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24th Jan 2021

EU-China summit to be overshadowed by trade rifts

  • Counterfeit goods is one of the many thorny issues to be discussed during the summit (Photo: Peter Morgan)

Chinese and European Union leaders will meet in Beijing on Wednesday (28 November) to discuss a wide range of trade issues that have complicated the relations between the two economic powerhouses in recent years.

The Chinese delegation headed by premier Wen Jiabao will meet with European Commission president Jose Manuel Barroso and trade commissioner Peter Mandelson as well as with key EU monetary officials - European Central Bank chief Mr Trichet, eurogroup head Jean-Claude Juncker and monetary affairs commissioner Joaquin Almunia.

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While the agenda is filled with a broad spectrum of topics - including climate change, energy security, non-proliferation, the development of Africa, the Middle East and Burma - the focus is on several lingering trade issues.

One of the main topics on their agenda is the fast growing trade deficit – the total value of goods imported exceeding the value of goods exported - between the EU and China, which is, according to recent estimates, growing by €15 million every hour.

"The considerable and growing trade deficit is adding to EU citizens' anxiety about globalisation, and is growing in political importance," president Barroso said in a speech in Beijing on Tuesday.

"Indeed, there is a risk that the economic emergence of China is seen by Europeans as a threat," he added.

According to European leaders, the roots of the deficit can be found in China's policy of holding the renminbi broadly stable against a basket of currencies, which would result into a vast under-valuation of its currency towards the euro, possibly by up to 20-25%.

Consequently, Chinese manufacturers can export their goods relatively cheaply to the eurozone, while European companies experience difficulties in selling their expensive goods to Chinese customers.

In advance of the talks, trade commissioner Peter Mandelson argued that a stronger renminbi may be beneficial for China as well.

But China is unlikely to budge on the issue. In talks earlier this week with French president Nicolas Sarkozy, premier Wen Jinbao reiterated his view that any exchange rate change would only happen in a slow and controlled manner.

China fears that a rapidly fluctuating currency would cause unemployment and market instability.

Product safety

Product safety will also be high on the agenda, following a string of recent scandals involving unsafe Chinese imports such as children's toys.

In recent months, several major toy manufacturers, including Mattel and Fisher Price, have recalled millions of toys made in China over safety concerns.

These scandals led to calls for a ban on imports of certain Chinese goods, a policy move the Commission said it would consider if China made no progress on product safety.

Last week (on 22 November), the Commission - after reviewing measures taken by China - said that "considerable progress" was made, though stressed that problems remained at the lower end of the market.

But on Monday (26 November), Mr Mandelson urged China to do more to guarantee safe products.

"Some Chinese officials pointed out that less than 1 percent of China's exports to Europe had alleged health risks. But Europe imports half a billion euros worth of goods from China every day, so even 1 percent is not acceptable," he said at the opening of an international food safety forum in Beijing, AP reports.

A related problem - and also an issue on the agenda - is the lack of copyright enforcement in China, resulting in widespread counterfeiting and the export of fake goods, including medicines and toothpaste.

Unfair competition

Another contentious issue to be discussed is the accusation by the EU that China makes use of unfair and disruptive trade practices like flooding EU markets with goods sold below production price (dumping) and the import of subsidised goods.

The Commission has warned that it will take anti-dumping measures if the problem is not tackled or if the current level of the trade deficit persists.

In addition, the Commission has expressed its frustration about the lack of access to the Chinese market, calling on the country to open its markets.

This week's EU-China meeting is the tenth annual summit between the two economies. China has become the European Union's second-biggest trade partner in recent years, and its largest source of imports.

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