European Commission Vice-President Jyrki Katainen (right) and Chinese Vice-Premier Liu He walk to their meeting during the EU-China High-level Economic Dialogue in Beijing. Photo: AFP / Wang Zhao

They make strange bedfellows in these turbulent economic times. But as trade tensions with the United States increase, China is busily cozying up to the European Union, despite an on-going World Trade Organization dispute launched by the bloc of 28-member states just weeks ago.

In Beijing on Monday, Premier Li Keqiang discussed closer ties with Europe during meetings with the French Prime Minister Edouard Philippe and the European Union Commission Vice-President Jyrki Katainen.

Increased market access for EU companies was highlighted along with Beijing’s commitment to continue talks to expand the fleet of Airbus aircraft for major state-owned players, such as Air China, China Southern and China Eastern Airlines.

“I explained to Mr. Prime Minister [Philippe] that in recent years we have bought quite a lot of passenger aircraft, and there needs to be a period to digest this,” Li told a joint media conference. “In spite of this, we are still willing to strengthen cooperation with France’s Airbus.”

The tone was distinctly cordial compared to the deafening rhetoric between Washington and Beijing.

Last week, President Donald Trump threatened to impose another round of tariffs worth up to US$450 billion on Chinese imports in the tit-for-tat trade dispute.

China responded quickly by warning that US blue-chip businesses, such as Boeing, could be targeted if the world’s two largest economies fail to pull back from the brink of a full-blown trade war.

‘Frictions and disputes’

“We believe that relevant frictions and disputes can be resolved via talks. There are no winners from fighting a trade war,” Li said at the media conference.

“All sides should join together to expand growth and not engage in putting up trade barriers or protectionism. This is good for nobody,” he added.

Still, the ‘Big Three’ are locked in their own battles which criss-cross Washington, Beijing and Brussels. Last week, the EU fired back at the US after being hit by a 25% duty on steel and 10% on aluminum by imposing 25% tariffs on American imports worth 2.8 billion euros ($3.26 billion).

Since then, Trump has threatened to wheel out a 20% duty on cars built in Europe, which would hit German auto manufacturers by wiping out roughly 1.5 billion euros in profits.

“Nevertheless, the EU’s trade surplus with the US, worth $115 billion in 2017, is unlikely to decline much in the coming years,” the Economist Intelligence Unit, a think tank, stated in its latest Global Country Forecast.

“[This means] trade will remain a politically sensitive topic likely to come back on the agenda at any time.”

But the US spat with the EU pales in comparison to the trade conflict with China and that record-breaking $375.2 billion deficit last year.

Trump has also expressed concern about intellectual property rights in high-tech industries, centered around the “Made in China 2025” policy, which aims to turn the country into a technological powerhouse.

The EU has joined the US on this issue with Brussels lodging a complaint with the WTO in Geneva earlier this month in regard to IP violations. Both sides are also pushing Beijing to further open up China’s economy.

“I feel we are making progress … both China and the EU believes in multilateralism and a rules-based world order,” Katainen, the European Commission vice-president, said at the joint press conference, despite the continued practice of forced technology transfers.

Significantly, they are involved in more than 1 billion euros a day in trade. Last year, EU exports hit 198.2 billion euros compared to Chinese imports of 374.6 billion euros, Eurostat, the bloc’s statistical department, confirmed with the deficit running at 176.4 billion euros.

Even though China’s foreign investment dipped in 2017, it still jumped 76% in Europe compared to the previous year, reaching $81 billion,  the international law firm Baker McKenzie reported.

Yet the relationship is still rocky, particularly over what the EU Chamber of Commerce in Beijing has called “promise fatigue” when it comes to greater access to markets inside the world’s second-largest economy.

Business confidence survey

In its annual business confidence survey, the EUCCC reported that doing business in the country had become more challenging in the past year as companies face regulatory barriers, market-access restrictions and unequal treatment.

“The European Chamber urges China to follow through on its promises of reform and opening-up that have been repeatedly stated since President Xi [Jinping’s] speech to the World Economic Forum in January 2017,” the business group, which represents more than 1,600 foreign firms, stated in the report.

“While some of these pledges have been written into legislation, European companies have yet to see much real concrete implementation,” it added.

During the past two years, this has become a major stumbling block between China and leading EU countries, such as France, Germany and the United Kingdom before Brexit.

It has forced Beijing into a difficult balancing act as both the US and EU have demanded a more level playing field and broader state-backed policies to expand business opportunities.

“Addressing [the EU trade] deficit of a little more than $100 billion is very simple,” Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, said. “What China faces is much bigger and longer-term.

“We have to be clear in our minds that the EU will not come to China’s defense against the US. On some issues regarding China, they are even with the US.”

Indeed, cozying up to EU will only take China so far, with the shadow of the Stars and Stripes fluttering in the background.

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