The report said subsidies for industries including new-energy vehicles, information technology and robotics had "already created problems for both China's economy and European business."
Beijing's plans to use "staggering" subsidies to create national champions in high-tech industries would further skew China's business playing field and worsen trade frictions, a European lobby group warned on March 7.
The EU Chamber of Commerce said in a report state subsidies of hundreds of billions of dollars and foreign technology transfers in 10 sectors were "highly problematic" and urged China to stop interfering in the market.
"We see that Chinese market players are entering the global marketplace, whereas we are still here in front of the Great Wall of China," the group's president Joerg Wuttke said ahead of the release of the report on Beijing's China Manufacturing 2025 plan first announced in 2015.
The report said subsidies for industries including new-energy vehicles, information technology and robotics had "already created problems for both China's economy and European business."
"We think China would be better off not picking winners and deciding who's doing what in the future," said Wuttke. "The recommendation we have there is, 'stay away, let the market pick the winners'."
European electric carmakers face "intense pressure to turn over advanced technology in exchange for near-term market access", and IT companies have seen their market access shrink, the report said.
The Chinese plan's emphasis on self-sufficiency is "particularly concerning -- it suggests that Chinese policies will further skew the competitive landscape in favor of domestic companies."
This could cause a new flood of overcapacity in those industries, as happened previously in the steel and solar sectors, and exacerbate tensions with China's international trade partners, the report said.
China's Communist-controlled parliament is holding its annual 10-day session in Beijing, in which delegates approve growth targets and the national budget.
Beijing has urged its companies to enter markets abroad in search of higher returns and advanced technologies to make them more competitive in a range of high-value sectors from aerospace to agribusiness and robotics.
China ranked 84th globally -- behind Saudi Arabia and Ukraine -- in the World Bank's ease of doing business index for 2016, and second to last in an OECD report on the restrictiveness towards foreign investment.
Since President Xi Jinping took over in 2012, the government has moved away from liberalization on several fronts, strengthening state-owned enterprises, increasing capital controls and tightening restrictions on free exchange of information and ideas online.
In a report released in January by the American Chamber of Commerce in China, a record 80% of 462 U.S. businesses who replied to a survey said they felt that foreign companies were less welcome than in the past.
Copyright Agence France-Presse, 2017
