While China’s state oriented development model has helped the country see rapid growth over the past 30 years, the system is “no longer sustainable,” a business group said on at Wednesday. The European Chamber of Commerce in China (EUCCC) launched its European Business in China Position Paper 2012/2013 in the Grand Duchy, during a press conference held at the Luxembourg Chamber of Commerce.

The paper was released the day before the 15th EU-China summit was held in Brussels. China’s prime minister, Wen Jiabao (photo, left), met with senior European Commission leaders on Thursday.

The EUCCC’s white paper said that “reforms to substantively reduce [Chinese] state involvement in the business environment and to give full play to market principles are needed to unleash the entrepreneurial potential of China’s private industry.”

The chamber also argued for a change in tack in negotiations with the Middle Kingdom. “The European Union has long engaged with China under the assumption that China would gradually reciprocate its own liberalisation.” While the chamber does not propose changing the EU’s open investment regime, it said that “Europe must develop an alternative strategy that places market access and China’s investment environment at its core.”

The lobbying document called for a significantly more unified, EU-wide approach and fewer bilateral negotiations between EU member states and China. “While the European Chamber recognises that the European Commission has endeavoured to develop a harmonised trade and investment policy towards China, the effectiveness of EU trade and investment policy continues to be undermined by fragmentation and economic short-termism. It is imperative that the various actors in Europe present an effective, strong and resolute voice to Chinese counterparts.”

The report said there had been “steps towards liberalising the financial services sector,” noting that “there has been a reasonably substantial level of progress in the financial services sector since the change in leadership of the financial services regulators.”

At the same time, it criticised recent changes to private equity rules that have “negative implications for the plan to develop Shanghai into an international financial centre.”

The chamber represents 1,700 companies from all EU27 countries, and released the white paper in Beijing on September 6.