Peter Mandelson

 

This year will be an important year for China. It will host its first Olympics, which it rightly believes reflects its growing place on the global stage. It will edge closer to being the world's largest exporter. It will be a growing presence in international equity markets. 'The China price' inevitably preoccupies any business in Europe that wants to be in business in ten years time.

 

The sheer scale of change makes crafting the right policies – both for China, and its partners – critical.  Chinese policy makers are trying to balance the immense challenges of managing China's rapid growth with the expectations – and concerns – of the rest of the world.  It is inevitable that those expectations will continue to grow.  And it is in our shared interests that we frame those expectations in the right context if we are to build a sustainable relationship based on mutual confidence and benefit.

 

At the annual EU-China Summit at the end of last year, the European press was full of stories of a new EU/China trade row.  But far more important than any disagreement was the offer by China to establish a new High Level Mechanism for managing our economic and trade relations. This week I am in Beijing to establish how this new group, which will bring together senior decision-makers from the Chinese leadership and their counterparts from the European Commission, should work.  

 

The overriding interest of Europe is in a successful China. What does that mean? It means a China that continues to grow while successfully addressing the social, political and environmental challenges it faces.  A China integrated into and playing a full part in the global trading system and the machinery of global governance – machinery which must be adapted to give China its full place.  And it means a China that is a respected and responsible player in the international community. 

 

That we have shared interest in China's success may seem self-evident.  But the pressures on the relationship mean it is as well to remind ourselves of this common objective.  Whatever the issues raised by China's emergence, the consequences of its failure, or a decision by China to work outside or against the international system would be disastrous.

 

The same approach must apply in our trade relations. China's intense competitive pressure on parts of the European economy means that it is right that we continue to push China to trade fairly and open its own markets so that our workers and companies can compete on a level playing field.  China faces problems in dealing with the changes in its economy, and has its own domestic pressures and vested interests to deal with.  But many of the reforms we seek in the Chinese trading practices and in broader economic policy – from the conditions for investment, to the development of financial markets or the protection of intellectual property – are central to   China's interests also.  That does not make them easy to solve.  But it does mean that in many cases, we can and should work with the grain of Chinese reform.  And it means that we need to uphold our side of the bargain.  When it comes, for example, to dealing with the growing wave of Chinese investment that is on the horizon, we must be ready to practice the openness that  we preach.

 

Addressing the EU-China trade deficit must be part of this discussion.  But we need to address it as a symptom of wider factors, not in isolation.  Much of the deficit reflects the refocusing of European supply chains away from other parts of Asia. China's trade surplus is due to its export-led growth model, which has underwritten the development of China's economy, and its huge success in reducing poverty.  But that model needs to be balanced by growing domestic demand in China and broad-based economic reform. 

 

What is true, however, is that the missed trade opportunity  represented by the deficit is not due to Europe's failure  in the Chinese market. European companies compete effectively in every global market where they are given a reasonably fair chance. That is not the case in China. European trade and investment is still unfairly restricted, and European intellectual property rights, which are fundamental to our competitiveness, are poorly protected.  Part of the answer to the trade imbalance is to remove these barriers and to grow European exports and investment of goods and services. 

 

The reason I believe we can take and must take a co-operative approach to addressing these issues is that many of them are concerns of Chinese reformers just as much as Europe's businesses. Many in China recognise that poor intellectual property rights protection is undermining China's own competitiveness. They know that if a restrictive investment environment is driving away European capital and technical expertise then the Chinese will be losers too. Even on a difficult issue like the currency, China's interest clearly lies in a gradual revaluation that takes some of the excess heat out of the export sector and strengthens consumer purchasing power. Above all, a heavy protectionist swing in Europe against China would be as damaging for China as it would be for Europe. 

 

The key to building any long-term partnership is to identify where our interests coincide and to build from there.    That does not mean soft-pedalling on our trade concerns - in fact it can mean using the WTO more often to resolve disputes, just as we do with the United States.  It does mean building a wider strategy of engagement, where trade differences are resolved as a normal part of the broader relationship.  It is that sense of a joint long-term partnership built on mutual interest and confidence that must underlie the new High Level Mechanism.