Despite China's long-term encouragement of foreign companies to set up more research-and-development facilities in the country, European companies' R&D investment in China remains low.

The share of European Union companies' R&D investment in China lags behind not only developed markets such as the United States and Canada, but also other emerging economies, such as India, said Dan Prud'homme, business manager of the Intellectual Property Rights Working Group at the European Chamber of Commerce in China.

China's relatively weak regulatory system for intellectual property rights protection is a concern, and also shows the innovation capacity level in the Chinese market and competition from local counterparts remains weak, he said.

China still lags behind many developed economies in terms of innovation in general, and breakthrough innovation and high-quality patents in particular, the European Chamber said in a summary study on China's patent-related policies' and practices' effect on innovation.

China accounted for only 2 percent of EU enterprises' R&D spending outside their respective home countries in 2010, while investment in India accounted for 3 percent, according to the European Commission.

Despite the struggling economy in Europe, European companies' investment in R&D will increase by 4 percent annually from 2012 to 2014, the commission said earlier this week. "The US and Canada are much cheaper now and other non-EU countries. It isn't necessary to invest in China," Prud'homme said.

The IPR environment is a concern, as it shows that European countries want to keep their high-end manufacturing products within Europe amid the woes of the recession, said Yao Ling, an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation.

The study includes more than 50 recommendations on policymaking conducive to innovation, including attracting more investment in R&D and technology transfer in China.

European companies in China should have the same access to fiscal stimulus and other favorable measures as their Chinese counterparts, said Dirk Moens, the European Chamber's secretary-general. The study comes as China promotes its seven strategic emerging industries, and government spending on R&D in China is expected to soar in the next five years.

The authorities are designing guidelines on technical cooperation between international and domestic companies, and encouraging international companies to set up R&D centers, regional headquarters and training centers in China, according to the Chinese newspaper Economic Observer.

The EU's investment in China declined 2.7 percent year-on-year in the first seven months of this year, according to the Ministry of Commerce.

"The situation in Europe is difficult. That definitely to some extent has affected overseas investment," Moens said. Overall investment from the EU continues to decline, but figures showed that investment in service industries from the EU has increased rapidly, Yao said.