Chinese Premier Li Keqiang (center) with European Council President Donald Tusk (left) and European Commission President Jean-Claude Juncker (right) in Beijing. Photo: AFP / Wang Zhao
Chinese Premier Li Keqiang (center) with European Council President Donald Tusk (left) and European Commission President Jean-Claude Juncker (right) in Beijing. Photo: AFP / Wang Zhao

They are normally predictable affairs, but not this year. Speaking at the annual summit between China and the European Union in Beijing on Monday, Donald Tusk warned that trade wars can rapidly turn into “hot conflicts.”

The European Council president spelled out the dangers when he called on Europe, the United States, Russia and China to avoid disputes from spiraling out of control.

“We are all aware of the fact that the architecture of the world is changing before our very eyes and it is our common responsibility to make it change for the better,” he told the media.

“There is still time to prevent conflict and chaos,” he added, referring to rising economic tensions across the world.

Tusk and European Commission President Jean-Claude Juncker held talks with Chinese Premier Li Keqiang at the annual gathering, discussing a range of topics from climate change to clean energy and geopolitics. But top of the agenda was deteriorating relations between the US, the EU and China.

President Donald Trump has mounted a personal crusade to bring the US deficit down with the world’s second-largest economy, which was an eye-watering US$375.2 billion last year, and hit a record high for a single month of $28.97 billion in June.

He has also targeted the “Made in China 2025” program involving advanced technology, as well as imposing tit-for-tat tariffs on an array of Chinese imports. Ten days ago, he rolled out further proposed duties on products worth $200 billion as the dispute escalated and the rhetoric reached fever pitch.

At the same time, the White House is locked in a trade dispute with the EU, with Trump branding the bloc his “biggest foe globally right now.”

Cold War setting

“Well I think we have a lot of foes,” Trump told CBS News during his trip to the United Kingdom and before his meeting with Russia’s President Vladimir Putin in the old Cold War setting of Helsinki.

“I think the European Union is a foe, what they do to us in trade. Now you wouldn’t think of the European Union but they’re a foe.”

Still, it is China he has his sights set on as issues concerning intellectual propriety rights and the slow pace of further opening up sectors there to foreign firms bubble beneath the surface. The EU is also dismayed by the lack of progress in those areas.

European Commission President Juncker reiterated that Beijing had to show more urgency in fulfilling promises it had already made during the past two years.

Protectionist policies are still widely in place with Washington and Brussels calling for greater access during last week’s review in Geneva of China’s World Trade Organization membership.

“If China wishes to open up it can do so,” Juncker said at a joint news conference with Li and Tusk in the Great Hall of the People. “It knows how to open up.”

The point was hammered home by Tusk. He stressed that it was time to reform the WTO and combat forced technology transfers, as well as excessive state subsidies, which is at the heart of the trade dispute between the US and President Xi Jinping’s government.

“We need new rules in the areas of industrial subsidies, intellectual property and forced technology transfers, the reduction of trade costs, as well as a new approach to development and [a] more effective dispute settlement,” Tusk said.

For Beijing, finding the right balance is proving as challenging as a high-wire artist trying to cross the Grand Canyon in ski boots.

Apart from pushing forward domestic reforms, China is grappling with realigning the economy while weathering a trade war storm.

On Monday, the National Bureau of Statistics released gross domestic product figures, which showed the economy slowed in the second quarter. Between April and June, GDP increased by 6.7% compared to 6.8% for the first three months of the year.

Coupled with last month’s retail sales numbers and a tightening in infrastructure spending, these latest figures will give Xi’s economic brains trust plenty to digest.

“[China faces] an extremely complex environment both at home and abroad,” Mao Shengyong, a spokesman for the National Bureau of Statistics, told the media, adding that growth remained strong.

“We should also be aware that external uncertainties are increasing and economic restructuring is in a phase of overcoming difficulties.”

Fixed-asset investment

When you break down the numbers, a snapshot of the economy starts to emerge. Value-added industrial output, which measures production at factories, mines and the utility sector, increased 6% in June compared to the same period last year, but was down on May’s figure of 6.8%.

Fixed-asset investment, a crucial driver of domestic demand, jumped 6% in the first half of the year compared to the same period in 2017, but dropped from 6.1% between January to the end of May.

State-backed infrastructure investment also took a hit. The sector involves funding for road construction, railways and other public facilities apart from energy utilities.

In the first half of the year, it was 7.3% up compared to the opening six months of 2017, but it slowed from 9.4% in the first five months of 2018. Real estate and retail sales also declined.

But one major industry, which is part of the “Made in China 2025” policy, struggled. China’s robot production increased by 7.8% in June compared to the same period last year, but it was well short of the 23% rise for 2018 “as a whole.”

“China robot production has lost steam with other equipment manufacturing. This shows that exporters are pessimistic,” Iris Pang, an economist at ING, the multinational banking and financial services group, tweeted.

“That signals that factory bosses are worried about the future, and refusing to invest in new equipment right now.”

Judging by the statements coming out of Beijing, they are not alone.

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