MNI: China To Ease Rare Earth Controls After Frosty EU Summit

China is likely to accelerate approvals of rare earth exports to the European Union following this week’s summit, and to maintain discussions on increasing imports and investment, however bilateral relations are unlikely to fundamentally improve given the EU’s designation of China as a "systemic rival," policy advisors told MNI.

The outcome of the 25th China-EU Summit, held to mark the 50th anniversary of their diplomatic relations, fell significantly short of expectations set earlier this year by Chinese officials and advisors, who had hoped that U.S. tariffs would prompt Brussels to look more favourably on Beijing. However European concerns over Chinese industrial overcapacity and Beijing’s stance over Russia left only limited ground for agreements, with Zhou Xiaoming, former deputy permanent representative of China’s Mission to the UN Office in Geneva, noting the lack of progress on key topics such as tariffs on electric vehicles.

While the two sides agreed to upgrade export control mechanisms on raw materials including rare earths on Thursday, China had also been open to increasing investment via industrial cooperation and joint ventures, especially in areas where it has a lead such as green technology and energy, Zhou said, pointing to Premier Li Qiang’s call for entrepreneurs to “enhance market connectivity and industrial alignment”. 

A former Chinese official told MNI that China remained open to expanding EU imports and boosting investment in the bloc, but that Brussel’s alignment with the U.S. was an impediment. The former official noted also that the EU’s concerns about trade imbalances will be hard to address unless Beijing shifts away from its current export-oriented model.

ACCUSATIONS REJECTED

However, some Chinese advisors still pointed to grounds for hope.  Ding Yifan, senior fellow at the Development Research Center of the State Council, said the outcome of the talks should be considered relatively positive, with both sides reaffirming a commitment to multilateralism.

“This brings hope that the bilateral relationship can be brought back to normal,” Ding said, though he cautioned that China remains concerned about what it perceives as European attempts to impose its will.

“China rejects accusations about asymmetric trade, overcapacity, or that state-owned enterprises receive excessive subsidies,” Ding said. Europe’s trade deficit was driven by products such as electric vehicles made by private firms, he added.

Zhou warned that the EU’s view of China as a “systemic rival” is a serious barrier to resolving many issues, and that this is unlikely to change given the outlook for continuing China-U.S. competition. (See MNI: No US Tariff Exclusion For Aircraft, Spirits-EU Officials)

“European complaints at the summit reflected discomfort with China’s leapfrogging and rising competitiveness, while its own industries are declining,” said Wang Yiwei, Jean Monnet chair professor and director at the Institute of International Affairs at Renmin University of China, adding that China continues to regard Europe as a partner despite their differences.

The EU should address its own economic shortcomings before complaining about Chinese exports, said Mei Xinyu, council member at China Macroeconomics Society, noting that Beijing’s willingness to expedite rare-earth export approvals still require guarantees that the materials will not be re-exported to restricted destinations.