China Economic Update: August 2018

China’s trade relationship with the European Union.

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  • The sheer scale, and growth, of China’s trade surplus with the United States is one of the key drivers of the current trade tensions between the countries. Critics in the United States have accused China of unfair trade practices since its admission to the World Trade Organisation in 2001, however it is worth noting China’s trade with other regions – most notably the European Union – does not exhibit the same trends as those with the United States. Last month we highlighted the China-EU investment relationship, and this month we’re looking into their trade ties.
  • While China has sizeable trade surpluses with both the United States and European Union, the surplus with the US has steadily expanded since early 2010 (underpinning the tensions between the countries), while the surplus with the European Union tracked broadly sideways since the Global Financial Crisis. From a relatively similar level in early 2008, China’s trade surplus with the US was more than double that of the EU in the twelve months to June – at US$294 billion (based on China Customs data), compared with US$132 billion.
  • The relatively rapid increase in European exports, and the comparative stability of China’s trade surplus with the European Union, in part reflects the composition of the region’s exports. Compared with the United States, EU exports to China are much stronger in higher value sectors – such as transport equipment, electrical machinery, chemicals and electronics. In contrast, agricultural products – led by soybeans – made up a larger share of US exports to China – accounting for just over 14% of the total in 2017.
  • Although China’s trade profile differs somewhat between the United States and the European Union, both partners have similar views when it comes to China’s trade policies. In recent discussions, the US and EU have agreed to reforming the WTO and partnering to address unfair global trade practices. However, unlike the United States, the EU appears committed to progress via cooperation (rather than punitive trade measures).

For further details, please see the attached document: