EU, China leaders meet to test future cooperation

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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.

Journalists off-limits

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.

"The EU is not only China’s largest export market, it also is an attractive and sizeable market for Chinese outward investment. This places the EU in a strong position to help China grow, in the various ways mentioned earlier. In this way, both regions could benefit, e.g., Europe could receive much-needed investment funds and China could develop its external investment capacity," said Linda Yueh, director of the China Growth Centre.

EU and China need to go back to the drawing board, said Fredrik Erixon, director and co-founder of the European Centre for International Political Economy (ECIPE), a think tank based in Brussels.

“They need to develop much better cooperative approaches that later could mature into new policy cooperation. Until that happens, the current form of EU-China relations should as much as possible establish strategies to avoid new conflicts. This is a strategy for détente, " he said.

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.

The EU is China's biggest trading partner, while China is the EU's largest source of imports and second largest two-way trading partner. 

In 2003, an EU-China comprehensive strategic partnership was launched. To reflect the depth and breadth of this

strategic link, the EU and China decided in 2010 to upgrade their bilateral relations on foreign affairs, security matters and global challenges such as climate change and the global economic recovery.

Summits and regular dialogues are held every year, including over 50 sectoral dialogues

  • 20 Sept.: EU-China Summit
  • 20 Sept.: EU-China business summit
  • Mid-October 2012: 18th Congress of the 82-million-member Chinese Communist Party to select a new generation of leaders to rule China for the next 10 years.

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