A Chinese flag at Broken Bridge that once linked the Chinese border town of Dandong, Liaoning Province and the North Korean city of Sinuiju.
Greg Baker | AFP | Getty Images
China's attempt to open up the economy has not been enough to improve foreign companies' access to the domestic market, according to a paper published on Tuesday by the European Union Chamber of Commerce in China.
A major obstacle to foreign companies operating in China is the presence of Chinese state-owned companies, the newspaper said. These companies, also known as SOEs, receive preferential treatment from the government, such as prioritization for funding ̵
The situation has gotten worse in recent years with the Chinese government "continuing SOE reform with Chinese characteristics," it added.
"Rather than cutting SOEs to a manageable size, deciding which industries would be most appropriate for them to operate in and privatize the rest, the goal has been to make them & # 39; stronger, better and bigger & # 39 ;, "wrote Joerg Wuttke, the chamber's president, in the report.
Speaking to CNBC's "Squawk Box Asia" on Tuesday, Wuttke said that China has made some efforts in terms of restructuring the economy in recent years. But the authorities have seemed to support growth by pumping more money into the economy, not by making the much-needed reforms, he said.
"Sometimes you want China to actually wake up and see that you can't just throw money into the economy. You actually have to change the structure," he said.
"It is not as if the country is in silence, but we also see that the opening is much weakened by interest groups that do not want foreign competition. We think now is the time to do so because of the economic headwinds, "explained Wuttke.
China's SOE reforms
Growth in the Chinese economy – the second largest in the world – is slowing as the trade war with the United States appears to be moving forward.
Several economists have warned the tariff battle will hurt the Chinese economy more than the United States because the Asian country is relatively more trade dependent.
Given such headwinds, it is time for the Chinese government to focus on making the economy more competitive, Wuttke said. He pointed out that China has had some success in liberalizing the economy of southern Guangdong Province.
China developed its first special economic zone in Guangdong, which attracted foreign investors and allowed companies to "pursue their own ambitions," according to paper. It helped the province grow faster than some northern provinces, where SOEs still dominate the economy, the report said.
"Old habits are the hardest to break," the newspaper says. "Strong ownership interests have been against meaningful SOE reform lately, and they will certainly continue to have an impact in this regard."
and inefficient state-owned sector that weighs the country down as it tries to climb out of the middle-income trap. "