BOFIT: The bilateral relations between China and the European Union are important but challenging

BOFIT: The bilateral relations between China and the European Union are important but challenging
Relations between the EU and China remain tense, but the trade between them remains signficant. / bne IntelliNews
By Bank of Finland Institute for Economies in Transition (BOFIT) May 17, 2024

In early May, Chinese President Xi Jinping visited Europe for the first time since 2019. The destinations of the visit were France, Hungary and Serbia. According to the view generally expressed in the media, China sought to improve its relationship with Europe with the help of the trip, as China's bilateral relations with the United States are in a rather vulnerable state, and China wants Europe not to lean too much towards the United States' strict stance on China. For the European Union, the visit made it possible to maintain a dialogue with China, the Bank of Finland institute for Emerging Economies (BOFIT) said in its weekly newsletter on May 17.

One of the key meetings of the visit was a meeting with French President Emmanuel Macron and European Commission President Ursula von der Leyen on May 6 in Paris. In their discussions, the managers discussed geopolitics, climate change and economic relations between the EU and China. According to the official press release of the European Commission, the discussion related to economic and trade relations focused in particular on the following three issues:

1) China's structural overcapacity and state-supported industry,

2) facilitating China's market access, and

3) improving the resilience of production chains.

Although the differences of opinion between Europe and China in these matters are large, both sides characterized the bilateral relationship as significant and emphasized the importance of dialogue.

China's industrial policy, which, according to the EU's view, favours domestic companies and, due to state subsidies, leads to unfair competition in the international market, has received widespread attention in Europe recently. Recently, the EU, like the United States, has not set special import duties on Chinese products, although the debate on the matter is lively. The EU has placed under the competition investigation e.g. Chinese medical devices, wind turbines, solar panels, and electric cars, with the results influencing potential trade policy decisions.

Disagreements and a challenging business environment can also be seen concretely in business life. According to a report published by the EU Chamber of Commerce in China on May 10, the confidence of European companies doing business in China continues to weaken. According to the report, China's structural problems – such as weak domestic demand, industrial overcapacity, and a downturn in the construction sector – as well as market access and regulatory barriers make it difficult for European companies to operate in China.

According to the statistics of the Chinese customs, trade in goods between China and the EU has decreased by 6% in the first four months of this year compared to the previous year. Last year, the value of bilateral trade decreased by 7%. The background for this was especially the reduced exports from the EU to China (-10%), as imports from China only decreased by 1%. The value of China's exports to the EU was $504bn in 2023, while the value of imports was $283bn. Thus, China had a trade surplus with the EU of 221bn dollars last year.

China is a very important export market for the EU, as it bought 9% of the EU countries' total exports outside the Union in 2023. Similarly, the EU is China's most important export market alongside the United States, as both buy about 15% of China's total exports. The EU exports to China e.g. motor vehicles and their parts, medicines, as well as electronic equipment and their parts and imports from China, for example, telecommunications equipment, information technology and various electrical equipment.