EU envoy decries ‘highest deficit in history’ ahead of China trade talks

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The EU has fired a warning shot at China ahead of high-level trade talks, demanding that Beijing make “progress” to reduce its trade deficit, which hit €396bn last year, described by the bloc’s most senior diplomat in the country as the highest in “the history of mankind”.

The comments came ahead of EU trade commissioner Valdis Dombrovskis’ arrival in Shanghai on Friday and amid escalating tensions between the bloc and China, which is angry over an EU anti-subsidy investigation into electric vehicles and restrictions on chipmaking equipment.

“China’s trade surplus with the EU last year was the highest in the history of mankind,” Jorge Toledo, the EU’s ambassador to China, told a panel discussion in Beijing on Thursday. He cited a report released this week by the EU Chamber of Commerce in China that listed 1,058 recommendations to overcome what he called “market barriers”.

The trade barriers were “getting worse”, he added. “We need to address this, and we need progress, and I’m afraid we haven’t made much progress in the last three or four years.”

The centrepiece of Dombrovskis’ trip will be a high-level economic and trade dialogue with his Chinese counterparts on Monday when both sides are expected to air a growing list of grievances. Dombrovskis has said that the bloc was seeking to “de-risk” its supply chains from geopolitical tensions, rather than pursue a full “decoupling” from the world’s second-largest economy.

Topping the list for Beijing will be the EU’s announcement last week of the probe into whether Chinese electric vehicles were “distorting” the market, which could result in tariffs on the country’s carmakers.

Many Chinese EV manufacturers, facing overcapacity in the domestic sector, see exports to Europe as necessary for survival. But European carmakers claim lower labour and energy costs give their Chinese rivals an unfair advantage in pricing.

Column chart of EU's goods trade deficit with China (€bn) showing EU’s trade deficit with China widened to almost €400bn last year

Beijing is also furious about US-led export controls on semiconductor technology and chipmaking equipment, and has retaliated with restrictions on Dutch company ASML covering the sale of advanced lithography machinery in the country.

“Some countries unfortunately for the sake of being politically correct bow to the pressure of a superpower at the cost of the prosperity and stability of Europe,” Wu Hongbo, Beijing’s special representative on European affairs, told the conference. “It should be up to Europe and European countries to decide what to sell to China. It should not be a decision made by someone else across the Atlantic Ocean.”

In an unusually frank exchange, Toledo and other European ambassadors at the seminar said they did not believe that China’s trade surplus was solely because of the competitiveness of its products.

“China produces very good quality at very good prices, no doubt about that, but it doesn’t make sense that there are over a thousand market barriers,” Toledo said.

Other European ambassadors were also blunt in their assessment of China’s efforts as a member of the UN Security Council on the war in Ukraine, pointing to Beijing’s failure to condemn Russia’s invasion and pro-Moscow coverage in Chinese state media.

Spain’s ambassador Rafael Dezcallar said Beijing did not seem to grasp Europe’s deep concern about the conflict — which has driven formerly neutral countries Finland and Sweden to seek Nato membership — damaging China’s image in the EU.

“It is a message which unfortunately the Chinese media do not seem to have understood yet,” he said. “But if China cares about its relations with Europe, which I think she does, it is important that she tries to understand it properly.”