When EU and Chinese leaders meet on Thursday (20 September), they are expected to explore future cooperation amid tensions over the European Commission's investigation into allegations of dumping by China’s solar industry.
“This will not be a summit for big decisions, but rather a summit for consolidation and acknowledging the solidity of the relationship and in particular the great interdependence of our economies,” said EU sources ahead of the 15th such summit, stressing that both partners have a mutual interest in finding ways to ease tensions.
The solidity was shaken by Brussels’ decision last week to open an investigation into the alleged dumping of solar panels by Chinese manufacturers. If China is found guilty, Chinese firms might face anti-dumping tariffs on solar panels exports under the World Trade Organization framework and EU law.
In a visit to China, German Chancellor Angela Merkel urged Chinese and European authorities to resolve the matter through dialogue, rather than through punitive measures, which would have the potential to spur a trade war.
“The economic case for anti-dumping duties on solar panels is weak,” said Guy de Jonquières is a senior fellow at the European Centre for International Political Economy. “They are relatively low-technology mass-produced items, and a ferocious price war is causing even Chinese producers to bleed red ink. Apart from the fact that, penalising imports would deny EU consumers the benefits of price competition.
“This is not the sort of industry in which Europe has a viable long-term future,” de Jonquières said.
He added that if Brussels hopes to cow China into submission, its offensive is badly timed, especially now as Beijing is wrestling with slowing growth and a difficult leadership transition.
“This summit takes place ahead of a much-anticipated and watched change of leadership in China, which will have a huge impact on EU-China relations,” said EU sources, referring to the Communist party congress in the coming weeks that will change the top echelons in the country.
Now more than ever
De Jonquières said that there has never been a time when it mattered more for the EU to speak firmly, coherently and constructively to China.
The eurozone crisis has indeed increased China’s leverage. Slowing domestic economies have made China an essential growth market for many European companies, while Brussels has tried repeatedly to enlist Beijing’s financial help to ease the crisis.
Since bilateral ties between the EU and China were established 37 years ago, trade relations have expanded from the equivalent of €4 billion in 1978 to €428 billion in 2011.
Today, the EU is the biggest destination for China's exports and the second supplier to China, after Japan. For the EU, China is the second trading partner, after the United States, and is close to the level of trade with the US.
Europe is one of the top five sources of foreign direct investment to China (€17.8 billion in 2011). Chinese investment in Europe has grown rapidly since the 2008 crisis and amounted to €3.1 billion in 2011.
While China offers great potential for EU companies, a number of issues, including substantial support subsidies to Chinese industry and discriminatory rules and practices – for example in public procurement – make it difficult to do business in China.
Subsidies and raw materials
Also by subsidising the price of energy and raw materials, Beijing supports the development of important energy-intensive industries. Subsidies also distributed through soft loans and industrial political alliances on a local level openly discriminate in favour of Chinese state-owned companies, explains BusinessEurope in its latest assessment of EU-China business outlook.
Until last week, there was a sense, both in EU and Chinese circles, that a cooperation package, including an overarching portfolio ranging from economics, trade, energy, economics and sustainable development, could be agreed.
During a lunch with a group of journalists, Chinese Ambassador Wu Hailong said intense consultation was still underway and he hoped an agreement would be found, as this would be the last summit attended by Prime Minister Wen Jiabao.
Instead, EU and Chinese leaders will launch a dialogue on innovation, a talking shop which should meet annually and will be held before the next EU-China Summit.
Leaders will also sign a memorandum of understanding to cooperate on anti-monopoly law enforcement, which is designed to strengthen the exchange of views on competition legislation.
Even though no big outcome is expected, EU and Chinese leaders need to pave the way for strengthening the relationship even more. Companies are demanding a new cooperation strategy. An EU-China business summit will take place on the margins of the political summit.
Meanwhile, journalists were left hanging when a press conference, customary for every bilateral meeting, was called off.
The news conference was scheduled include European Commission President José Manuel Barroso, European Council President Herman Van Rompuy and Wen Jiabao.
China insisted that it be provided a list of the names of journalists who would be attending and have the right to vet them, one EU official said. The EU refused.