June 10, 2013, by Tony Hong

Watches and cuckoo clocks – the tick-tock of China-Europe relations

By Professor Stephen L. Morgan,

Dean of Social Sciences at the University of Nottingham Ningbo China,

Professor of Chinese Economic History at the University of Nottingham.

What is it about Europeans and Chinese? Or rather, what’s rattling each of their cages at present? Trade relations has been at the heart of some pretty heavy words and precipitate actions that do little for understanding or prosperity of each.  Of Europe’s 31 global trade disputes that are on the table, 18 of them involve China. Yet, paradoxically, Europe is wooing Chinese investors.

This past week the Europeans have slapped punitive duties on the import of Chinese solar panels. Or have they? It is not at all clear. EU trade czar Karel De Gucht announced that Europe would impose a xx % duty on Chinese solar panels because of alleged dumping (selling at below cost).

Bewilderingly he promptly turned around and said they would kind of phase it in. ‘Shucks’, he seems to say, ‘we are just trying to get you guys to understand’. That is, the punitive measure is not an all out stab in the guts, but a little tickle and needle and pushing into the bowels that will hurt progressively more unless China proved itself amenable to negotiation. Of course negotiation has been going on all time. Hmmm.

China wasn’t about to take this EU action without a whimper. Within a day China announced it would impose higher duties on wine from the southern European supporters of the solar panel duty impost. France squealed particularly loudly. The Spaniards were none too happy about their quaffable Rioja being more expensive to the Chinese – they had after all abstained from the decision, but as the EU rules prescribed, abstention is equivalent to a yes position and that’s how the Chinese read their stand. Oooh, a-la-la. Ouch.

Now if you were to take all of this noise at face value – or heaven forbid, seriously – you might think we are about to see Europe and China engage in an all out trade war. It makes good (news) copy; it generates a raft of quotable quotes; but the reality is probably a little more prosaic.

Less than a week before this latest round of EU-China trade angst we saw China conclude a much heralded free trade agreement with the Swiss. It was China’s first free trade deal with a continental European state.  More are desired.

I suppose the agreement is pretty hot stuff in the Alps, especially for those who claim the Swiss are leading the way for China to become more closely bound to Europe. Don’t get me wrong – I like the Swiss; and Switzerland is a nice enough place to visit, even if my last visit (February this year) was the result of me taking the wrong turn driving south from northern France to the French Alps. But cutting duty on Swiss watches to China and making cuckoo clocks a little more affordable to the noveau riche of the Middle Kingdom is hardly the stuff to stop trade wars. But no doubt my landlady in Ningbo will be happy: she has a mock cuckoo clock on the wall two metres from where I write this blog. Now she might want to trade up to the real thing.

There is emerging something of a pattern. As readers of the CPI blog will know, I have previously discussed the shenanigans of EU Trade Commissioner De Gucht in his recent decision to act against the Chinese telecom giants Huawei and ZTE for allegedly dumping telecom products. This was ex-officio; the EU acted alone without complaint from companies. De Gucht had failed over the previous year to sign up European telecom companies to take action against China, so he initiated it independently. Much the same thing is happening over solar panels. Britain, Germany and more than a dozen other EU countries have opposed the EU’s planned higher duties on solar panels.

And well they might. Are not most European countries – if not all – committed to reducing their carbon footprint, to becoming greener? Cheaper solar panels must be part of that equation. The question is whether the cheapness of Chinese solar panels is a product of their manufacturing efficiency or an expedient response to a market glut because the global ramp up in capacity exceeds demand. Sure there might be a bit of competitive exuberance here, but were the European firms delivering price-performance comparative products? I suspect not. So where is the justification for the punitive duties?

As with the squabble over the telecoms sector, this dispute is more about carving out a new relationship or partnership between Europe and China, and less about the merits of competitive performance or supposed anti-competitive dumping and subsidies.  Both parties I suspect are quite comfortable with this game, with the rhetoric, because they in a way speak a common language, which is one of state-directed capitalism. Neither really likes an unfettered market.

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