The Health and Future of China-EU Trade Relations

I was asked by a big Chinese news agency to provide a short comment on the health of China-EU trade relations. Here it is:

Trade growth between China and the European Union in the past ten years has been hugely beneficial for both sides. A critical part of globalised value chains, China-EU trade has helped to promote competition and structural change in several sectors, leading to bigger benefits than the direct revenues from export.

Now they need to deepen policy cooperation if trade is going to grow at healthy levels in the future. Trade has flatlined recently and even if the latest figures show a slight growth it is far beyond the levels experienced in the past ten years. A bilateral investment protection treaty, also providing reforms to increase market access and protect investors beyond current agreements, would give a boost to China’s going-out strategy and improve the conditions for investment cooperation in sectors with big portions of innovation and intellectual capital – the ideas-based economy.

In the past, China-EU trade integration has predominantly been based on product intermediaries in sectors such as electronics and finished products in light industrial sectors like textiles or toys. But China has grown out of its initial stages of economic development and now need to access innovations, capital and know-how higher up in the value-added chain. That process of development is generally far more dependent on cooperation with foreign companies – and getting access to the right ideas. Similarly, the crisis in Europe has revealed growth fragilities in Europe and there is now a need to boost capital and innovation intense sectors where it has comparative advantages.

Europe and China also need to ensure its trade relation is not disadvantaged by the rising trend of bilateral and regional cooperation. Europe has already jumped the bandwagon of bilateral trade agreements – and China has recently established a strategy more dependent on signing new trade agreements with other countries. So far, China and the EU have not agreed to launch a bilateral trade deal between them – and for such an initiative to materialise in the medium-term future both sides need to progress structural economic reforms.

However, while the two countries are negotiating a new investment agreement, they should start a discussion about some quick trade deals they could do in selected sectors – or on selected issues.