The trade issue is important because Prime Minister Wen Jiabao of China linked it in a speech last September
to the question of whether China would help bail out the European Union with large loans. While Mr. Wen and other Chinese officials have asserted since then that they would not use the prospect of loans to wrest political concessions from the European Union, the state-run news media have continued to raise the idea in the past few weeks.
Karel De Gucht, the European Union’s trade commissioner, said talks between European Union and Chinese leaders in Beijing earlier this week had raised the political commitment to resolving whether China should be granted “market economy” status by the European Union.
China is currently deemed a “non-market economy” by the European Union, which makes it fairly easy for European companies to win anti-dumping cases against Chinese competitors. Changing China’s status would make it much harder for European companies to win such cases, opening the doors to a further surge in Chinese exports to Europe at a time when many European economies are already struggling.
Mr. De Gucht said that while the top-level talks this week in Beijing had raised the political profile of the market economy issue, he had seen no sign that China was actually undertaking the free market measures that would be needed for it to qualify as an economy in which the market drives business decisions more than government policy making.
Asked in an interview what single step China could take that would make the biggest difference toward qualifying it for market economy status, Mr. De Gucht replied that China should give greater independence to the state-controlled banking sector to issue loans based on what businesses could pay them back. Many Chinese banks now allocate credit based on government policies, providing massive loans to government-endorsed sectors like the manufacture of solar panels and wind turbines
.
“You have a lot of concessionary loans,” he said, adding that with reforms, “interest rates would reflect business conditions, and much less political decisions.”
Ben Simpfendorfer, an economist based in Hong Kong specializing in China’s international investment decisions, expressed skepticism that the European Union would reach a deal any time soon on market economy status for China, despite interest in Europe in persuading China to increase its purchases of European bonds.
“Europe isn’t likely to offer market status to China given worries about what that means for imports and employment in Europe’s own manufacturing sector,” he said.
The wording of a communiqué issued on Tuesday at the end of the talks between the European Union and China shows that discussions of market economy status are now being given greater attention, but that the European Union has also put limits on export credits higher on the agenda, said Mr. De Gucht, the E.U. trade commissioner.
Chinese banks have emerged in the last several years as the world’s largest providers of export loans, offering multibillion-dollar loans at extremely low interest rates to a long list of big Chinese corporations seeking to expand their shares in foreign markets. Western companies have struggled to compete for contracts against well-financed Chinese rivals.
“That effectively takes European and American bidders out of the market,” he said.
In a question-and-answer column in the official China Daily newspaper last Friday, Commerce Minister Chen Deming of China said the Chinese government was prepared to step up its export insurance and adjust taxes to help Chinese trading companies.
Mr. De Gucht said he was concerned about Mr. Chen’s remarks to the newspaper and whether they might signal a Chinese decision to provide even more assistance to exporters.
He was cautious about making any public prediction on when and whether China might step up its purchases of European government bonds, except to say that Chinese officials were “ready to cooperate with us.”
Zhou Xiaochuan, the governor of the People’s Bank of China, the central bank, said this week that China had kept unchanged the share of its foreign exchange reserves that are allocated to Europe.
Analysts and financial executives say that China keeps roughly a quarter of its $3.18 trillion in foreign exchange reserves in euro-denominated assets, particularly German government bonds.
Mr. Zhou also reiterated recent comments by Mr. Wen, the prime minister, that any Chinese investment to help the European Union would be made through investments in securities issued by the International Monetary Fund or new, multilateral entities like the European Financial Stability Fund. Market analysts say that while the Chinese government enforces strict secrecy on its foreign exchange management operations, there have already been some hints that China has been buying small sums of securities from the financial stability fund.
Progress on expanding the I.M.F.’s financial base have been slowed by Chinese demands that the United States give up its unique veto over I.M.F. decisions, which the United States holds because it has the world’s largest economy and controls more than the 15 percent of the institution’s shares. I.M.F. decisions require 85 percent support from member countries to take effect.
On a separate issue, European Union policy toward Iran, Mr. De Gucht expressed little concern about a threat on Wednesday by Iran’s Oil Ministry to quickly halt oil exports to six European countries, even before European Union nations plan to stop oil purchases from Iran by July 1 as part of sanctions aimed at persuading Iran to slow down its nuclear program and make it more open.
Mr. De Gucht said during a question-and-answer period after his lunch speech at the Foreign Correspondents’ Club in Hong Kong that it should be possible for Europe to find alternative supplies even if Iran acts quickly. He also said that what was most important would be that other nations not step up their purchases from Iran to offset a reduction in shipments to Europe.
While Mr. De Gucht did not name China, it is the largest buyer of Iranian oil and has criticized the use of sanctions to compel Iran to change government policies.