SNAPSHOT

EU-CHINA
1 MARCH 2012

EU-CHINA SUMMIT
ON 14 FEBRUARY EU AND CHINESE LEADERS MET IN BEIJING TO DISCUSS ISSUES RANGING FROM ECONOMIC POLICY, TO CLIMATE CHANGE AND THE SITUATION IN IRAN. AS EXPECTED, THE MEETING WAS DOMINATED BY THE EU CRISIS. THE LAUNCH OF AN INVESTMENT AGREEMENT IS THE MOST TANGIBLE OUTCOME.
FULL AGENDA
It was clear that Herman Van Rompuy, Jose Manuel Barroso and Wen Jiabao, Prime Minister of the Peoples Republic of China, would have plenty to talk about. A packed agenda held a promise of closer future cooperation, including the EU-China strategic partnership, deepening of the EU-China investment relationship, the Europe 2020 strategy and Chinas 12th five year plan, global issues in particular climate change and G20 and international issues, including Iran and Asian regional issues. Talks were dominated by several high profile issues. The EU crisis and ways China could help in stabilising the Euro has become more urgent following the IMF warning that Chinese growth could halve if the Euro crisis dips the world economy into a recession. European leaders tried to restore credibility in the European economy and in efforts to solve the crisis. China has been following the Euro crisis closely and, following decisions taken at the December Council and actions taken by the ECB on 17 December is now focussed on what will happen beyond the crisis. China has publicly declared its confidence in EU leaders ability to solve the crisis. The EU and Chinese leaders agreed to start negotiations for an EU-China investment agreement including market access issues as soon as possible. This agreement would facilitate investment in both directions. The discussions also touched on the issue of export credits, which is a big issue for many European companies, as well as on the market economy status which the parties want to resolve in a swift and comprehensive way.
Claire Harris
Senior Vice President

FTI Consulting
Avenue Marnix 23 1000 Brussels +32 (0)2 289 0875 Claire.Harris@fticonsulting.com

Mingxia Li
Senior Vice President

FTI Consulting
Room 801, Full Tower 9 Dongsanhua Zhonglu, Beijing +86 10 8591 1060 Mingxia.Li@fticonsulting.com

Cooperation in the energy field featured high on the agenda. An EU-China High Level Energy meeting will take place in June and cover energy security, technological developments and the respective energy strategies. The leaders agreed on a first meeting of the EUChina High Tech Trade Working Group and launched a new China-EU partnership on Sustainable Urbanisation aiming to cooperate in low carbon development. The EU leaders also tried to convince China to play a more active role in the Iran nuclear crisis but China resisted putting economic pressure on Iran. The developments in Syria were also part of the discussions as the West is desperately seeking an end of the crisis. However, China insists that the future of Syria is for the Syrian people to decide.

About FTI Consulting FTI Consulting, Inc. is a global business advisory firm dedicated to helping organisations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 3,800 employees located in 24 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management and restructuring. The company generated $1.4 billion in revenues during fiscal year 2010. More information can be found at www.fticonsulting.co.uk 2011 FTI Consulting, Inc. All rights reserved.

DATE 2012

DIFFICULT RELATIONSHIP
Even without these most urgent developments, EUChina relations are full of issues that are critical for EU industry. These include: The inclusion of aviation into the Emission Trading Scheme is causing a conflict between the EU and China as China is banning its airlines to contribute to the ETS. There are concerns that this issues might lead to retaliation or even a trade war. The alleged trade restrictions China imposed on raw earths and the recent WTO ruling on export restrictions on other raw materials. The increasing number of EU trade measures against Chinese subsidies,which are very critically viewed by the Chinese Government and the ongoing reluctance of the EU to grant China market economy status. Intellectual property and in particular the requirements for foreign firms that investing in China to engage in joint-ventures with Chinese companies and thereby giving up IP

discussions as China takes it as a critical indicator of the EUs attitude to China Restrictions on certain high-tech products to China by the EU will need to be removed gradually

Besides the issues outlined above, Beijing recognizes that Chinas sustained economic growth would be beneficial to the European economy on the whole and over the long term.

CHINAS CHALLENGES
The world is watching closely Chinas new leadership team for 2013; however, our view is that its impact is overplayed to a certain degree. The new leadership is unlikely to introduce any drastic policy changes or new measures at least in the first one or two years of the tenure and the top priority of the new government will be to maintain stability and policy consistency.

Beijing will need to be very focused on a number of key issues China is facing, with or without the European crisis, at a critical time of its painstaking yet successful economic and political reforms Negotiations for a Partnership and Cooperation Agreement have completely stalled as the expectations domestically. These challenges include: Over reliance on government spending: The of the trading partners are too far apart. transformation from a planned economy to the Despite these difficult issues the EU-China trade market economy has achieved significant relationship remains prosperous and beneficial for both economic benefits. However, the GDP growth is sides. The EU is Chinas most important market, still mainly driven by government spending, fixed accounting for 20% of Chinese exports in 2010. China assets investments and key sectors dominated is Europes second largest market with 8.4% of by state-owned enterprises (SOEs). Europes exports. Overall trade with China constitutes Rising wages: Coupled with higher raw material 13.8% of Europes trade and trade with the EU costs, the rising wages have already put Chinese represents 17% of Chinas trade. exporters in a much tougher position as the Chinese trade surplus continued to narrow in THE VIEWS FROM BEIJING 2011. Beijing pledged its support to the European Union Demographics: In the next three decades, towards a positive outcome to avoid a real Euro crisis China is entering the peak time of its aging and Greek default. However, the exact actions Beijing is society, with an expected population of 400 going to take remain unclear. The highly aligned longmillion aged above 60 in 2040, compared with term objectives of EU and China lack of concrete actions reflect their disagreements on a few critical 167 million in 2010. The changing demographics areas of interests. From the Chinese perspective, it will require a much more robust social welfare would expect the EU to demonstrate progress or make and pension system which is still a big problem in concessions in the following areas for China: China, especially in rural areas where aged Direct investments into European businesses are population is located. regarded as the most preferred way for Chinese Social instability: In recent years, social companies to invest in Europe; however, Chinese instability has become the top priority for Chinese industries do not believe the EU market is open governments to approach issues including foreign enough to embrace China investments, as it is having a viral effect on many One third of Chinas current foreign reserve is issues which have triggered social unrest in invested in Euro (vs. two thirds in US dollars). recent times. China would expect such investments to be safe and with returns The Market Economic Status has been a repeated topic in any EU-China high-level
2 FTI Consulting