The EU and China: trade and investment in the global economy - speech by Cecilia Malmstr?m, Commissioner for Trade, China Association Event, London

Ladies and gentlemen, Thank you to the China-Britain Business Council and to the British Chamber of Commerce in China for bringing us here today. It's always a good time to discuss China. ?It's the world's third largest economy after the European Union and the United States. ?It's the EU's second largest trade partner, and the UK's second largest partner outside of the EU. ?It's a major investment partner too. The EU has stocks of 117 billion pound sterling in the Chinese economy. And China is a growing source of foreign investment for the EU. Chinese investment in EU in 2014 is four times what it was in 2008. ?And, if we just look at our exports alone,over 3 million jobs here in Europe depend on our sales in China. But if it's always a good time to talk about China, it's even more important to talk about it right now. That's because we seem to be at an inflection point in China's development. For three and half decades, China grew breathtakingly fast. That growth brought hundreds of millions of people out of poverty. It reshaped vast sectors of the world economy. And it brought China back to global politics. But the Chinese economic miracle was based on a specific model of development: ?Abundant low-cost labour...?State-led investment in infrastructure... ?Growth based on exports?And a financial system geared to support state-owned enterprises. Today we are seeing some elements of that model reach its limits. This is of course something economists have been arguing about for years.

European Commission –Speech –[Check against delivery]The EU and China: trade and investment in the global economy25February2016Cecilia Malmstr?m, Commissioner for TradeChina Association Event, LondonLadies and gentlemen, Thank you to the China-Britain Business Council and to the British Chamber of Commerce in China for bringing us here today. It's always a good timeto discuss China. ?It's the world's third largest economy after the European Union and theUnited States. ?It's the EU's second largest trade partner, and the UK's second largest partner outside of the EU. ?It's a major investmentpartner too. The EU hasstocks of 117 billion pound sterlingin the Chinese economy. And China is a growing source of foreign investment for the EU. Chinese investment in EU in 2014 isfour times what it was in 2008. ?And, if we just look at our exports alone,over 3 million jobs here in Europe depend onour sales in China. But if it's always a good time to talk about China, it's even more important to talk about it right now. That's because we seem to be at an inflection point in China's development. For three and half decades, China grew breathtakingly fast. That growth brought hundreds of millions of people out of poverty. It reshaped vast sectors of the world economy. And it brought China back to global politics. But the Chinese economic miracle was based on a specific model of development: ?Abundant low-cost labour...?State-led investment in infrastructure... ?Growth based on exports?And a financial system geared to support state-owned enterprises. Today we are seeing some elementsof that model reach its limits. This is of course something economists have been arguing about for years. 2But one doesn't have to be a pessimist about China's future -and I am not -to see that things have changed. Let me be clear, I am not saying that a slowdown is a problem. In fact in some ways it shows the government's policytowards an economy based on consumption and less on exports and investmentis working. Thisnew model of growth is required to move to the next stage of economic development. And that change actually implies slower growth. Development economistswill tell you that productivity increases are much faster when you applyexisting technologies developed elsewhere. But onceyou reach today's technological frontier, productivity requires innovation, which is slower by definition. But that is what is needed if progress it to happen. So if growth is slower now it's an indication that this transformation is happening. China has chosen this path. President Xi calls it the 'new normal'of more measured growth and structural reform. There is always a risk of unintended consequences. And that's part of the explanation for the recent instability on China's financial marketsand in global commodity marketsThe question is about the ability –and confidence?ofthe government to reacttosituations and many other short term challenges that slower growth implies.In an atmosphere of uncertainty, many people will be tempted to goback to the old ways of pump priming the economy, and exportingthe problems like overcapacity or deflation topartners like the European Union. Sticking to the new path of reform is much more challenging. We can see that fact clearly in the record ofthe reforms. Unfortunately it's quite limited. Projects to open marketshave made relatively limitedprogress. In somecases they have been completely abandoned. And in some unfortunate cases, China has even taken worrying steps backwards. This can beseen in new lawson national security reviewsand non-governmental organisations and in initiatives on cybersecurity. In the same context,I am worried about thestep backs in human rights, now affecting the business climate too. We have recently witnessed casesof European citizens-a Swedish national arrested in Beijing in January, or a British bookseller who disappeared from Hong Kong end of last year -without respect for the rule of law or international and human rightsconventions.This is creating doubts and concern among foreign business travelling and operating in China. Similarly for Chineselawyers who face all kind of obstacles to operate freely and independently,and who are necessary to supporting the work of foreign business and citizens.***The wayahead is continue with reforms. Postponement only means delaying the problem and more uncertainty, in China and the global markets. Andnot justfor China's own economy, but for its vital relationship with the world, including the European Union.3Even a reformed Chinese economy will be dependent on international tradewith Europe. Services and investment outflows will grow even as goods production is reoriented towards domestic consumption. From the EU's perspective the relationship isalso vital. We want to seea reformed China with a level playing field for ourcompanies. We also have a major interest in a smoothly managed economic transitionand tackling some urgent issues,let me address four of these:First, steel, the biggestissue in EU-China trade relations today. The current massive overcapacity is simply unsustainable. That’s why the EU is doing everything we can to address this issue. In January I wrote to the Chinese Minister of Commerce, Minister Gao to express my concern and urgehimto address overcapacity. And we are continuing to press the case in all other fora.We are also using the trade defence system, within the law and where it is justified,to help level the playing field. The EU now has 37 trade defence measures in place on imports of steel products, while nine investigations are still ongoing.We have also made clear to the industry that we are willing to moveexpeditiously on any justified new cases we receive. ***The second issue I want to raise is the question of changing the methodology in anti-dumping investigations concerning Chinese products, the so-called market economy status.This is a sensitive issue. And it's become even more so with the steel situation. That's why the EU is conducting a thorough impact assessment and public consultation before we make up our minds on where to go. But what is clear is that certain provisions of China's protocol of accession to the WTO related to this issue will expire in December. We need to be very careful how we approach this and we need to work cooperatively.We will need the constructive engagement of all Member States, including the UK. ***These aretwo difficult questions, which put the emphasis on the difficulties in our relationship with China.But let me move to more positive territory: the ongoing negotiations for an EU-China bilateral investment agreement. An investment agreementis in both sides' interest. ?European investors would have better access to the Chinese market and their Chinese counterparts would be more encouraged to invest in Europe.?Companies operating in both Europe and China would be able to operate on a more level playing field –no matter what their origin or ownership structure. ?Asingle, modern agreementwould replace the existing 26 bilateral investment treaties that currently apply, increasing legal certainty. ?And this new approach would also improve the balance between investment protection, sustainable development and the rightof states to regulate in the public interest, while addressing the functioning of state-owned enterprises.