With a trade dispute over subsidies, arms embargo and the market economy status looming in the background, EU and Chinese leaders ended their last summit with Prime Minister Wen Jiabao, making little progress on substance but promising to work towards an EU-China Investment agreement.
Leaders meeting in Brussels yesterday (20 September) stressed the growing interdependence of their economies, where trade has doubled over the past eight years, making China Europe’s second largest trading partner. This year, Europe has also become the main destination for overseas investment for Chinese companies.
“China and the European Union are highly complementary economically," Chinese Prime Minister Wen Jiabao said after addressing the EU-China business summit.
Last year, Chinese firms invested €7.9 billion in Europe. In the first half of 2012, Chinese investments amounted to €5.4 billion, a 63% increase over last year.
Although business leaders have voiced their concern over Beijng’s export polices and trade practice, Jürgen Thumann, president of BusinessEurope, called for keeping markets open and creating a level playing field.
“Towards China, we need to start negotiating an investment treaty. We need better legal protection based on international rules and regulations for our investments in China. This is the Number One priority,” Thumann said in an interview with EURACTIV.
Seeds for an investment accord
EU and Chinese leaders have agreed to intensify discussions at a technical level to “start as soon as possible” negotiations for an investment agreement. But China is going through a change of leadership this year and they will not have a new government in place before next year, cautioned EU sources in Beijing.
While China has opened its economy substantially to competition and has allowed the development of a dynamic private sector, the hand of the state is still highly visible, whether it is through state-owned enterprises, discriminatory procurement policies that favour Chinese companies. or government subsidies.
European companies have reiterated that market access restrictions are on the rise. “We need to create a level playing field for commercial relations,” said European Commission President José Manuel Barroso.
The EU has taken every opportunity to pressure China to reduce subsidies to industry and open public procurement markets. Tired of seeing European companies blocked from Chinese public tenders, Brussels has launched a ‘reciprocity’ action which could allow individual EU countries to bar bids from countries that refuse to open up their public procurement markets, including China.
"I am a firm believer in making sure trade flows freely and government procurement must be an essential part of open trade markets worldwide. It's good for business, good for consumers and brings value for money for taxpayers,” EU Trade Commissioners Karel De Gucht said recently.
China is well aware, despite the criticism uttered by Wen Jiabao, that all this stands in the way of the country getting its market economy status.
Saving the euro
European Council President Herman Van Rompuy tried to downplay the current perception that Europe is bankrupt and inefficient and the eurozone is not able to solve is sovereign debt crisis.
China will continue to play its part in helping resolve the European debt crisis through appropriate channels, the Chinese premier said at a business summit following political talks with Europe's leaders.
Beijing pledged at the G20 meeting in Los Cabos that it would increase the International Monetary Fund resources by $43 billion to create a credible firewall.
"In the past few months China has continued to invest in bonds of European governments… and discussed ways of cooperation with the ESM," the Chinese leader added.
China’s foreign exchange reserves are the largest in the world, at $3.24 trillion, and some analysts say one-quarter of that is euro-denominated.
Stepping up cooperation on ETS
During the summit, four agreements were signed on innovation, competition, space and a low-carbon programme.
Despite a standing row over aviation emissions, Brussels and Beijing signed a €25-million financing agreement under which the EU will participate in the development of the China’s pilot emissions trading system.
EU Climate Commissioner Connie Hedegaard said the Chinese financing deal was "an important step for an ever closer cooperation towards a robust international carbon market".
"Needless to say that it makes a significant difference when now also China wants to use carbon markets to reduce emissions cost-effectively and boost low-carbon technologies," she said.
Under the agreement, Brussels will provide technical assistance over a four-year period to three carbon-reduction projects. Apart from helping with the design and implementation of emissions trading schemes in China, the other projects are to assist Chinese cities to be resource-efficient and to cut water and heavy-metal pollution and implement sustainable waste treatment policies.
When it comes to making progress on international climate negotiations, EU sources said there was not a real breakthrough, and that differences remain. The Chinese did not bring to the summit table the fight over aviation emissions, which they hope will be solved at the UN’s International Civil Aviation Organization. The organisation is working on an alternative to the EU scheme to cut aviation emissions.