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The European Union and China's relationship enters a new phase


Wednesday 14th December 2016.

Hans-Dietmar Schweisgut, Ambassador of the European Union to China

European Chamber Annual Conference 2016 "Globalisation in Retreat: Risks and Opportunities for China"

Dear Mr Wuttke,

Dear Joerg,

Thank you for inviting me again this year to share our views. The EUCCC is an important partner for us. The subject of your conference is very appropriate at a time where our complex relationship with China deepens and develops.

The EUCCC's Annual Conference has become an important event. The Chamber is an essential partner for us, and indeed, also for Chinese authorities. Its annual position papers are an important input as are its Business Confidence Surveys and the extensive work carried out by its working groups. Your input during your regular visits to Brussels, such as for the High Level Economic and Trade Dialogue, is also very much welcomed there. Yesterday, I attended the launch of the position paper of the Shanghai Chapter of the EUCCC. And we are looking forward to its forthcoming paper on “Made in China 2015”.

We are looking back at an eventful year in Europe, China and the US. The vote on Brexit,  the G20 summit, the election of President -elect Mr Trump and to a certain extent the referendum in Italy have important implications for the future.

These are not isolated events: populist-fuelled discontent has become a major factor in the political discourse. For the first time there was a long discussion at a G20 summit in Hangzhou on rising income equality and a growing backlash to globalization. These were factors in the referendums and elections mentioned and will be in the ones to come next year.

All leaders shared the conviction that these issues need to be addressed if we want to preserve an open international trading system. As IMF Managing Director Christine Lagarde said: “Growth has been too low for too long for too few. [...] there was a determination around the room to better identify the benefits of trade in order to respond to the populist backlash against globalisation.” We need to come to better explain and show how free trade benefits our companies, workers and citizens.

Let me make three remarks at the outset:

  1. Europe has benefitted from an open trade and investment climate and so has China.
  2. Cooperation between the EU and China has been beneficial to both sides as well as for the world economy as a whole.
  3. We still see great potential for the further enhancement of our strategic partnership and economic cooperation.

But we have to acknowledge that our relationship has become more complex and so has the global environment. Let me explain this.

I have recently read in an article in a Chinese newspaper that due to its internal difficulties, the European Union had forgotten its role as champion of free trade and open markets and reduced its international engagement, particularly in its relations with China.

Quite the opposite is true. The EU is happy to engage with China in multiple fields of mutual interest and in many of China's flagship projects. We are keen for this commitment to be not only on paper and in proclamations, but to become fully operational.

Take the example of the Asian Infrastructure Investment Bank – soon to celebrate its first anniversary. It was supported from the beginning by EU Member States, many of which are founding members. It has also received EU-level institutional support, via the EIB which in the meantime has signed  a Memorandum of Understanding with the AIIB..

I still believe that the EU – with its high-end and high-quality products and services – is an ideal partner for China in its pursuit of industrial upgrading under major strategies such as “Made in China 2025” and internet+. We have already started extensive collaboration in very important sectors such as knowledge-based 5G technologies.

And both the EU and China have committed at the highest level to work on harnessing synergies between EU and China connectivity programmes such as China's One Belt One Road and the EU's Trans-European Transport Network. This cooperation should go beyond project cooperation. The EU is committed to a more strategic approach to Europe-Asia connectivity.

But as we have entered a new phase in our relationship we also have to be clear on principles guiding our relationship in order to better explain its mutual benefits and counter populist anti-globalist sentiment.

These principles are shared global responsibilities, openness and transparency and a relationship based on reciprocity.

We welcome China's greater international engagement, including as a global agenda setter in international fora In the UN, international financial institutions, G20, WTO and regional organizations we already see a greatly enhanced Chinese role and opportunities to closely work with each other as global actors. This includes G20 leitmotivs such as inclusive and sustainable growth, but also the fight on climate change and protecting the environment and to maintain the credibility of an open trade and investment system.

The EU remains one of the most open and liberal economies in the world. China is among those who continue to benefit from this, as  borne out by trade and investment figures. The EU is China's largest trading partner and a large part of Chinese foreign investment is destined to the EU.

Let me emphasize again the need for openness. In fact, openness and reciprocity go hand-in-hand. We need to see the same level of openness and protection for foreign investment in China as the EU provides. This would give substance to China's claim that it is fully committed to an open and fair trading system, as we have heard President XI Jinping announcing at the APEC summit in Lima. Such an open and fair global trade and investment system is necessary to answer the concerns of those who fear that globalization is a one-way street.

In this context we need to address the issue of overcapacity on which the EECCC has issued an excellent study earlier this year.

Overcapacity in sectors such as steel and the trade distortions which come with it need to be fully addressed. We look forward to the speedy implementation of the G20 summit agreement to establish a Global Forum on Steel with the full participation of China. We also hope that swift progress can be achieved on setting up the bilateral steel platform which was agreed at the EU – China summit in July.

Abolishing market access and investment barriers would be in China's own interest. The EU's economic strengths are well aligned to China's priorities as laid down in the 13th Five Year Plan, and previously by the 3rd Plenum. We think that the sooner these reforms become reality the better.

An open approach to R&D and investment would be better suited to facilitate the transition to a knowledge and innovation based economy than reliance on an industrial policy of an old era discriminating in favour of domestic business actors, for example in the framework of “Made in China 2015”.

The EUCC has on many occasions voiced its concerns in this regard and its Business Confidence Survey shows that the number of its member companies planning to increase their investment has dropped. Actual investment from EU companies in China has in the third quarter 2016 been the lowest in seven years. This will not change unless there are clear actions to show that European investors are welcome.

I do not believe that the current level of EU investment in China reflects the potential of Europe's contribution to a further upgrading of the Chinese economy, in particular with regard to green technologies and digital products and services. Quite the opposite: the EUCC's Survey shows a keen desire to localize deep R&D in China if strong IPR protection, an end to forced technology transfer and equal participation in standardization bodies and R&D funds are guaranteed. Our companies are keen to do so in a climate of openness, fairness, and reciprocity, and to contribute to moving towards the goals of the future. Obviously despite some progress a lot remains to be done to provide these assurances.

The strongest message that China is equally committed as we are to address concerns, and open opportunities, that is to achieve a level playing in our trade and investment relations would be quick progress in our negotiations on a Comprehensive Agreement on Investment. Reciprocity in market access and a state of the art investment protection regime would be the best framework for a mutually beneficial economic partnership.

There are other areas where reciprocity and transparency are key. : One would be for China to adhere to the WTO Government Procurement Agreement, another one would be close cooperation on state aid controls to mention but two. We can in particular build on our very fruitful cooperation on competition, on merger control and antitrust. As envisaged when EU Competition Commissioner Vestager was in Beijing this year, this is an opportunity to work together more fully and also including state-aid which is an important issue in the framework of SOE reform and restructuring.

To sum up: Our message to China is very clear: we want even more engagement, but also more openness and reciprocity. For the EU economy to remain as open as it is today it will be essential to have a partner in China which is economically more open and stable, with significantly improved market access for foreign companies as well as a level playing field for fair competition and without discrimination against our commercial actors.

And as I mentioned, this approach would be fully in line with the extensive programme of opening up and liberalization that was adopted at the Third Plenum.

So far from retrenching, far from reducing our engagement, the EU is keen to strengthen its relationship with China in a spirit of openness, fairness, and partnership, based on reciprocity.

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