Europe also profits from Chinese export juggernaut: analysts

November 26, 2007 - 0:0

BEIJING (AFP) -- The European Union is facing a huge trade deficit with China but its own companies are partly to blame for the imbalance, said analysts, ahead of the annual Sino-EU summit here.

The EU ran a trade deficit of 128 billion euros (175 billion dollars) with China last year and this is likely to balloon to 170 billion euros in 2007 on current trends, according to EU statistics.
Economists point out that European enterprises with operations in China are 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, head of the Beijing-based Institute for International Economic Research.
EU policy makers have vowed to push the trade deficit issue to the top of the agenda when they meet with their Chinese counterparts in Beijing this week.
""During the six days that I spend in China, the trade deficit will grow by over two billion euros, or 15 million euros an hour,"" EU trade chief 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.
Of the 878 billion dollars in products exported from China in the first nine months of the year, 56.6 percent belonged to foreign enterprises, according to Chinese commerce ministry figures.
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, according to the European Chamber of Commerce. 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, or yuan, as that will make the imported input cheaper and boost the exporting machine.
""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 Trae 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 fueling the Chinese export machine should not be overstated.
Most exporting foreign-invested enterprises 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.