(Bloomberg) -- European companies operating in China say the country's state-run businesses risk further harming an already weakening economy by drying up financial resources for private firms and damaging supply chains.
Recent headwinds from the trade war with the U.S. and slower economic growth add urgency to the case for reform in the world's second-largest economy, the European Union Chamber of Commerce in China said in a paper on Tuesday.
The group, which represents some 1,600 foreign companies, issued more than 800 recommendations to the Chinese government, emphasizing the need to create a level playing field for businesses -- regardless of ownership status or nationality.
China's state-led industrial policies have formed one of the thorniest issues in trade disputes with the U.S., even as Chinese government officials have shifted their policy tone. China Premier Li Keqiang has pledged to pursue “competitive neutrality” so that state and private companies would be treated on an equal footing.
Read more: What China Has and Hasn't Done to Address U.S. Trade Gripes
SOE Dominance
While it's reasonable for state-owned enterprises -- known as SOEs -- to exist in sectors strategic to national security, tighter regulation and a smaller number of inefficient monopolies would boost confidence and investment in China, Joerg Wuttke, head of the business association, told reporters in Beijing.
Some 70% of European businesses surveyed by the EU Chamber said SOEs are present in their industry, with 18% stating they controlled at least half the market.
SOEs hold advantages in most areas, businesses reported in an earlier survey, including public procurement, the ability to influence policy, and access to financing and licenses.
It's not only foreign companies that are at a disadvantage, according to Tuesday's report. Domestic suppliers and purchasers struggle to obtain sufficient funding, the report said.
To contact Bloomberg News staff for this story: Carolynn Look in Beijing at clook4@bloomberg.net
To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Angus Whitley, Will Davies
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With assistance from Bloomberg
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