Time for EU to grant China market economy status: expert

BRUSSELS - It is time for the European Union (EU) to grant China market economy status (MES) given the importance of the China-EU relations and China's efforts for market-driven economic reforms, a global economic and policy analyst said in a recent report.

"In Europe's view, the long-term benefits of China's MES would seem to outweigh the short-term costs," said Dan Steinbock, the founder of consulting firm Difference Group, in an article published by Brussels-based online newspaper EUobserver.

The EU granting China MES will offer a more solid long-term relationship with China, support Europe's quest for Chinese capital, Steinbock said, adding that China's transition to consumption and innovation will also create new opportunities for EU companies.

The EU, a member of the World Trade Organization (WTO), has to decide whether to grant China MES by December according to a 2001 agreement the EU and China signed on China's accession to the WTO.

Brussels faces resistance from some lobbyist groups who claim that granting China MES will weaken the EU's trade defence against imported Chinese products and jeopardize the European labor market particularly in the steel sector due to China's overcapacity.

"But times are changing. Chinese growth no longer relies on net exports, but increasingly on consumption and services," Steinbock said. "Even more importantly, China has committed to reducing excess capacity drastically, even if it will require lay-offs of some 2 million employees in steel and coal sectors in the next three years."

Europe's MES opponents represent struggling traditional industries, such as steel, ceramics and textiles, which suffer from competitiveness challenges, in southern Europe.

"Indeed, much of the more competitive northern Europe -- including the UK, the Netherlands and Nordic countries -- does support China's MES," he said.

The expert praised China's effort to carry out economic reforms.

"Beijing, in contrast to Brussels, has argued that the state's presence in the economy has shrunk drastically in the past 15 years. Conversely, some Chinese observers add that the role of state has actually increased in several EU economies," Steinbock said.

Another way to assess the size of the public sector is to measure general government revenue as share of gross domestic product (GDP), the expert said, adding that in this aspect, the eurozone average of 50 percent remains far higher than that of the United States, 35 percent, and twice as large as that of China, which is 25 percent.