaints concerns so-called demonstration projects in which foreign companies set up operations with the government’s blessing.

Companies complain they rarely go beyond pilot projects, dashing the aspirations of foreign companies seeking market access opportunities.

Industry sources said SOEs, being competitors, do not want foreign companies to win project deals from the Beijing government. Local officials also may worry they would arouse suspicion if they overtly support the cause of foreign companies.

"I think foreign companies should do their part in solving this problem. It's not easy but foreign companies need to demonstrate why their projects can be useful to the government and the city. They need to be more convincing," Bruno Gensburger, chair of the government affairs forum at the European Chamber told VOA.

Beijing's smog is another problem for foreign companies, which find it difficult to hire and retain talent.

Citing his personal experience, Vice President of the European Chamber Mats Harborn said his son knows Chinese, but does not want to work in China because of the air pollution.

European companies are eager to assist the Beijing government in sustainable development strategies like desalinization or turning waste sludge produced after cleaning water into bio gas energy. The government should involve them in both project planning and implementation, Harborn said.