18 September 2012

The EU and China: deepening engagement for common economic growth

The 8th EU-China Business Summit took place on 20th September 2012 in Brussels. Thematic issues such as innovation through industrial cooperation and strengthening investment opportunities for growth were addressed at the Summit.

The 8th EU-China Business Summit took place on 20th September 2012 in Brussels. It was attended by the Chinese Premier Wen Jiabao, the European Council President Herman Van Rompuy and the EU Commission President Jose-Manuel Barroso, together with business leaders and policy makers. Thematic issues such as innovation through industrial cooperation and strengthening investment opportunities for growth were addressed at the Summit.  

It has long been recognised that the EU and China are important trading partners towards each other. The EU is China’s biggest trading partner, while China is the EU's 2nd behind the USA and by far the EU's biggest source of imports. When the EU consumers have benefitted from China’s imports, the EU’s open market has also contributed to China’s export-led economy. Such complementary trade relationship is undoubtedly a major source of employment, development and innovation for both sides. Therefore, once again, it was witnessed at the Summit that the leaders reiterated their commitment for closer cooperation, in order to achieve sustainable economic growth which is in the best interest for both the EU and China.

While acknowledging the nature of complementarity between the two giant trading partners, trade relations between the EU and China remain challenging. The EU has been pushing China to trade fairly, respect intellectual property rights and meet its WTO obligations. A resolution adopted by the European Parliament in May 2012 called for tighter controls on Chinese investment. Two weeks before the Summit, on 6th September 2012, the EC launched an anti-dumping investigation into imports of solar panels and their key components originating in China.

As to China, it has been urging the EU to lift barriers to trade and investment which, on reverse, it argues, would hinder Europe’s growth. At the Summit, leading Chinese companies in Europe voiced their discontent over increasing protectionism and discrimination, ranging from sourcing problems to work permit application difficulties. China’s Premier Wen equally reminded Europe the significance of equal partnership and called upon Europe to provide a transparent environment in order for Chinese investors to help Europe to stimulate jobs and growth.  

Challenges aside, trade volume between the EU-China is nonetheless thriving. Moreover, since 2006, Europe is experiencing the start of a structural surge in outbound direct investment in advanced economies by Chinese firms. China’s investment into the EU achieved an annual inflows tripled from 2006 to 2009, and tripled again by 2011 to 7.4 billion euros for the year, according to a report from Rhodium Group.

The EU bloc is certainly attractive to Chinese investors with a market of 500 million consumers, a highly educated labour force and the most innovative economy in the world. For the EU, Chinese companies have abundant capital and can invest in the EU; and EU companies can benefit from China's huge domestic market at the same time. It is predicted that China will make between 800 billion and 1.6 trillion euros worth of new investments abroad between 2010 and 2020. This is a massive opportunity for Europe, especially when it is yet to recover from the economic crisis.  

On the other hand, confidence between the EU and China certainly should not be dented by trade defence measures which have been initiated time to time by both sides. To put this into perspective, trade defence measures, which are applied to restrict imports of a product temporarily if a domestic industry is injured as a result of such imports, are technical legal procedures based on relevant international agreements. They are instruments that all parties to the agreement could invoke in order to address unfair trading practices. Besides, what is involved in the EU-China trade disputes is rather limited, considering that China and the EU are trading more than 1 billion euros every day. Presently, the 50 trade defence instruments that the EU applies cover just around 1% of its total imports from China.

It is indeed very encouraging to see that the EU and China have been taking constructive steps to better their trade relationships. At the Summit, leaders re-affirmed their commitment for dialogue in order to settle divergent opinions. Premier Wen encouraged the EU and China to become the biggest trading partners towards each other by 2015. The forth-coming launch of the EU-China Investment Agreement negotiations will certainly provide opportunities to address some oft-heard issues, such as market protectionism which has been alleged by both sides. At the margins of the Summit, a Memorandum of Understanding between the Commission and two of China’s anti-monopoly enforcement authorities were equally signed, covering legislation, enforcement and technical cooperation regarding cartels, other restrictive agreements and the abuse of dominant market positions.

To rise to the challenge for closer cooperation and improved trade relations, both the EU and China must also not forget the importance of mutual understanding and mutual respect. Moreover, for Chinese investors, it would be best to “do as the Europeans do when in Europe”. While facing technical barriers to trade, and threat of trade defence measures, such as anti-dumping investigation, they should use the same legal instruments, to exercise and protect their legal rights just as the Europeans do. Additionally, Chinese investors should undertake same practice, such as campaigning and lobbying, just like the Europeans do, to address issues which would directly affect their investment interest at high political levels in the EU.

The global economy remains sluggish at the present time. While the EU is still troubled by its euro crisis, China, too, is under tremendous pressure to transform its export-led economy and rebalance it towards innovation and modernisation. The inter-dependent trade relationship between the two suggest that both sides should take positive approach to engage each other more positively for closer cooperation in order to achieve sustainable growth. It will be mutual beneficial to both the EU and China.

By Weinian HU