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institutional-wise

This article is sponsored by the Academic Division of International

    Studies of the Chinese Academy of Social Sciences.

    China-EU Relations in 2008

    ?Research Group of IES of CASS

    The year 2008 had been a period of turbulence which shadowed the relationship

    between China and the EU. In contrast with simple trade disputes from previous years,

    the element of political confrontation had been on the rise. Concerning the “March 14” riot

    in Lhasa, several European politicians publicly supported Tibetan independence and

    called for a boycott of the Beijing Olympics, which eventually caused the annual China-EU

    Summit to delay. However, despite constant disputes which are normal, economic and

    trade relations achieved considerable development. This is why in general terms, the

    relationship between China and the EU was not damaged beyond repair because of

    political frictions, and the overall situation remained stable. In the beginning of the New

    Year in 2009, Premier Wen Jiabao’s “journey of confidence” to Europe would bring a new favorable turn to China-EU relations.

I. Adjustment of the EU’s Policy towards China and Political Frictions between

    China and the EU in 2008

    The emergence of the element of political confrontation in China-EU relations in 2008

    had been closely related to the EU’s adjustment of its policy towards China in recent years.

    China-EU relations, as an integral part of China and the EU’s respective foreign

    policy strategies, have always attracted a high degree of attention. From 1995 to 2003,

    the European Commission’s 5 China Strategy Papers contributed to the development of

    China-EU relations; in 2003, the Chinese government published its first “EU Policy Paper”. These policy papers steered the relationship between China and the EU towards greater

    perfection institutional-wise, and facilitated the all-round development of bilateral relations.

    Currently, the EU is China’s largest partner in economic, commercial and technical

    cooperations.

    However, as bilateral cooperations deepened, various economic and commercial

    frictions had arisen; especially in recent years, the economies of European nations

    sagged, and China’s rapid development caused those within the EU to call for a

    reevaluation of China-EU relations. In October 2006, the 6

    th EU China Strategy Paper

    entitled “EU-China: Closer partners, growing responsibilities” and a new economic and

     ?Person in charge of the Working Group: Zhou Hong. Members of the Working Group: Shen Yannan, Tian Dewen,

    and Chen Xin. Liu Zuokui and Xiong Hou contributed to the first stage of discussion, and provided materials.

    Some materials from this report are extracted from the Development Report by IES in 2008, whose Working

    Group members include: Zhou Hong, Shen Yannan, Ma Shengli, Tian Dewen, Liu Zuokui, Zhao Chen, and Zhao

    Ke.

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    trade paper entitled “EU-China trade and investment: Competition and Partnership” signifies the EU’s preliminary adjustments on its policy towards China. The keynote of the

    EU’s policy on China is: mutual responsibility between China and the EU grows in relation

    to the improvement of China’s international status. Behind the veil of its emphasis on

    China’s “responsibility,” the EU China Strategy Paper conveys Europe’s foreign policy orientation: “regulatorism,” which demands China to adopt European values, to respect

    the EU’s vested interests around the globe, and to abide by the western-dominated international trade rules, etc.2 The EU, while admitting its gain in China’s economic rise” in its economic and trade paper of 2006, put forward that China has already become “the

    3greatest challenge in the EU’s foreign trade policy, and that China’s economic development has reached the level that enables Europeans to demand their Chinese

    counterparts to shoulder more responsibilities. The publishing of both papers indicate that

    the EU has treated China as a “world power,” which can potentially become its competitor.

    The main issue the EU is facing at present is how to improve its competitiveness in

    the process of deepening its cooperation with China. Under this context, various social

    and political interest groups pin their hopes on the adjustment of the EU’s policy towards China in search of new opportunities. As the element of political confrontation stepped in,

    however, the adjustment of the EU’s policy towards China presented a somewhat more

    complicated picture, which rendered the relationship between China and the EU in 2008

    full of ups and downs.

    In 2008, political confrontation in China-EU relations mainly involved issues such as

    the “March 14” riot in Lhasa, the Beijing Olympics, and manifested itself in 4 aspects.

    1. The EU’s Rotating Presidency

    In mid-March, after the serious incident of criminal violence involving fighting,

    smashing, looting and arson, several European politicians and political groups became

    very active, and proposed to boycott the Beijing Olympics. Some of the Member States

    governments also publicly announced their dissatisfaction towards China. The Slovenian

    EU presidency quickly published a joint declaration with the US condemning China of the

    incident. The president-in-waiting of the EU’s rotating presidency, Nicholas Sarkozy, in

    contrast with his “decisive” style, presented an equivocal attitude. On the 25

    th of March,

    before his visit to Britain, Sarkozy indicated that concerning the issue of “boycotting” the

    thBeijing Olympics, “every option is available”. On May 5, during her interview with Le Monde, Rama Yade, the Secretary of State for Human Rights under the French

    government, put forward pre-conditions for the French president’s attendance at the

    thopening ceremony of the Beijing Olympics on behalf of Sarkozy. On June 30, in his

    speech at a television program, Sarkozy announced that he will consider attending the

    Beijing Olympics if the Chinese government’s conversation with the Dalai Lama were

    fruitful. As both the president of one of the EU’s core Member States and the

    president-in-waiting of the EU’s rotating presidency, the equivocal attitude of Sarkozy

    brought about clouds of suspicion to China-EU relations in 2008.

     Despite Sarkozy’s eventual attendance at the Beijing Olympics and the Asia-Europe

2 See Zhou, Hong (ed.). The Annual Development Report of Europe. China Social Sciences Press: 2007. p103. 3 See http://europa.eu.int/comm/external_relations/china/intro/index.htm

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    thMeeting, the French president also made a high-profile announcement on November 13

    thththat he shall meet with the Dalai Lama at the event, on December 6, celebrating the 25

    anniversary of the winning of a Nobel Prize by the former president of Poland, Lech

    Walesa. Sarkozy’s identity as the president of the EU’s rotating presidency and his choice

    to make this announcement in the eve of the Asia-Europe Meeting, which was scheduled

    stto begin on the 1 of December, created immediate disturbances to the relationship

    between China and the EU. The spokesman of the Ministry of Foreign Affairs of China

    thannounced on November 27: “It is regretful that Paris has failed to respond positively to

    Chinas sincerity and efforts in this regard, thus damaging the atmosphere for the

    summit…China has no other choice but to put off the summit”. This is the first time since 11 years that the Asia-Europe Meeting, which served as a dialogue at the highest level

    between leaders of China and the EU, was forced to be delayed.

     2. The European Parliament

    The European Parliament has consistently harnessed a reservoir of anti-China

    sentiment, especially in 2008. After the “March 14” riot in Lhasa broke out, the clamour of anti-China sentiment within the Parliament gathered steam. On April 10th, the Parliament

    passed a Tibet resolution, which was drafted by an anti-China celebrative figure, the vice

    president of the European Parliament, Edward McMillan-Scott and others. The resolution

    called for leaders of EU Member States to set the dialogue between the Chinese

    government and the Dalai Lama as a pre-condition for the leaders’ attendance at the

    opening ceremony of the Beijing Olympics; it requested the Council of EU to appoint a

    special Envoy for Tibetan affairs, in order to coordinate the dialogue between the Chinese

    government and the Dalai clique; it also called on the UN to establish an independent

    review panel to investigate in Tibet. This resolution even accused China’s regular

    economic cooperation with African countries in the areas of trade, energy, and military

    sales, along with its assertion that the unconditional aid granted by the Chinese

    government to several African countries has led to the violation of human rights in those

    countries and that the Chinese government should reduce fiscal support to those regimes.

    On the 9th of July, during the pause of the European Parliament plenary session at

    Strasbourg, the president of the Parliament, Hans-Gert Poettering, held a press

    conference to announce the boycott of the opening ceremony of the Beijing Olympics. In

    the afternoon on that same day, during the European Parliament’s discussion session concerning the earthquake in China and the situation after the Olympics, several

    anti-China MEPs started to “condemn China, and vehemently criticized French President

    Sarkozy’s decision that day to attend the opening ceremony of the Beijing Olympics. By the end of November, after China was forced to cancel the 2008 China-EU summit due to

    Sarkozy’s high-profile announcement to meet with the Dalai Lama, the spokesperson of

    the European Parliament Tibet Intergroup, Thomas Mann, announced that MEPs shall

    “fast,” in support of the Dalai, during his holiness’s visit to the EU. The Parliament also

    criticized the Chinese government’s execution, in conformity with legal provisions, of Wo

    Weihan, a spy who bartered away China’s national defence intelligence a severe interference with China’s domestic affairs. Although the European Parliament is a

    transnational parliament that contains supra-national characteristics, it has to a great

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extent reflected the appeal of various parties, governments, and social interest groups

    within the EU Member States. The upsurge of the European Parliament’s anti-China

    sentiment in 2008 partially represents a trend of thought, which entails the hope to

    pressure China through political means.

    3. The European Media

    In recent years, the European Media has heavily influenced the change in the

    atmosphere of China-EU relations. Mainstream newspapers, radio stations, and television

    stations have perennially published negative and misrepresented reports on China, which

    can be attributed to, on the one hand, the influence from the traditional western

    social-media’s business model and the demand for sensationalization, and, moreover, on the other hand, ideological prejudice. This is demonstrated by the anti-China one-sided

    reports by the European Media, which took place during the “March 14” riot in Lhasa in 2008. The European Media such as the Frankfurter Allgemeine Zeitung, the Suddeutsche Zeitung, and the Berliner Morgenpost, would distort the facts to create a bit of buzz, as

    they portrayed a picture of Chinese armed police rescuing civilians under threat from

    rioters as “capturing protesters”. To show another example, on March 19-20, the website of the German “Radio Luxemburg” and a television news channel, “N-TV,” went as far as

    to portray a picture showing Nepal police dispersing rioters as an incident of police and

    civilian confrontation in Lhasa. And in April, 2008, “Agence France-Presse announced that British Prime Minister Gordon Brown would attend the closing ceremony of the

    Olympics, while the title was intentionally put that the Brown would not attend the opening

    ceremony of the Olympics, hence creating viewers’ misconception that Brown had also

    entered the ranks of “boycotting the Olympics”. In the meantime, the European Media also went with the flow, to create the situation in which expression of discontent towards China

    becomes popularity. By contrast, objective and impartial public opinion was suppressed,

    just as what a China expert at the German society for foreign policy, Professior Eberhard

    Sandschneider, expressed at an interview on April 16

    th, that it is difficult to say a word of praise for China and that such praises receive little audience. It is undeniable that the

    European Media’s “demonization” of China in 2008 not only fomented anti-China sentiments in European society, but also hampered the normal development of China-EU

    relations.

    4. European Society

    There are two aspects in European society that highly deserves our attention. One of

    the two aspects is the social mentality, which, having been developed in European society

    in recent years, adversely affected the smooth development of China-EU relations. This

    situation was made extraordinarily obvious in 2008. Due to the European public’s lack of

    understanding on the real situation in China and the media’s constant negative prejudice-contained reports on China, China’s rapid economic development had increasingly attracted doubts from the European populace. According to the results of a

    public opinion survey held in April by Harris Interactive, an American public opinion

    research company, and the British The Financial Times, there was a huge percentage increase in the number of Europeans who hold the view that China is the largest threat to

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Europe. Among the results, the Italians saw the largest increase: from 26% in June, 2007,

    to 47% in 2008. The French rose from 22% in 2007 to 36%; the Germans rose from 18%

    to 35% and the British from 16% to 27%. Among all European nations, only the Spanish

    4populace adhered to the view that America’s threat to Europe is greater than China’s,

    which was agreed by the public opinion in Germany, France, and Britain in the previous

    year’s survey. During a survey conducted by the American Pew Research Centre on

    public opinion in Britain, France, Germany, Italy, and Poland, 70% of the people on

    5average held the view that the Chinese ignore their interests. And opinion surveys held in the first half of 2008 by the Scandinavian Media, such as Svenska Dagbladet (“the

    Swedish daily paper”), Aftenposten ( Norwegian for “The Evening Post”), and Politiken

    (Danish for “Politics”), showed that 50% of the populace do not have a good impression of

    China. It was exactly this social mentality of the European public that became the

    breeding ground for the prevalence of anti-China forces in 2008.

    Another aspect which deserves our attention is the anti-China forces that have long

    remained very active in European society. According to their ideological prejudice and

    political needs, these forces have repeatedly taken a radically antagonistic position

    against China. In essence, anti-China forces in Europe are a remnant of the Cold War;

    their mindset lingers in the Cold War era, and this has become a dominating factor that

    damages the normal development of China-EU relations after the Cold War. Among those

    forces, several European foundations were the mastermind and organizer behind a series

    of anti-China events in 2008. The Western Media revealed that the German

    Friedrich-Naumann-Stiftung has arranged and funded the fifth “International Tibet Support

    Groups Conference” since March, 2005, and has closely coordinated efforts with the Dalai Lama. The Conference was held in Brussels from 11-14th of May, 2007, which decided to list the Beijing Olympics as a point of attack and to plan on taking action during the

    Olympic Torch Relay to attract public attention; the operation would be pushed to its peak

    during the Beijing Olympic Games in August.

    According to the reports by the Western Media, the French organization “Reporters sans frontières” (“reporters without borders”) was the mastermind behind the sabotage on

    the Olympic Torch Relay in Paris in 2008. Ever since Beijing’s successful application to

    host the Olympics in 2001, this organization began using various methods to sabotage the

    Beijing Olympics, and arranged 4 million Euros to fund its activities. During the ceremony

    of lighting the Olympic Flame, core members from this organization marched in raising

    signs with anti-China slogans. Afterwards, they hung anti-China banners across the Eiffel

    Tower and the city hall of Paris. “Reporters sans frontières,” whose funding partially came from the American CIA and NED controlled anti-Castro groups, was by no means a

    normal NGO. Therefore, “Reporters sans frontiers” rather than saying a word to the US’s

    war of aggression and maltreatment of prisoners of war, spattered nations outside of the

    Western Camp with slanders. As the secretary general of this organization, Robert

    Ménard, frankly put, there are plenty of forces around the globe who would like to “deal”

    with China and Cuba, hence their need for adequate funding.

    Because European anti-China political forces are abundant in funding and

4 For the above data, see http://ccga.pku.edu.cn/html/ziliao/20080417/162.html 5 http://pewglobal.org/reports/pdf/260.pdf

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well-organized, and possess an explicit political aim and operation plan, they are most

    destructive to China-EU relations. They frequently take advantage of the European

    public’s lack of understanding of China and the influence from the European political and cultural traditions, to seek every possibility to attack China, even going as far as to

    organize the storming of the Chinese embassy in Europe, thus becoming the creator of a

    bad precedent that hampers the development of China-EU relations.

    The aforementioned 4 aspects, in fact, showing different extents of Europe’s political

    confrontation against China, have intrinsically different causes and effects. Among them,

    the European public’s lack of understanding or even misunderstanding of China and

    China-EU relations, combined with their discontent towards their own economic situation,

    were important social reasons; part of the media, driven by commercial interests and

    influenced by political prejudice, accelerated this misunderstanding and discontent;

    politicians, according to their election needs, either catered to or took advantage of the

    misunderstanding and discontent to extend the negative influences to the official level; the

    European anti-China political forces played the pivotal role in starting and driving the

    entire anti-China movement. In the meantime, their role catered to a few politicians and

    part of the media, who in turn took advantage of those forces. It was precisely under the

    interaction of the aforementioned factors that European society in 2008 saw an emotional

    surge of dissatisfaction towards China, which directly and severely disturbed the

    relationship between China and the EU.

II. The Current Situation of Economic and Trade Relations between China and the

    EU and their Existing Problems

     The economic and trade sector is an important component of China-EU relations and

    the foundation for their further development. Currently, the EU is China’s largest export

    market and second largest source of import, whereas China is the EU’s largest source for imported manufactured goods and its fastest growing export market. Economic and

    trade-ties between China and the EU have maintained stable and rapid development over

    a long period of time and yielded substantial results, because they are mutually highly

    beneficial.

    1. The Current Situation of China-EU Economic and Trade Relations

    Since 2008, economic and trade relations between China and the EU had continued

    to prosper, however, with new changes.

    First of all, the total volume of trade between China and the EU continued to grow and

    reached its historical peak. By the end of 2008, the total sum of trade between China and

    27 EU Member States reached 425.58 billion USD, among which, China’s exports were

    worth 292.88 billion USD (the largest export market) and imports worth 132.7 billion USD

    (second largest source of import).

    6 The total sum of trade between China and the EU

    reached 16.6% of China’s aggregate export during the same period. The EU had retained

    its position as China’s largest trade partner since 2004, followed by the US (13.0%) in

    second place and Japan (10.4%) the third, with the gap between the first and second

6 See the websites of the Ministry of Commerce of China and China Customs.

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increasing. While China-EU trade improved in quantitative terms, annual growth fell to the

    lowest since 2003. From 2003-2007, China’s export to the EU grew by 38.7% annually, whereas the year 2008 only saw a 19.5% increase. China’s imports from the EU grew by

    an average rate of 33.7% during the past 5 years, while in 2008 only by 19.6%. The main

    reason was the slack in the European market’s demand due to the influence from the

    financial crisis.

    Secondly, the EU retained its position as China’s second largest processing trade

    partner. China’s trade surplus with the EU in processing trade continued to grow, however,

    with the growth rate conspicuously slowed down. In 2007, total processing trade imports

    and exports between China and the EU amounted to 146.78 billion USD, an annual 26.9%

    increase, whereas the same measurement was 166.47 billion USD in 2008, a 13.4%

    increase. In 2007, processing trade accounted for 41.2% of China-EU bilateral trade and

    52.0% of China’s exports to the EU; in 2008, both measurements dropped, to 39.1% and

    49.1% respectively. In 2007, China’s trade surplus in the processing trade sector was 108.11 billion USD, which was a 32.1% increase from the previous year, and accounted

    for 80.5% of China’s total trade surplus with the EU that year; in 2008, the processing

    trade surplus rose to 121.23 billion USD, which only grew by 12.1% compared to the

    previous year, and accounted for a diminished portion of China’s total trade surplus with

    the EU: 75.7%.7

    Thirdly, from the point of view of different products, the trade growth in high-tech

    products slowed down; trade in textiles continued to grow; and high energy-consuming

    product exports to the EU decreased. Despite the market’s downturn brought by the

    financial crisis, the EU remained as the largest export market for China’s high-tech

    products in 2008, which was worth 97.95 billion USD. The increase was 15.2% from the

    previous year, but the growth rate was slowed by 20.7%. High-tech products accounted

    for 33.4% of China’s total exports to the EU that year.

    Fourthly, from the perspective of different countries, in 2008, Germany, the

    Netherlands, Britain, France, and Italy continued to dominate China-EU trade. Trade

    between China and the 5 countries accounted for 67.9% of the total trade between China

    and the EU, though the percentage was slightly lower than 68.8% of the previous year.

    Among the 5 countries, the best situation was seen in the trade between China and

    Germany, which also had the lowest trade surplus from China, and only accounted for

    slightly more than 2% of China’s total surplus with the EU. The highest trade surplus

    occurred in China’s trade with the Netherlands, accounting for over 1/4 of China’s total

    surplus with the EU.8

    Finally, from the perspective of newly created investment projects, between January

    to December of 2008, there were 1844 newly approved investment projects from major

    EU member states to China, which saw a 22.65% decrease from 2007. However, the total

    number of newly created investment projects from the EU to China did not see significant

    changes in relation to the total number of foreign investments in China, and remained

    unchanged at approximately 6%.

7 Reorganized and calculated according to relevant Statistical Analysis Reports published by the China Customs’

    website. Please see www.customs.gov.cn. 8 For the above data, see the websites of the Ministry of Commerce of China and China Customs.

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    Considering the use of actual foreign investment, between January to December of

    2008, the actual investment of most EU countries to China amounted to 4.99 billion USD,

    which was a 30.12% increase from the previous year. The EU’s actual investment in

    China did not see significant changes in relation to the total sum of actual investment in

    9China, remaining at approximately 5%.

    2. Major Issues in Economic and Trade Relations between China and the EU

    In 2008, issues in economic and trade relations between China and the EU in 2008

    manifested themselves in the following aspects.

    1. Trade Surplus

    Before 1997, China had continuously had a current account deficit with the EU, the

    situation of which only changed since 1997. Since China’s entry to the WTO, the trade

    surplus had sharply increased, followed by increased trade frictions between China and

    the EU. China’s trade surplus with the EU in 2008 was 160.18 billion USD, third place next

    to China’s surplus with Hong Kong and the US. In the meantime, China had become the fastest growing market for the EU’s exports. According to EU statistics, EU exports to China were worth 72 billion EUR in 2007, and parallel measurements between January

    and September in 2008 showed an increase of 12%. Between 2003 and 2007, EU exports

    to China increased by 75%.10 However, the continual increase in the EU’s export to China could not match up with China’s robust exports to the EU. China’s surplus was derived

    primarily from exports of office and telecommunications equipments, textiles, as well as

    steel products.

    Concerning issues resulting from China’s trade surplus with the EU, we should not stick to mere figures, but should provide analyses from the perspective of economic

    globalization, because bilateral trade statistical figures cannot precisely reflect the

    complexity of trade relations.11

    (1) Under globalization, due to China’s advantage of low labor cost and its ability to

    attract foreign investment, processing trade accompanied by floating capital had flowed

    from East Asian countries or regions such as Japan, Korea, and Taiwan to China, which

    led to China’s explosive growth in exports after its entry to the WTO. This led to an

    increase in China’s trade surplus with the EU and the US, and an increase in its trade

    deficit with East Asian countries or regions such as Japan, Korea, and Taiwan at almost

    the same pace. East Asian countries or regions transferred an abundance of their

    manufacturing capacity to China, which greatly reduced their trade surplus with the EU

    and the US. In other words, the situation in which commodities are exported to the EU and

    the US directly by those East Asian countries or regions changes to which those countries

    or regions export semi-manufactured goods or spare parts to China, which, after being

    processed and assembled, are then re-exported to the EU and the US as demonstrated in

    “Figure 1” of the triangle trade among China, East Asia, and the US/the EU.12 As one

9The website of Investment Promotion Agency of the Ministry of Commerce of China,

    http://tzswj.mofcom.gov.cn/aarticle/g/200902/20090206021117.html. 10 European Commission, “EU-China trade in facts and figures”, MEMO/09/40, Brussels, 30 January 2009. 11 Zaborowski, Marcin (ed.). Facing China’s rise: Guidelines for an EU Strategy. Chaillot Paper No.94. EU Institute for Security Studies (EUISS): Paris, 2006. p.17. 12 The original author created a triangle model of the trade among China, the US, and East Asian polities. The

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angle of this triangle trade, China’s exports to the EU increased from 23.8 billion USD in

    1997 to 245.2 billion USD in 2007, a 10-fold increase in 10 years. And the share of

    13contemporary EU imports from Asia increased by less than 10%. This reflects the reality

    14that China’s exports have replaced exports by other East Asian economies to the EU,

    which is not reflected in China-EU bilateral trade figures.

    Figure 1: The Triangle Trade among China, US/EU and East Asia

    Source: Yang, Zhengwei. China’s Foreign Trade and Economic Growth (Zhongguo Duiwai Maoyi yu Jingji Zengzhang《中国对外贸易与经济增长》). China Renmin UP: 2006. p375. Slightly modified by the

    author to suite the context of this article.

    Therefore, to a certain extent, the issue of China’s trade surplus with the EU has

    exceeded the bounds of bilateralism. The EU faces not only challenges from China, but

    also from the increasing economic integration of Asia, which can also be attributed to the

    relative decline of the EU’s economic competitiveness.

    (2) Bilateral trade figures cannot reflect the total benefits received by both sides. In a

    public discourse at Tsinghua University in November, 2006, European Commission trade

    commissioner Peter Mandelson put, according to a Dutch research project, fine and

    inexpensive Chinese goods have saved European families on average of approximately

    300 EUR each year.15According to OECD statistics, China’s exports to the EU alleviated

    inflation in the Euro zone by 0.2%. As a result, European consumers saved up to 60 billion

    16USD annually.

    (3) Bilateral trade figures do not show the amount of added value of the goods China

authors of this article, after validating recent data of the EU, contend that China, the EU, and East Asian polities

    such as Japan, Korea, and Taiwan also exhibit such a trangle trade model. 13 European Commission, “EU-China trade in facts and figures”, MEMO/09/40, Brussels, 30 January 2009. 14 Freytag, Andreas. “The Chinese “juggernaut” – should Europe really worry about its trade deficit with China?”

    Policy Briefs, No.2. European Centre for International Political Economy (ECIPE): Brussels, 2008. p.4. 15 Grant, Charles and Katinka Barysch. Can Europe and China shape a new world order? Center for European Reform (CER): London, 2008. p.32. 16 For the speech delivered by the director of European Affairs of the Ministry of Foreign Affairs, Li Ruiyu, at the

    China-EU Relations Seminar, see http://www.chinamission.be/chn/sgxx/t520462.htm.

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exports to the EU. China’s processing trade stands at the bottom most end of the

    industrial chain. China imports semi-manufactured goods or spare parts from the EU and

    other countries (regions), before processing and turning them into products to be exported

    to the EU. China’s surplus, in fact, shoulders the price of imported semi-manufactured goods from other countries (regions). This is the reason why China’s trade with Japan and Korea has shown huge deficits, while maintaining a trade surplus with the EU. Moreover,

    foreign enterprises in China have accounted for nearly 60% of China’s trade with the EU, which includes EU invested enterprises in China. China invested enterprises obtains only

    10% of the trade revenue in the area of mechanical and electrical products, whereas

    foreign enterprises receives the other 90%. In the area of textile trade, Chinese

    enterprises have a profit margin not exceeding 5%.

    (4) Through investment, European enterprises enjoy the tremendous opportunity

    brought by the Chinese market. East Asian economies’ investment to China mainly

    consists of vertical investments, turning investment into trade. On the contrary, European

    enterprises’ investment to China mainly consists of horizontal investments, replacing trade

    with investment. On the one hand, investment by foreign entrepreneurs, due to the spill

    over effect of technology, improves the competitiveness of Chinese goods and facilitates

    China’s exports to the EU; on the other, EU invested enterprises in China grow, and their products being sold in China’s market replaces the EU’s exports to China, which

    aggravates the trade imbalance between China and the EU.

    17 Research demonstrates

    that the EU’s direct investment to China is the reason that enlarges the surplus of China’s

    18trade with the EU.

    Therefore, the issue of China’s trade surplus with the EU should be looked upon beyond the appearance (of figures) for the essence, to warrant a correct and objective

    evaluation.

    2. The Issue of Anti-dumping

    Currently, the EU has 49 anti-dumping measures in action against imported Chinese

    19goods, which accounts for less than 2% of China’s exports. China has now become the main target for inspection by the EU’s trade defence instruments. In 2008, 6 cases were placed on file for anti-dumping inspection against China, the quantity of which was the

    same in 2007.

    In 2008, the battle between China and the EU on anti-dumping tend to rage higher.

    rdOn December 3, 2008, the European Commission initiated preliminary rulings, to levy

    anti-dumping duties of 77%-85% on Chinese exports of fasteners to the EU for a duration

    of 5 years. As a result of the decision, China would lose 400 million USD worth of foreign

    thtrade revenue and 800 thousand jobs. On the 30 of November, 2008, 47 Chinese private enterprises producing fasteners jointly launched a litigation campaign against the EU, with

    the aim of inspecting certain iron or steel fasteners, which were worth 180 million USD in

    total, alleged to have been dumped by the EU to China between September of 2006 and

    stOctober of 2007. On the 1 of December 2008, the Ministry of Commerce of China

     17 Feng, Lei and Wang Yingxin: “Research on the Trade Surplus between China and the EU”Zhong Guo duiwai

    maoyi shuncha yanjiu, http://ies.cass.cn/Article/xshd/xshddsj/200710/539.asp. 18 Ye, Wenjia and Yu Jinping. EU's FDI to China and Sino-EU Trade Relations: An Empirical Study” in Forum of

    World Economy & Politics (2008)vol. 4, p.27. 19 European Commission, “EU-China trade in facts and figures”, MEMO/09/40, Brussels, 30 January 2009.

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