MercoPress. South Atlantic News Agency

EU warns China of “backlash” if trade gap persists

The European Union trade commissioner warned that China needs to close the trade gap if it wants to prevent a backlash in Europe. Peter Mandelson said that China has become the EU largest trading partner and this status must make Beijing assume “real responsibilities”.

Mandelson's comments came as EU impatience is growing over the trade surplus, which hit 190 billion US dollars last year and is expected to reach 253 billion this year. "During my time in China these last five days, it has grown by over 2 billion euros" he said. The weakness of China's currency, the Yuan, against the Euro also makes exports to China more expensive. "This is not because of any lack of competitiveness by Europe" said Mandelson. "The EU has a surplus with the rest of the world where we are allowed to compete freely". Mandelson is in Beijing in the framework of the annual meeting of EU and Chinese leaders to address issues of common interest. The high-level talks in Beijing focused also on other economic concerns, such as boosting China's fight against copyright piracy. But Prime Minister Wen Jiabao who talked after Mandelson said the Eurozone's real problem is the falling dollar, and the trade gap's not China's fault. "The main reason for this is our differing responsibilities and comparative advantages. Although China has a trade surplus with Europe and with the USA, we have a trade deficit with Japan, South Korea, Australia and South East Asia. The exchange rate affects the trade balance to a certain extent, but it's not the only deciding factor," said Wen Jiabao. However Mandelson with determination underlined that "I'm beginning to explain more and more why we are unhappy, why I believe the present situation is unsustainable, and untenable, and why China has got to contribute more to its solution. "If that fails, if that breaks down, then we are at risk of seeing a real public backlash which would not only affect Europe and China but would have a very negative effect on the global economy as a whole." The EU and China have agreed to hold a high-level economic dialogue in March, officials said. Also in Beijing on Wednesday, the EU top finance officials warned that the weak Yuan and looming Chinese trade surplus threatened to spark a backlash in Europe. "It could have the result that a protectionist reaction could occur in Europe," said Jean-Claude Juncker, Luxembourg's prime minister and finance minister. Juncker, European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Joaquin Almunia also traveled to China for talkson currency markets and other economic issues. Juncker, speaking as head of a committee of Euro zone finance ministers, said he and the other members were surprised by the Euro continued strength against the Yuan, even as the Chinese currency gains steadily against the dollar. "It is difficult to understand, whereas China is exporting less to the U.S. than to Europe, why the Yuan is appreciating vis-à-vis the dollar and why the Yuan is depreciating against the Euro" emphasized Juncker.