EU, China leaders agree to disagree

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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.

 

 

BusinessEurope President Jürgen R. Thumann said: “China is already the EU’s second largest trading partner and its fastest growing export market. European companies are very keen on doing more business with and in China.  The EU and China need to rely on partnerships for growth.  But partnerships can only work well if they are beneficial to all parties involved. Therefore the strong economic dialogue that removes trade and investment impediments is central to the EU-China relationship.”

“Amidst the uncertainties we, Europeans, are facing in our home region, we wish to send a strong signal that EU-China relations remain crucial to overcome the current crisis.  Despite dissensions, we need to pursue an open dialogue, to avoid protectionist temptations and to create the conditions for a harmonious and balanced business relationship for companies from both sides, especially smaller ones,” added Arnaldo Abruzzini, secretary-general of Eurochambres.

Davide Cucino, president of the EU Chamber of Commerce, said: “More than ever before in modern history, the global economy depends on cooperation between Europe and China.  Europe’s open investment environment not only offers Chinese companies opportunities to enter a large mature marketplace, it also brings direct benefits that can help lift Europe out of its economic malaise.  Likewise, European companies can be a catalyst to assist China shift its economy towards quality-driven sustainable growth, which is probably the primary challenge facing the global economy today.  So, while today’s Business Summit’s theme of cooperation was apt, it also taught us that such necessary cooperation can only stem from an acknowledgement that fostering investment and healthy competition in an open marketplace is the most important goal.”

David Brewer, president of the EU-China Business Association, said: “Today’s Business Summit has yet again given European and Chinese businesses a tremendous opportunity to meet and discuss issues of common interest.  Significant scope exists for even broader and deeper trade and investment links between the EU and China that will benefit our peoples.  Now, as much as at any time in recent history, we need businesses to lead the way in driving economic recovery.”

Global innovation collaboration will lead to a global market after, so the achievement of the innovation will have a much bigger and opener potential market. For this point, international standard cooperation is very essential, said Leo Sun, president of telecom company Huawei’s European affairs department.

“We take cloud computing market as one example. This market in next ten years will grow 100 times bigger than today. However, cloud is not standard yet. Interoperability and portability are not supported. We need to collaborate together to speed up the standardisation process and so every country and company can invest more and will benefit from this growth,” he added.

EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.  Besides the leaders’ annual meeting, the main three pillars are the high-level economic and trade dialogue
(launched 2007), the strategic dialogue (2010) and the high-level people-to-people dialogue (2012).  
China has emerged as the world's third economy, after the EU and the US. Rising trade and financial flows between the EU and China in the last decade have considerably heightened their economic interdependence. The EU remains China's biggest trading partner while China is the EU's second largest trading partner.

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