Securing a position in the Chinese marketplace
Meanwhile, Beijing is in talks on a China-US investment deal, while Brussels hopes to secure an EU-US FTA. To Brussels, the proposed trade pact with Beijing could ensure long-term positioning in the Chinese marketplace. To Beijing, it is a way to accelerate catch-up growth and to move from cost efficiencies to innovation.
In early 2013, the EU accused China of dumping solar panels on the European market and illegal subsidies, while threatening actions against Chinese telecoms equipment giants Huawei and ZTE. In turn, these moves were followed by tit-for-tat accusations from China that the EU had dumped wine on the Chinese market.
While trade tensions have often overshadowed the bilateral relations, the friction has decreased significantly since last year, when the European Commission threatened to impose duties on $28.9 billion of Chinese solar panels imports and Beijing retaliated with its own measures.
In the past weeks Beijing ended its subsidy and dumping complaints against imports of European wine and polysilicon used in solar panels. In turn, EU trade commissioner Karel De Gucht said he would no longer pursue an investigation into Chinese dumping of telecoms equipment.
For almost a decade, the EU has been China's biggest trade partner. Meanwhile, trade in goods between China and the EU grew four-fold, reaching €434 billion (US$597 billion) in 2012. China is the EU's largest source of imports and one its fastest-growing export markets.
Moving toward investment and innovation
As China is moving higher in the value-added chain and as the economic reforms by President Xi and Premier Li Keqiang are expanding, investment and innovation are increasingly important to China. Yet, the bilateral investment landscape is lagging behind.
China accounts for barely 2-3 percent of total European investments abroad, whereas Chinese investments in Europe are rising fairly fast, but from a very low starting-point.
Each side would like to broaden and deepen access to the other's marketplace. Yet, until recently, bilateral trade in services amounted to only 10 percent of total trade in goods and only 20 percent of the EU's exports to China are in services.
If the talks are difficult for Beijing, they are also challenging to Brussels. On the one hand, all EU members hope to institute symmetric market relations with China. Yet, different countries have already negotiated different deals.
Then there is the issue of the Chinese yuan that is rapidly internationalising. In the 1990s, the euro still had aspirations to become a global currency. Today, it remains important, but mainly a regional currency. By contrast, China's currency is likely to have a global presence within the next two years. Consequently, several European financial centres would like to serve as the gateway for the Chinese yuan.