The Hindu Business Line : Trading troubles of Europe-China

The European Union's trading and financial establishments are "more than fascinated" with the "poignant but steady" emergence of China's $2.5-trillion economy in the global marketplace and are exploring ways and means to create a "physical presence" in the Middle Kingdom. China has now overtaken Japan as the world's third largest exporter, according to the World Trade Organisation. Electric goods account for a third of Chinese exports. China is now the biggest merchandise trader in Asia and the third largest in the world for both exports and imports. Its insatiable appetite for crude oil and raw materials has made it a "key driver" of world trade growth.

L'affaire Danone

Yet, China is not without its share of pitfalls and imponderables. In this context, the outcome of the so-called "Danone affair" in China is keenly awaited.

Europe's prominent dairy products manufacturer Danone has an agreement with a Chinese family firm. The brawl obviously threatens the huge investment made by the French multinational, beverage and yoghurt giant in the Chinese Wahaha Group, headed by Mr Zong Qinghou. Danone has now filed a lawsuit in California against a company controlled by Mr Zong's relatives. The lawsuit and its ultimate outcome highlight the battle over control of the largest beverage manufacturer and distributor in China.

The dispute has brought into sharp relief the vicissitudes of trading with China.

An attractive alternative

Often rated a "closed shop" by European merchandisers, major companies of the Continent have preferred to "piggy-back" into China by entering into collaboration with companies based in Hong Kong, Taiwan or Singapore, usually family-owned outfits. As one analyst put it: "In these places, at least you can have a recourse to western style legal system" which does not exist in mainland China. Corruption is another inhibiting factor.

But worried over the EU's fast-rising trade deficit vis-a-vis China — the 2006 figure of $135.2 billion may soon hit the $200-billion mark — prompted the EU Trade Minister, Mr Peter Mandelson, to urge (In November 2006) Beijing to open its market to wider foreign competition. Beijing rejected the demands on tariffs but promised to combat piracy of intellectual-property rights. On the trade surplus, it simply pleaded helplessness. European merchandisers are also not happy with what they call the under-valued Chinese national currency and the low interest rate regime that provides an added advantage to exporters.

Revaluing Chinese currency

China is under pressure from Brussels and Washington to revalue its currency; on the threat of "full blown trade dispute". The issue could be brought to the WTO's attention as Chinese exporters enjoy a range of export subsidies. Failing a revaluation of the Chinese currency and curtailment of export subsidies could lead to sanctions being imposed. However, much would depend on China's export strategy to narrow the fast-widening Sino-European trade gap. "Economic and trade issues should not be politicised," warned Chinese Foreign Minister Yang Jiechi.

China's economic rise has far-reaching consequences. Although its economy is one quarter the US's , the annual GDP growth is above 10 per cent. China is thus seen as a formidable global economic power andrated the world's "most attractive" manufacturing base thanks to its per hour labour cost of 0.67 cents.

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