The EU-China Trading-Economic Relationship Is Not a Zero-Sum Game

The European Union (EU) presented on Tuesday, October 24th, 2006, “EU-China: Closer partners, growing responsibilities” which establishes the bases for a new, extended partnership and cooperation agreement with Beijing. This new agreement is necessary since the current 1985 “Trade and Co-operation Agreement” does not reflect the recent surge in trade between the two regions. Even though China has passed the first law targeting money-laundering, the EU keeps criticizing that China’s current market barriers, intellectual property violations, and continuous state intervention to maintain an undervalued currency are undermining the beginning of a prosperous new era of EU-China economic relations -- especially, if the currency devaluation were to continue, even after being member of the World Trade Organization (WTO). In fact, the International Monetary Fund (IMF) has said that despite China having allowed more movement in the currency since September, a faster appreciation of China’s currency, the renminbi, is required since the surge in China's net exports and increase in its foreign exchange reserves demonstrates that the currency remains extremely undervalued. Furthermore, China is also being heavily criticized for opening the market to foreign banks too slowly, stating that a “free for all” would “damage the system.” This situation will be a truly devastating zero-sum game for Europe because the EU will be loosing jobs and reducing the living standard, while subsidizing China's poverty with European money. For this reason, EU has stated that “there is a growing risk that the EU-China trading relationship will not be seen as genuinely reciprocal. Political pressure in the EU to resist further openness to Chinese competition is likely to increase if these problems are not addressed.