Background

EU-China ties and tensions

(Agencies)
Updated: 2011-06-24 09:12

Chinese Premier Wen Jiabao visits Hungary, Britain and Germany from June 24 to 28 with Europe's debt crisis on his mind.  

Following is an overview of EU-China relations and the major issues of concern.

THE EURO ZONE CRISIS

China's promises that it will keep buying the government bonds of Greece, Portugal, Spain and other debt-troubled euro zone economies have been a boost for Europe.

China has been keen to diversify its bulging foreign currency reserves, now at a record over $3 trillion, about a quarter of which are estimated to be held in euros.

Since euro-zone debt worries shook markets last year, China has repeatedly said that it still has confidence in the single-currency region and pledged to buy debt issued by some of its troubled member states.

China signalled in April it was ready to buy more debt from the euro zone's weaker states in a move to help stabilise the bloc's fragile finances and protect its business interests.

After investing billions of euros in Portuguese and Greek bonds to diversity its "huge" foreign exchange reserves away from the dollar, China was now considering buying more, Song Zhe, Beijing's ambassador to the European Union, has said.

But last year, Chinese officials, worried that the euro zone crisis could hurt the global economy, also pressed European officials to take action to address the debt problem and restore confidence in the euro.

TRADE FLOWS AND TENSIONS

The 27-member EU bloc is China's biggest trade partner, with bilateral trade in goods in 2010 reaching 395 billion euros ($560 billion), a rise of 13.9 percent, according to EU statistics.

Chinese exports to the EU reached 281.9 billion euros in 2010, a rise of 18.9 percent on 2009.

China is the EU's second-biggest trade partner behind the United States, and is its largest source of imports, from machinery to clothes and shoes. EU exports to China rose 8.4 percent in 2010 to 113.1 billion euros.

The EU's resulting bilateral trade deficit with China reached 168.8 billion euros in 2010. That gap has prompted EU anti-dumping actions that have angered Beijing. China says that EU anti-dumping measures amount to protectionist barriers against trade.

The EU has also joined the United States in complaining about the valuation of China's yuan currency.

THE INVESTMENT ENVIRONMENT

European businesses have complained that they face unfair barriers in China, including restricted access to government procurement purchases, valued at $1 trillion a year.

The European Union Chamber of Commerce in China said recently that foreign companies suffer from delayed information about new projects, tenders announced via obscure channels and unfair awarding and appeals processes.  

European firms' frustrations over barriers to China's lucrative public tender market, valued at about 10 percent of China's GDP, have prompted EU warnings of reciprocal market closures.

The EU has also pressed Beijing to do more to end technology theft, counterfeiting and other violations of intellectual property rights.