Trade and Investment between Europe and China

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中图分类号：F752 文献标识：A 文章编号：1009-4202（2013）06-000-03

Executive Summary Since China has opened its market to the global trade， especially after China joined into the WTO， the Chinese economy has received the extensive concern of the international trade. Many experts and scholars believed that the fabulous rise of the Chinese international trade may bring opportunities and challenges both for China and the rest of the world. This work presented in this paper is to provide an insight into trade and investment relations between european Union （EU） and china. The main objective of the research centers on the trends and the prospects of bilateral trade between EU and China. First of all， the author will presented history of EU-China trade relations and general facts of the current EU-China trade and investment. Then， followed the challenges and opportunities of EU-China trade and investment， this paper is also going to forecast the broad prospects of EU-China trade. According to the research， finally， the author satisfactorily come to the conclusion that EU-China trade and investment needs a sound economic and political system in a long run within the good strategic partnership between these two partners.

KEY WORDS international trade， bilateral trade， economic regime， political system

1. Introduction

Significant changes in the modern global economic map have increased global integration and international competition. European Union （EU） and China have become two of the biggest trade players in the world， however the economic and political development in both China and Europe have twists.

The Background of EU-China Trade and Investment

From four hundred years ago until the nineteenth century， as two largest economies， China and India accounted for half of the whole output in the world economy. In 1800， China represented 40% of the world’s gross national product. However after the industrial revolution in Europe， China is on track to restore its long colonial history with a slow technical and economic development.

In 1975， formal diplomatic relations established between China and European Commission （EC） which stimulated the Chinese economic development and its increasing integration into the global trade. Thanks to the process of economic liberalization and political reform from 1978， China has rapid growth in export during 1980 and 1990 so as to an annual average rate of roughly 9.5% in Chinese economy between 1980 and 2005. Particularly the strong growth in manufacturing and service during that period was significantly higher than those sectors in EU.

The fast development of China stimulated the trade relationship between Europe and China. Along with EU-China Trade Agreement signed in 1978， the trade relationship between EU and China has experienced the steady development period and the freezing period started from 1989. Fortunately， from 1992 the trade and investment relationship between EU and China normalized in most areas. After a series of initiative activities between the EC and China including the first EC strategy paper on EU-China relations in 1995 and the first annual EU-China Summit in 1998， the trade between these two partners has entered into a brand new cooperation era.

In recent years， EU became China’s biggest trading partner. Although EU did not play an outstanding role for inward Foreign Direct Investment （FDI） into China， EU still represent more than 19% of China’s external trade， while EU exports to China increased by over 100% from 2000 to 2005 which much faster than its trade with the rest of the world.

China and EU are the unique important challenge for each other’s trade policy. A series of EU-China Summit facilities the trade and investment between EU and China. Especially the competition dialogue provides a continued development in Chinese market economy institutions and the new trade partnership agreement provides a strategic mechanism for driving trade and economic policy between China and EU in 2008.

But on the other hand， the trade protection between the EU Member States and the other unsteady elements in EU and China trade may bring new challenges to the cooperation relations in EU-China trade and investment. For instance， although EU benefited from the growth of the Chinese market and the trade relations with China， sounds of protection against Chinese export in the EC arose from 2000 because of the large trade deficit.

2. Trends of EU-China Trade and Investment

Through the mutual effort by both the Chinese and EU， the trade and investment relationship between these two partners enters into a relative stability development period. The open market in EU has contributed to the Chinese export-led growth greatly whist EU has also benefited from the expansion in the Chinese market. Both China and EU have made marked achievements through the gradual increase of bilateral economic and trade interactions. Currently the trends of trade and investment between EU and China have the following features：

2.1 Great Rise of the Bilateral Trade and Investment between China and EU

The Chinese economy has enjoyed a roughly 10% growth rate over the past two decades. As Europe’s fastest growing export market， this development in China encourages the flourishing trade relations between EU and China. Particularly， the report conducted by the EC showed that EU27 trade with China grew by 150% between 2000 and 2006 and export from EU to China grew by around 65% from 2004 to 2008. Meanwhile the import from China to Europe has grown by approximately 18% annually in past five years. Therefore EU became China’s single biggest trading partner. With the development of the relations between China and EU， especially the positive official relations， the growth rate of EU-China trade and investment would be continued increasing.

2.2 Imbalance Trade and Investment

Although the trade and investment between EU and China increased rapidly， from above tables， it could be seen that there is an important trade deficit of EU with China. In 2004 this deficit has reached 98.64 billion euro， an unprecedented level of 169 billion euro was occurred in 2008. Without any doubts， it is the largest bilateral trade deficit in EU international business， which means the export capacity in China is putting incrassated competitive pressure on certain industrial sectors and employment in Europe. However one fact should be realized， the relative importance for China of EU in the bilateral trade is roughly twice the relative importance of China for EU on the basis of the share of total import and total export in both China and EU respectively.

2.2.1 Merchandise and Service Trade

Turn to the merchandise trade between China and EU by product （which can be found in EUROSTAT）， it is clear to see that although the traditional advantages of China in exports of raw materials and intermediate products is decline in revealed comparative advantages （RCA） values， the large increase in manufactured exports， including miscellaneous， clothing， telecommunication equipment， materials， from China to Europe is primarily a result of a broad restructuring of Asian export market which implied the strong labor-intensive manufacturing in China lead to political perception in many parts of Europe.

Meanwhile with the increased exports of capital and technology-driven products from China， the significant surplus of EU over China still exists in machinery and transport equipment， automotive products， chemicals and related goods.

In terms of service， Europe takes a noteworthy advantage over China. The EU27 exported 12.3 billion euro to China in 2006. Meanwhile EU import from China was 10.6 billion in total， accounted for just less than 3% of total extra-EU27 trade in services （source can be found from European Commission Website）. However the European services companies still find it very difficult to break into the Chinese market with the strict governance on banking， construction and law firms.

2.2.2 Investment

For investment， the foreign direct investment （FDI） from Europe to China is massive whist the Chinese FDI in EU nearly equals to zero. China became the third largest recipient of inward FDI in the world from 2005， even if the potential measurement error may be large. Within these inward FDI， the contracted investment into China from EU increased from 0.22 billion to 4.5 billion euro during 1990 to 2008.

General speaking， the trends of EU investment in China involves the growth rate has increased far than the total Chinese outward FDI while the average project investment is large. Compared with the new EU Member States， the larger multinational companies from the old EU Member States invest in large Chinese companies much more than the small corporations. They are normally centered on the raw materials， telecommunication， automotive products， chemicals， energy and other major industries since these businesses are profitable.

Today Chinese government encourages its national business to invest abroad more aggressively， particularly in EU. It is emerging a few Chinese multinational corporations； however these companies are much less present in world market than European， American and Japanese MNCs. The research showed that in 2006， there were only four countries that China has a positive stock of FDI in the EU market： UK， Germany， Spain and Denmark but the value was much lower than the corresponding stock of FDI of these four countries.

2.3 Reasons for the Trends of EU-China Trade and Investment

One of the key elements is the development of the Chinese economy and the increasing integration into the global business trade. Particularly， the accession of China to the World Trade Organization （WTO） in 2001 has facilitated the reemergence of China on the world stage. China as a WTO Member State has to continue its inexorable trend of economic and political reform and opening up its market to the reset of the world with modernizing its construction.

The large economy and the fast growth in China attract the European businessman’s interests. For example， China has the world largest steel and telecommunication markets due to the big population as well as the potential market in energy and many private sectors. Meanwhile， low labor cost is the basis of the comparative advantages in China to attract foreign investment traditionally as well as the tax exemption system in China.

The government from both China and EU dedicate to the trade relations between two partners. In recent years， EU and China have engaged in official dialogues in different areas to facility the international trade and investment including the Chinese competition policies and mutual recognition system. Based on Krugman’s theory and Heckscher-Ohlin Model， China is exporting labour-intensive products to increase the social economies of scale with its comparative advantage， because as a labor abundant country， China maintains a lower capital to labor ratio than the EU Member States. For the same reason， it can explain why EU is exporting capital and R&D intensive good to China. From a Chinese perspective， the range of competitive strengths of European operator is attractive involving innovation and R&D， financial strength， marketing and organizational management， superior quality of goods and comprehensive service skills etc. Since late 1970s， China has gradually opened its economy for foreign and has attracted large number of FDI to encourage its development in economic and political sphere， for instance， China has fewer restrictions on high-tech products and would like to reduction of anti-dumping duties to access the European Market.

Additionally， the role of FDI in Chinese market provides China as the net exporter of capital and intensive goods and high technologies such as telecom equipments and electronic and data processing etc. In fact， the enormous share of foreign companies in Chinese exports confirmed that most of the Chinese exports of electronic manufactured product to EU due to the presence of foreign investment in China. Taking the example of telecommunication sector， many prominent European companies including Nokia， Siemens and Philips are well implanted in China， not only in production facilities and assembly， but also in R&D， Stat Aid and employee training aspects.

3. Opportunities for Prospects of EU-China Trade and Investment and Its Challenges

As the development in China and its new trading power， Europe has a critical interest in China’s transition to a stable， prosperous and open economy. China will benefit from the openness of the EU market to Chinese exports in the further development while the European market can gain profits from the Chinese growing market for competitively priced imports， ‘advanced technology， high-value goods and complex service’. To maintain the reliable relations between China and EU， China should use its growing influence to champion open market and fair competition with momentum of domestic reform and rebalance the pattern of growth. At the meantime， European commission has to build and maintain political support for the sustainable relations growth.

With the rapidly growing market especially in the services， environmental and automotive sectors as well as changes in consumption patterns， the trade relations between China and Europe would be stronger in the further. Also the governments involving in the EU-China trade and investment all have positive attitudes. To reinforce the cooperation of EU-China trade and investment， in recently years， EU and China have conducted a series of national dialogues. Including ‘sectoral dialogues’ in over 20 different areas， these dialogues help promote regulatory and convergence， especially in agriculture， regulatory and industrial policy， general product and food safety， telecommunications and private companies etc. As well to sustain these dialogues， cooperation programmes are maintained in an extended scope between China and EU. For instance， at national level， China’s draft competition laws have much in common with the European model whilst the EU-China Trades Programme which supports capacity building in China on trade policy issues with 15 million Euros for the period 2004-2009 and would be renewed after 2009 at both local and regional levels.

The along with the development of the EU-China Trade relations， cooperation and competition will be increased in both the EU and Chinese market. However no matter how important for both European and Chinese governments and consumers， the EU-China relations are faced with a number of constraints.

From the European perspective， although Chinese tariffs have gone down significantly since China’s accession to WTO， EU exports still face a number of tariff and non-tariff barriers to trade and investment. China has maintained a number of tariff peaks in some industries including textiles and clothing， leather and fur， footwear， ceramics， steel and so on. In terms of non-tariff barriers， it costs over 21.4 billion Euros every year to European operators directly in lost trade opportunities， particularly tight equity restrictions in three large service sectors- financial services， telecoms and construction. Meanwhile even if Chinese government committed itself to opening its procurement market and acceding to the multilateral Government Procurement Agreement， there are still many procurement markets closed to the European business.

Meanwhile differences in political and economic systems among others can become a constraining factor to bilateral relations between EU-China trade and investment. Because Chinese political system is unlike that of other major third countries with which the EU has significant and growing relations’ the EC openly acknowledged that ‘China is not always an easy partner for the EU’. Intellectual property rights and human rights are important issues. The research showed that European manufacturers estimated that IPR theft cost them 20% of their potential revenues in China in 2007 while the rates of counterfeiting products was around 5-10% of turnover of EU companies in China. Additionally the standardization is another considerable factor in further collaboration for the mutual interests as the European companies complain of lack of clarity and conflicting information about Chinese standards.

Fortunately the new Partnership and Cooperation Agreement between EU and China include a specific focus on trade and investment issues to building on China’s WTO commitments to remove restrictions on investment of foreign ownership in China and obtain better protection of intellectual prosperity and negotiate mutual recognition of geographical indications.

From the Chinese point view， the opening market and accession to the WTO bring the great opportunities and challenges to access to the European market covering antidumping performance， technical barriers， and also on.

In particular the naissance of single currency Euro in Europe and the expansion of European Union bring the great opportunities and challenges for both EU and China to develop their economy and commercial trade. The strong performance of the Euro and the enlargement of the EU market get rid of the excessive dependence on US dollar and enhanced the mutual investment， the circulation of goods and the cooperation in industry as well as increase the initiative and flexibility of external trade choices. Especially in this financial recession， since stimulus packages to combat adverse effects of recession within the enlargement of the Euro Zone， the single currency between the countries， brings much positive effects to the EU market on international business.

On the other hand， with the increased power of EU， China may face the threat on unfair trade from EU including dumping performance and the inter-EU market trade protections and standardizations. The EU-China wrangling over textiles and clothing trade or called as the faintly ludicrous bra war is a typical case to test EU- China relations. With the removal of the old quota system in the global trade 2005， European response to the rapid surge in import of Chinese textiles and clothing products was complicated by divergent opinions because of the industrial differences among EU Member States. In an attempt to unlock the standstill， the EC reached a September 2005 Agreement with the Chinese government. However further trade disputes are anticipated. This ‘bra war’ addressed pressure to Chinese manufacturers that they would have to consider shifting to low cost with high skills and high value-added production along with the Chinese integration to the world trade. With the EU enlargement， the similar trade wars between the EU and China will be wages again remains to be seen. China has to prepare to seek compensation for any losses arising from EU enlargement.

4. Conclusion

The China’s growth and the integration to the international trade will continue to have a large impact on the whole global economy. As the new economic power， China may bring both opportunities and challenges to the EU， whilst ‘the EU plan for lifting its arms embargo on China was largely’ due to the consideration of the Chinese potential and profitable market. China is not only a supplier of industries at goods manufactured with cheap and low-skilled labour， but also much of its exports consist of technology-driven products.

On the basis of cooperation， European and Chinese business may face more competitions in the further. The complexity involved in handling EU-China relations on the European side is manifested in the EU institutions’ lack of consistency in defining the bilateral trade relations between EU and China because there is no fundamental conflict of interest between Chins and the EU. Form the Chinese perspective， Chinese government has to regard the supranational entity and intergovernmental organizations when it integrates to the global economy and focus on its further reform on political and economic systems. To reinforce the relations of EU-China trade and investment， it is important to stress the term ‘strategic partner’ in a broad sense by both European and Chinese authorities.

5. Bibliography

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