The EU and China have agreed to pursue a trade transparency mechanism, as concerns over the trade deficit and the alarm sounded by foreign businesses operating in China reach fever pitch.

Speaking during a press conference after the 10th EU China High-Level Economic and Trade Dialogue on September 25, the EU trade commissioner Valdis Dombrovskis highlighted that the EU had a trade deficit of nearly €400bn with China.

“And European companies in China are raising a number of concerns about the business environment,” he continued. “Addressing these concerns would help China to retain its capacity to attract and retain foreign investment, and meet the objective of sustainable, high-quality economic development.”

In this context, He Lifeng, China’s vice premier, and Mr Dombrovskis have agreed to “continue discussions on a possible EU-China transparency mechanism on supply chains for critical raw materials”, according to the latter’s public statement on September 25. The statement also highlighted that the two trading powers will improve public procurement access for European medical devices in China and ease the backlog of applications for licences by EU makers of infant formula.

“Ambiguous laws and regulations”

The EU’s deficit of goods traded with China stands at €395.7bn as of last year, according to Eurostat data, more than double the €144bn figure recorded in 2017.

European companies in China face numerous challenges ranging from slowing economic growth to ambiguous regulation focused on national security, such as the anti-espionage law.

Last year, the foreign investment community in China signalled a shift in mood in the world’s second biggest economy, from a loss of “allure” to persistent frustration over zero-Covid measures. In spite of an initial wave of optimism following the scrapping of zero-Covid measures last December, the investment case for China has not been re-ignited. 

“At the end of last year we thought 2023 would be a fantastic year but that turned out not to be the case, as a lot of lingering concerns have been accentuated in the present year,” says Jens Eskelund, president of the European Union Chamber of Commerce in China.

In a position paper by the European Union Chamber of Commerce in China, published on September 20, one of the highlighted concerns was the “politicisation of business” and “ambiguous laws and regulations”.

The chamber has recommended that the Chinese government engage in dialogue with other governments and key stakeholders to “depoliticise the business environment” and “improve the predictability and reliability of China’s regulatory environment by ensuring laws and regulations are specific and clearly defined”.

De-risking China

During his visit to China over recent days, Mr Dombrovskis has repeatedly emphasised that the EU is implementing a China “de-risking” strategy, whereby the bloc is looking to ensure that trade with China is in line with “fair” practices. 

“The EU welcomes competition. It makes our companies stronger and more innovative. However, competition must be fair. And we will be more assertive in tackling unfairness,” he stressed during a speech at Tsinghua University on September 25.

“The lack of reciprocity and level playing field from China, coupled with wider geopolitical shifts, has forced the EU to become more assertive,” he said.

This follows the launch of an investigation earlier this month by the EU into Chinese subsidies for the production of electric vehicles. “[The price of Chinese electric vehicles (EVs)] is kept artificially low by huge state subsidies. This is distorting our market,” Ursula von der Leyen, president of the European Commission, said in a statement on September 13 accompanying the launch of the probe.

When asked if the EU probe into Chinese EV subsidies should be a concern for European EV makers in China, Mr Ekelund said “it is [too early to say] as the investigation has not even started yet”. 

European brands account for around 6% of Chinese battery-electric car sales in 2022, according to the European Automobile Manufacturers Association, while Chinese brands account for almost 4% of EU battery-electric car sales in 2022, up from 0.4% just three years ago.