By Michael Martina
BEIJING (Reuters) - A once-in-a-decade leadership change in Beijing offers a chance to make much needed market access reforms, a European business lobby said on Thursday, warning that China's failure to do so could put at risk sustained growth of its state-led economy.
China will hold its Party Congress this autumn to usher in a new generation of leaders as President Hu Jintao and Premier Wen Jiabao prepare to step aside.
But without addressing "massive asymmetry" in market conditions for foreign and Chinese companies, the European Union Chamber of Commerce in China said the country's new leaders could have a harder time overcoming a host of ills, from diminishing cheap labour to the global economic crisis.
In the launch of its annual position paper, the European Chamber offered a familiar list of gripes from European companies -- including poor access to China's massive government procurement market and weak intellectual property protection -- but emphasized that the stakes of ignoring reforms are rising.
"We believe that there is a higher sense of urgency. And the main reason for that is the global economic climate, and the fact that China's exporters are under pressure," European Chamber Secretary General Dirk Moens told Reuters.
China's trade partners watched in both awe and dismay as the country's state-led economic model fuelled decades of breakneck growth, while hobbling foreign firms looking to compete for state financing and enter strategic industries.
But, China is struggling against a slowing economy. Growth of 7.6 percent year-on-year in the second quarter was the slowest in more than three years.
Investors are nervously eyeing China's domestic policy mix as external demand for the country's factory goods sinks with its biggest customer, the European Union, mired in sovereign debt and recession risks.
The European Chamber, which represents 1,700 members, many from the 27 EU countries, said fulfilling promises to open previously closed markets to foreign competition can increase innovation and spur another wave of growth.
"The point is that if China goes to the new model, there is much untapped potential that it can use," Moens said.
MARKETS "OUT OF BOUNDS"
Despite Europe's open market, China's public procurement market still is "largely out of bounds" for foreign companies, the European Chamber paper said.
A 2011 report by the Chamber said China's annual market for bids on public projects accounts for about 20 percent of the country's GDP, more than $1 trillion in projects, most at inaccessible local and regional government levels.
EU companies also have been frustrated by what they call "raw deals", having to form joint ventures with Chinese companies and offer technology licensing in return for market access.
The European Chamber welcomed the Chinese government's efforts to allow foreign firms greater leeway to comment on regulations, but noted that new laws are often linked to the demands of state-owned corporations and interest groups.
"If the regulatory system is intertwined in this way, it is impossible to get rid of the state-led model," European Chamber President Davide Cucino said.
The EU has stepped up its fight against what it sees as China's unfair trade practices, challenging Chinese subsidies and looking into complaints of cheap credit to Chinese firms.
The European Commission said on Thursday it will investigate suspected dumping of solar panels by Chinese producers, drawing a warning from China that restrictions on its solar exports would hurt the global clean energy sector.
"The way that China goes about changes is feeling the stones to cross the river," Secretary General Moens said, citing a saying made famous by the country's market economy reformist Deng Xiaoping.
"But there are a lot of changes needed. I think China needs to start jumping a few stones," he said.
(Editing by Simon Cameron-Moore)
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