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Mon, Nov 26, 2007 - Page 10 News List

EU firms share blame in trade imbalance: analysts

AFP , BEIJING

The EU is facing a huge trade deficit with China, but its own companies are partly to blame for the imbalance, analysts said ahead of the annual Sino-EU summit in Beijing.

The EU ran a trade deficit of 128 billion euros (US$175 billion) with China last year and this was likely to balloon to 170 billion euros this year on current trends, EU statistics showed.

Economists said that European companies with operations in China were a crucial part of the Chinese export juggernaut and profit immensely.

"China's trade surplus looks very big, but it has little to do with Chinese companies and much more to do with multinationals," said Zhang Yansheng (張燕生), head of the Beijing-based Institute for International Economic Research.

EU policymakers have vowed to push the trade deficit issue to the top of the agenda when they meet their Chinese counterparts in Beijing this week.

"During the six days that I spend in China, the trade deficit will grow by over 2 billion euros, or 15 million euros an hour," EU Trade Commissioner Peter Mandelson told the Financial Times. "That is what I call unsustainable."

However, among the 15 million euros of hourly net exports, a sizeable amount eventually winds up in the coffers of European companies, including some of its most prestigious brands.

For example, Swedish wireless networks maker Ericsson exports 25 percent of its production in China back to Europe.

And factories in China account for 46 percent of German sportswear manufacturer Adidas' global footwear production.

"China will remain our largest sourcing base," said Sabrina Cheung, a Hong Kong-based spokeswoman for Adidas.

These are not isolated cases.

Of the US$878 billion in products exported from China in the first nine months of this year, 56.6 percent belonged to foreign companies, Chinese commerce ministry figures showed.

For 19 percent of European companies in China, exports home form a "sizeable" part of their output, while 22 percent see Asia as their main target market, the European Chamber of Commerce said.

Much of the activity is in the form of processing trade, where factories based in China import input from elsewhere, add value and then export the finished products to the world market.

This weakens the case for a more expensive Chinese currency, which would make the imported input cheaper and boost exports.

"The Europeans know a higher yuan will not mean much, but it's a sop to public opinion," said Li Jun, a researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing.

"At the same, at the strategic level, they believe pushing for a higher yuan may help contain China's rise," he said.

To be sure, many Europeans believe the role of EU enterprises in fuelling the Chinese export machine should not be overstated.

Most exporting foreign-invested companies from China to the rest of the world are Asian companies, including South Korean, Taiwanese and even Chinese companies, the European Chamber of Commerce said.

Among the top 200 exporting companies from China to the world in 2005, companies from the US, Europe and Japan had only a share of 11 percent, the chamber said.

Steffen Dyck, a Frankfurt analyst at DB Research, agreed that it was not necessarily Chinese firms, but a whole range from around the Asia and the world, that helped drive China's trade surplus.

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