China and Europe make up after averting trade war

Reuters

* China's vice-premier offers better ties with EU

* EU warns Chinese telecoms row is unresolved

* EU, China to sign investment deal next month

By Robin Emmott

BRUSSELS, Oct 24 (Reuters) - China and the European Unionsought to mend ties on Thursday after narrowly avoiding a tradewar this year, but the EU's trade chief told Beijing to stophanding out state subsidies that Brussels says are illegal.

Europe is China's most important trading partner and for theEU, China is second only to the United States, but the bilateralrelationship has been bedevilled by a series of damaging traderows ranging from steel and wine to solar panels.

"China is ready to work with the European Union to set out acomprehensive plan for the future of EU-China relations,"China's Vice-Premier Ma Kai told a news conference alongside theEU's two most senior economics and trade officials.

"China is ready to ensure that our cooperation can beelevated to a higher level," Ma said after talks with the EU'seconomics chief Olli Rehn and EU Trade Commissioner Karel DeGucht in Brussels.

Saying he had come to send a "clear and positive signal" Ma,a one-time state planner promoted in China's new government thisyear, welcomed the start of negotiations with the European Unionon Nov. 21 at a summit in Beijing that will seek to removerestrictions on EU investment in China.

The European Union wants greater access to China inindustries including banking and is eager for Beijing to droprequirements that Europeans must work with a Chinese jointventure partner and hand over sensitive know-how.

EU officials say the so-called investment pact is afundamental test of China's willingness to compromise and playby rules set down by the World Trade Organisation that bansubsidising of companies to undercut foreign competitors.

A successful EU-China investment agreement could pave theway for a wider free-trade accord in the future. But for now,there is friction as China seeks to produce the kind ofsophisticated products that compete directly with Europe.

Despite doubling trade with China since 2003, the EuropeanUnion accuses Chinese companies of benefiting from unfair stateaid allowing them to dump goods in Europe, selling them at belowcost to put locals out of business.

"The whole system of subsidies is one of the major problemsin our trade relationship," said De Gucht, referring inparticular to Chinese export credits.

TELECOMS DISPUTE

He warned that the European Commission remained ready tolaunch an investigation into anti-competitive behaviour byChinese producers of mobile telecommunications equipment, thenext potential flashpoint in bilateral trade ties.

"This problem has not gone away," he said.

The Commission told Beijing in May it was ready to open ananti-dumping and anti-subsidy investigation into Huawei,the world's number two telecoms equipment manufacturer, and ZTE, the world's fifth largest producer.

However, De Gucht is first seeking a negotiated solution.

China exports network equipment, base stations andconnections used by telecoms providers worth more than 1 billioneuros ($1.4 billion) a year to the European Union, giving italmost a quarter of the EU market.

De Gucht said he did not talk about specific cases with Mabut held an extensive telephone conversation with ChineseMinister of Commerce Gao Hucheng this week.

In the interests of EU-China trade, De Gucht is eager toavoid launching a telecoms investigation because of the sharptensions caused by the last major dispute over solar panels - byfar the biggest between China and the EU.

European companies accused Chinese rivals of dumping about21 billion euros worth of solar panels at below cost in Europelast year, putting European firms out of business.

Brussels initially moved to impose punitive duties onChinese solar panels but Beijing threatened sanctions on goodsincluding German cars and French wine. Both sides agreed aminimum price for panels from China in July.

In a goodwill gesture, the EU hopes China will halt itsanti-dumping inquiry into European wine sales, but De Gucht andMa declined to comment on this on Thursday.

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