EU-China Ties

Published on 6th June 2017

Like all good friends, we may sometimes have our disagreements – and we have disagreements – but I believe that the frankness and honesty between us makes our relation stronger. Our partnership today is more important than ever before.

The European Union is China's biggest trading partner. China is the EU's second largest. The trade in goods between us is worth over EUR 1.5 billion every single day. Access to the European internal market is amongst the main elements having contributed to China's economic miracle, helping millions of people out of poverty.

Over 10 million Chinese people now visit Europe every year. And next year's EU-China Tourism Year will provide new opportunities for investment and more people from both sides to discover the beauty of each other's landscapes and ways of life. And I will make use of this Tourism Year to spend half of the year in China...

But our relationship is not an insular one. It is one that looks out to the world and makes it more stable. Whether it be fighting climate change – more important today than yesterday – cyber-attacks and international terrorism, or whether it be promoting sustainable development, trade and global economic growth, China and the European Union are aligned on the need for international solutions.

Nowhere is that more important than in leading the global clean energy transition and the implementation – the full implementation without nuances – of the Paris Climate Agreement. Our joint leadership provides businesses, investors and researchers – in Europe, China and around the world – with the certainty they need to build a global low-carbon economy. And it makes a statement to the world: there is no reverse gear to the energy transition. There is no backsliding on the Paris Agreement.

Our relationship is founded on a shared commitment to openness and working together as part of a rules-based international system. I am glad that we can meet here today and say this, loud and clear. It is one that recognises that together we can promote prosperity and sustainability at home and abroad. This is the vision that President Xi so eloquently described in Davos earlier this year.

Over the years we have come a long way. Back when I first visited China as a Prime Minister in 1996, your country was not even a member of the WTO. On that trip I remember talking a lot about working together, but in reality we were closed off to each other. China accounted for only 5% of world exports. Tourism – Chinese to Europe and European to China – was really unusual at that period of time. Our businesses exchanged less and our economies were not as interlinked as they are today.

Today, the EU is China's most important destination for outward investment. Chinese companies are attracted by the talent and innovation of our people, the stability of our investment environment and the strength of our economy. And we are just as attracted to China's economy. In 2014, the European Union accounted for nearly 16% of total Foreign Direct Investment into China.

But there is scope for much more. China accounts for less than 5% of foreign investment in the EU. And last year, China's investors spent nearly five times as much on acquisitions in the European Union than European companies did in China.

While Chinese investment into the European Union increased by 77% in 2016, the flow in the other direction declined by almost a quarter. To put that into context, EU investment into China last year was roughly 3% of what we invested into the United States.

That reflects how difficult it can still be to do business in China. Roughly half of EU companies say that it actually got harder last year. One in two say they feel less welcome than when they entered the Chinese market. And more than half say that foreign companies are treated unfairly compared to their Chinese competitors. That feedback is reflected in the World Bank's rankings of the ease of doing business. China sits in 78th place out of 183 countries. A big economic powerhouse needs to be higher than mid-table.

The Government's Work Plan shows China wants to move up the table. It calls for significant improvements in the investment environment and says foreign firms will be treated equally. The Comprehensive Agreement on Investment currently being negotiated will be a game changer. It will allow us to invest with confidence. It will help protect investments, ensure market access and level the playing field. We need to get it done so that we can truly have reciprocal investment relationship in our mutual interest.

We applaud the ambition of China's reform path. We recognise that reforms have been made and that plans have been established. But we would like to see implementation speed up – so that your policies are in line with your world vision.

The Prime Minister knows me well enough to know that I will always be frank and honest with him on all these matters. And I will take the same approach when it comes to the rule of law and fundamental human rights. These are universal questions of fairness and values that we hold dear but they are also pre-requisites for a stable and attractive investment and business environment. And we believe that real competition and real openness can only work with a level playing field.

That is more important than ever as globalisation is increasingly called into question, with many around the world asking whether it really works for them. The Commission set out its views in a Reflection Paper on Harnessing Globalisation. I explained this vision at last week's G7 and will do so again alongside China at next month's G20.

I understand that 45% of Europeans consider globalisation to be a threat rather than an opportunity. Here in the European Union we are focusing minds and efforts on making sure that no one is left behind and that we are all playing by the same rules. That is why we must address growing excess capacity in certain sectors that is leading to the dumping of below-cost products. This is hurting EU producers, costing jobs and having a damaging impact on some of our manufacturing and industrial heartlands.

Chinese steel overcapacity is now more than double the EU's total capacity. Over the past decade, Chinese overcapacities have tripled for steel pipes and quadrupled for aluminium and silicon.

When we have to, we will be sure to uphold fairness when it comes to trade. And we are backing that up by strengthening our trade defence instruments to make them fit-for-purpose.

This is not about being protectionist or pointing fingers at others. Our actions are fully in line with our international obligations under the WTO and we will apply them in a fair, transparent and country-neutral way. Trade cannot simply be free. It must be fair.

But as always, the European Union believes in dialogue and cooperation and we will continue to work closely with our Chinese friends on addressing excess capacity and other concerns, notably on data and technology.

This dialogue is crucial at a time when the European Union and China now have a responsibility to fight for a fair and open global market place. Delivering on this dialogue is our deep, strategic interest. If we fail to make progress, the only winners will be the political forces that oppose the openness we seek.

Together, we can make the most of the opportunities that can bring. For example, China is now building corridors that are connecting us by land and sea, as well as online. We welcome the opportunities created by the "Belt and Road" initiative – it will bring people and businesses in Asia and Europe closer together. The new direct rail links between Beijing and European hubs are symbols of that. They will resurrect an old trade route and cover 12,000 kilometres, crossing Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, and France.

We want to make sure that the "Belt and Road" complements existing projects, including those under the EU's long-established Trans-European Networks policy or the EU-China Connectivity Platform. Over time, improved connectivity will help manufacturers and businesses of all sizes to lower transport costs and open new markets.

But much more is needed: Asia alone faces a EUR 23 trillion infrastructure gap by 2030. Both the EU and China have a key interest in making the "Belt and Road" Initiative. Our message is that we can help you build it – but the rules must be the same for all. European companies must have a fair chance of being able to tender and compete on the same terms as Chinese counterparts. We must ensure, there too, a level playing field.

I am very much encouraged by China's statements on making the "Belt and Road" an open, transparent, inclusive initiative. Let us work on these projects together. Let our companies build them together.

That is just a glimpse of the potential that our partnership holds, not just for the European Union and for China – but also for the rest of the world.

Europe's future lies in our own hands – this is what leaders stated in their recent Rome Declaration. So we should shape our own future – and China will be a crucial partner in that. Together, we can increase the prosperity and well-being of our people. Our companies can thrive in open, fast-growing international markets. We can learn from each other and push each other on to innovate and compete. We can stand up for fairness across the world.

With China, the EU will fight for its global vision, in which we work together to tackle the challenges we share. We will defend the level playing field and make sure that the international system is anchored in rules and institutions that we all agree on. We will accompany the green transition together, in the interests of our children and our grandchildren. And by doing so we can help to make the world a more stable place, at a time when it is full of uncertainty.

By Jean-Claude Juncker

President of the European Commission

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