Source: Global Times    Published: 2016-11-8

 

China-EU trade tied in knots

Over the last few months, a number of events have exposed tensions on economic issues between China and Europe. Experts said China`s relations with the EU, its largest trading partner, are encountering some difficulties, but these issues are more like marital squabbles than outright divorce.

 

In a statement posted on the website of the Delegation of the EU to China on November 1, Hans Dietmar Schweisgut, the EU`s Ambassador to China, pointed out that as the EU has adopted an ambitious new strategy to reinforce its relationship with China, further progress will only come with more engagement, more openness and more reciprocity.

In the statement, ­Schweisgut said that modernizing the EU`s trade defense instruments should not be seen as protectionism, but rather as a mechanism to better promote free and, above all, fair trade.

Experts said the EU is dealing with many problems from within, and ­tensions have emerged between it and China regarding trade and investment.

China-EU economic relationship has reached a stalemate, and has even taken several steps back as additional ­barriers have been set up to block bilateral investment, said Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges.

In October, after initially approving the deal, the German government resumed a review of Chinese investor Fujian Grand Chip`s proposed purchase of German chip equipment maker ­Aixtron, citing security concerns.

China`s Ministry of Commerce said on November 2 that it hoped the case is just an "exception," and not a harbinger of a shift in Germany`s economic policy.

Trade tensions

The two trading partners also got into a dispute over Chinese steel products.

The EU has 39 anti-dumping and anti-subsidy measures in place to protect its steel industry from unfair competition, 17 of which concern China, according to a letter that the European Commission sent  to the European Parliament and the European Council on October 19.

"These actions stem from the EU`s need to protect its own interests, in terms of market share, jobs and votes," Xu said, noting that global trade is still a zero-sum game.

Xu noted the notion of fair trade only emerged as an issue in recent years.

On another aspect, China`s capacity for overseas investment has grown by leaps and bounds in recent years, and this has also raised concerns in Europe, said Xu, who called blocking such deals "protectionism."

"In the past, the fear was focused on China`s low-cost, competitive goods, but it has since grown to include Chinese investment. Measures have evolved from preventing the inflow of Chinese goods to the inflow of Chinese investment," Xu told the Global Times on Sunday.

John Ross, senior fellow with ­Chongyang Institute at Renmin University of China, acknowledged that EU-China relations have encountered difficulties, but said they remain manageable.

"The most serious [difficulty] is Germany considering blocking some mergers and acquisitions by Chinese companies. Trade relations always have some ups and downs. But in China-German relations I see it more as arguments for periods in a marriage rather than filing for divorce," Ross told the Global Times on Sunday.

But other EU countries, notably in Eastern Europe, have grown more eager for their own ties with China and are looking at the "One Belt and One Road" initiative (B&R initiative), Ross noted.

The B&R initiative refers to the Silk Road Economic Belt and the 21st Century Maritime Silk Road, both of which aim to boost cooperation with countries in a vast parts of Asia, Europe and Africa.

There has been growing engagement between China and central and eastern European (CEE) countries.

Over the weekend, China set up a 10 billion euro ($11.15 billion) investment fund to finance projects in the CEE.

"The EU, as is well-known, has been going through a difficult period with low economic growth, the crisis in Greece, and the Brexit vote in the UK. There is therefore a general trade problem in the EU due to negative economic trends, but it is not something very specific against China," Ross said.

"The chances of passing the Transatlantic Trade and Investment Partnership with the US for example have become small," Ross said. "So this should be seen as the EU`s general worries on trade not just about China."

The EU is expected to fulfill its World Trade Organization (WTO) obligations to grant China market economy status by December 11, and China has been repeatedly calling on WTO members, including the EU, to end the surrogate country practice against China in anti-dumping cases after the deadline.

Stopping the surrogate country practice means any future anti-dumping cases against China must make comparisons with prices or costs in China.

Xu said the EU will fulfill its WTO obligation, though it could come up with measures to protect its interests.

Ross said that "fair" is a subjective term, and Germany`s recent review of China`s mergers and acquisitions with Aixtron and Osram`s lamp business is entirely unreasonable.

"But note the German decision was strongly criticized by very powerful circles in Germany," Ross said.

Moving forward

Ross believes that the key to China-EU relations is China-German relations, and Germany should focus on ongoing negotiations over an EU-China investment agreement, which is meant to improve market access, end discrimination and better protect investors in Europe and China.

Xu said countries should focus on implementing agreements reached during the Group of Twenty (G20) summit this year. The agreement reiterated opposition to trade protectionism.

"The EU should focus on attracting more Chinese investment, benefiting its economy in the process, and it can work with China to tap the vast markets in less-developed countries," Xu said.

Trade highlights

In an article entitled The EU mission towards China is Clear: More Engagement, More Openness and More Reciprocity, Ambassador of the EU to China Hans Dietmar Schweisgut listed some of the highlights of EU-China engagement:

Cooperation on China`s flagship projects, such as the Asian Infrastructure Investment Bank (AIIB). The multilateral bank was supported by EU member states, many of which are also founding members, and has also received EU-level institutional support. Recently the European Investment Bank has signed a memorandum of understanding with the AIIB.

Collaboration with China as a partner in its pursuit of industrial upgrading under major strategies such as "Made in China 2025" and Internet+, as well as future technologies like a 5G mobile network.

Top-level cooperation on harnessing synergies between EU and China on connectivity programs such as China`s "One Belt and One Road" initiative and the EU`s Trans-European Transport Network.