EU concerned by Chinese industrial policy

EU trade commissioner Karel De Gucht has warned that recent Chinese restrictions on sales of valued rare earths could be a bellwether of things to come.

"[It] hints that China is developing an industrial policy aiming at transferring as much as possible production to China," Mr De Gucht told an EU-China conference on Tuesday evening (26 October) in Brussels.

The row over rare earths - a group of essential minerals used in high-tech products such as mobile phones and flat-screen TVs - has threatened to escalate in recent days following Beijing's decision to restrict exports, a move experts say is designed to maximise Chinese profits and strengthen homegrown high-tech companies.

China has one third of the world's rare earth reserves, but last year produced 97 percent of the global supply. Other states such as the US and Australia have scaled back production in recent years in the face of cheaper Chinese competition.

"It's obvious that we cannot continue being completely dependent on China," said Mr De Gucht.

The Belgian politician also repeated recent calls for Beijing to open its public procurement market to foreign companies who complain they are being shut out of lucrative government tenders.

Post-crisis stimulus spending across the globe has raised the importance of government contracts for many large European firms. China restricts bidders on most public contracts to companies whose trademark and technology are registered in China - part of its "indigenous innovation" plan.

Although many foreign firms can comply with the rules and China's central government insists they have no discriminatory function, reports suggest the regulatory obligations have helped local governments to shut foreign companies out contracts worth billions of dollars.

The European Commission looks set to retaliate next month when it publishes its vision for a new EU trade policy for the coming decade.

Media leaks suggest the EU 2020 trade paper will call for a policy instrument to ensure that states which do not grant European companies fair access to government contracts are themselves penalised in some way. German Chancellor Angela Merkel has previously raised the prospect of limiting access to EU government contracts.

According to a draft of the trade document, the commission will propose legislation next year "to help secure and increase symmetry in access to public procurement markets in developed countries and large emerging market economies," the Financial Times recently reported.

Rare earth and public procurement squabbles add to the more perennial debates over China's large trade surplus and currency valuation.

At a meeting of G20 finance ministers last weekend, the US proposed setting limits on current account surpluses and deficits at around four per cent of GDP, with some indications that China may be warming to the idea.

"China should not be afraid of numerical targets for reducing its trade surplus," Li Daokui, a member of the Chinese central bank's monetary policy committee, said on Tuesday.

A number of senior policymakers and economists have pointed to global trade imbalances as a key factor behind the recent financial crisis and global economic downturn.

[Source: By Andrew Willis, Euobserver, Brussels, 27Oct10]

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