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Globalization Jitters

EU Leaders Call for Reform at Trade Summit in China

A trade summit between Chinese and EU leaders has opened in Beijing, with friendly official statements masking discontent. Europe wants China to move faster on product safety, currency reform and a yawning trade deficit.

Li Kequiang, a rising member of the Chinese Communist Party leadership, told European Commission President Jose Manuel Barroso at the start of a trade summit in Beijing on Wednesday that "cooperation and development has brought real benefits to the peoples of both China and the EU."

But it was clear before the summit started that EU leaders were concerned about the pace of Chinese economic reform. The main friction points include a massive, widening trade deficit and the weakening value of the Chinese currency, the yuan. EU Trade Commissioner Peter Mandelson has also complained about Chinese sluggishness in responding to food and product safety problems.

China's trade surplus with respect to the EU hit €9.5 billion ($13.9 billion) for the month of October, according to Chinese statistics -- a 50 percent increase over the previous year. The EU expects the total deficit for 2007 to rise 30 percent over 2006 to €170 billion ($252 billion).

"The considerable and growing trade deficit is adding to EU citizens' anxiety about globalization, and is growing in political importance," said President Barroso in a speech in Beijing on Tuesday. "There is a risk that the economic emergence of China is seen by Europeans as a threat."

A Host of Problems, All Related

The sinking value of Chinese currency is widely seen as a primary reason for the deficit. European monetary officials, led by European Central Bank President Jean-Claude Trichet, are in Beijing this week to press China for a more freely-traded yuan. Right now Beijing keeps its currency pegged to a basket of world currencies, which the Europeans argue has undervalued the yuan by up to 25 percent.

A cheaper yuan makes Chinese goods cheap compared to goods from the euro zone.

China revalued the yuan in 2005, and the currency has risen since then against the dollar -- which eases America's trade deficit with China. But it's fallen by 11 percent over the same period against a strengthening euro. Some leaders in Brussels have accused Beijing of "complacency" in the face of European discontent.

A series of recent scandals over imported Chinese toys has also led to heated talks in Beijing about product safety. "Some Chinese officials pointed out that less than one percent of China's exports to Europe had alleged health risks," said EU trade commissioner Peter Mandelson on Monday at an international food safety forum in Beijing, according to the Associated Press. "But Europe imports half a billion euros worth of goods from China every day, so even one percent is not acceptable."

The remark upset Chinese Vice Premier Wu Yi, who heads a government panel to improve China's product safety. "I am very dissatisfied with Peter Mandelson's speech," Wu told reporters on Monday.

msm/reuters/ap