The same goes for investment in China. China wants FDI, and it also wants to become a major investor abroad in its own right. But EU investors in China still face ownership caps, onerous local partner requirements and other restrictions.
Last year, for the first time in a decade, EU investment volume in China actually fell. Part of that is probably cyclical – but it is not a coincidence that the European Chamber of Commerce last year released its most critical report ever about the Chinese investment climate.
China gains little by driving away European capital. Given the need to strengthen the Chinese banking and insurance sectors, if China is to develop durable capital markets, the experience of European banks and financial services firms is invaluable.
We are also shut out of telecoms markets – despite China's WTO obligation to open its license system to foreign providers. Europe is committed to maintaining an open market for Chinese investment, which is only going to grow in the years ahead.
Even on an issue like the trade deficit we can agree on a few fundamentals. The deficit reflects a number of things, not all linked to restrictions in the Chinese market.
It is a result of the shift of European supply chains into China from other parts of Asia. But it is also a symptom of insufficient domestic demand that leaves the Chinese economy heavily skewed toward exports.
We want China to strengthen consumer purchasing power by maintaining the gradual appreciation of the yuan and the development of stronger social safety nets that allow ordinary Chinese people to reduce their huge levels of precautionary saving.
But that is also the only way for China to develop strong services and retail economy and slow its inflationary accumulation of hard currency reserves.
These are defining questions for the EU-China economic relationship. But what is important about them is that they are all rooted in shared strategic interests. That does not necessarily mean that they will be easy to resolve. But it does mean that we have a common ground on which to work.
Inevitably, people will ask how our trade relationship should sit in our wider political relationship with China. I do not think that it is possible or desirable to wall off trade from the rest of our ties with China.
It is to be expected that some on both sides of an issue like Tibet will call for boycotts of one kind or another. I do not support these because. While it is easy to see how they would hurt the interests of ordinary Europeans and Chinese, it is not possible to see how they would help.
What we know for absolutely certain is that if we really want to shape the twenty-first century, we have to shape it with, not against, China.
There is no getting away from that. And our policies, and our behavior, and China's too, need to be conditioned by that reality.
The author is EU trade commissioner
(China Daily April 18, 2008)
