China says the European Commission conclusion on its market economy status is unfair and is preparing rebuttals to the preliminary assessment.

The assessment, released Monday, on China's market economy status said there were remaining shortcomings in four broad areas, which mean that it is not possible to grant the requested status at this stage.

The Ministry of Commerce has not so far given an official comment.

But the assistant commerce minister Yi Xiaozhun was quoted at a forum as saying that the conclusion was unfair.

"It's an unfair outcome, but we will continue to work on this issue," Yi said.

He said Beijing was hopeful of persuading the EU to change its view.

Foreign Ministry spokeswoman Zhang Qiyue said the European Union should fully recognize the current status of China as a market economy, which is a matter of fact.

"It will benefit not only China but cooperation between the EU and China."

She said that a socialist market economy has virtually taken shape in China because of the rapid growth of the non-public sector. The growth in the sector had taken up a considerable share of the national economy, with the marketplace determining the prices of more than 90 per cent of products.

She said China had streamlined policies, measures, laws and regulations in order to keep in line with World Trade Organization (WTO) requirements. Chinese enterprises had gained an independent footing because of the transformation of government functions and the deepening of structural reform.

It was hoped, she said, that the EU would pay sufficient attention to this fact and recognize China as a full market economy at the earliest date.

The EC report said China's economy failed four out of five EU criteria for market economy status.

The report found that China established an "absence of State-induced distortions in the operations of enterprises linked to privatization".

A statement from the European Commission said the EU was committed to granting China the status as soon as certain conditions are fulfilled.

They are:

State influence: Ensuring equal treatment of all companies by reducing State interference, which takes place either on an ad hoc basis or as a result of industrial policies, as well as through export and pricing restrictions on raw materials.

Corporate governance: Increasing the level of compliance with existing accounting law in order to ensure in general the usability of accounting information for the purpose of trade defence investigations.

Property and bankruptcy law: Ensuring equal treatment of all companies in bankruptcy procedures and in respect of property and intellectual property rights.

Financial sector: Bringing the banking sector under market rules by removing discriminatory barriers, in order to ensure rational allocation of capital by financial institutions.

But EU officials failed to elaborate how these conclusions about the shortcomings were reached since the assessment report is confidential.

Local analysts said they can not accept the conclusions and stressed China should be regarded as a market economy despite some shortcomings.

"No one, even the EU, is a perfect market economy. China is improving its market system, but it has been a market economy," an analyst said.

The EC assessment has pointed out some weakness in China's market system, but it should not bar China from the status as a whole, he said.

He also said that the report has not refused China's market economy status and that those concerns could be talked about.

Sources say China has ordered the preparation of detailed rebuttals to the conclusions of the European Union report.

"There will be rounds of negotiation," he said.

The market economy status is an issue which concerns only anti-dumping and anti-subsidy investigation.

The EC currently has anti-dumping measures in force and 22 ongoing investigations against China.

China lodged its request for market economy status in June 2003 and provided supporting documentation in September 2003 and also during this year.

(China Daily June 30, 2004)