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Ambassador Zhang Ming's Interview with the Politico
2018/04/18

Donald Trump has launched major trade action against China, but his Commerce Secretary has also said he wants to negotiate with China. Do you think a deal can be found that responds to U.S. criticism and avoids a bigger trade war?

As you rightly pointed out, the U.S. administration has recently launched a series of unilateral and protectionist actions, such as the 232 and 301 measures, against its trading partners, including China. And this has been closely watched by the whole international community. Indeed, there have been wide discussions in media about a potential trade war. If there is indeed a trade war, I would say that’s all started by the United States, as the US move completely goes against the spirit and principles of the WTO. Regarding 232, it appears to be bilateral trade frictions between the United States and its trading partners like China and the EU, but in essence this is a challenge posed by unilateralism to multilateralism, and by protectionism to free trade.

As to 301, it’s not the first time for the United States to resort to such protectionist moves. From 1974 up to this year, the United States has launched 125 unilateral investigations under Section 301 against other members of the WTO, 27 of which were against the European Union. It is wrong to deal with economic and trade issues through coercion and in disregard of WTO rules.

The consequences will be very serious, because it is going to undermine the global trading system and the just-showing positive signs of global economic recovery. It might even risk pulling the global economy back into recession. This is why the U.S. move has invited a strong backlash from the wider international community and has been seriously condemned.

China always stands for multilateralism and the rules-based global trading system and fights against unilateralism. Thus we condemn and oppose the U.S. defiance of rules and its threat to China.

In my opinion, it is important for all members of the international community to stand up in unity for multilateralism and against unilateralism, and to avoid a worldwide economic catastrophe. China is always of the view that disputes and differences shall be resolved through consultation and negotiation. But such negotiation must be based on equality and mutual respect.

Do you think there is any way you can avoid this to escalate into a bigger trade war by finding a deal with the United States?

China always has the sincerity to solve differences through negotiation as long as it is on the basis of equality and mutual respect. At the same time, if the United States insists on escalating the situation, China is always prepared to fight back with every determination.

You mentioned the risk of unilateral action, which is not only a problem for China but also the European Union. We understand China is also in close talks with the EU about this problem. Can you tell us a bit more about how concrete these talks are, and what the outcome could be?

There is a very broad consensus among the international community, including the EU and China, to uphold multilateralism and oppose unilateralism. In this regard, China and the EU have always maintained close contacts. Given the challenge right now in the international circumstances, China and the EU have even closer contacts and coordination.

I believe such communication, coordination and cooperation will be helpful as in a sense it can help keep the healthy momentum of global economy. We will do our best to achieve the best possible results out of the talks.

The U.S. has criticized the WTO and said it want changes. The EU has already signaled willingness to change some rules, for example on notifying subsidies and making this practice mandatory. Is China open to such changes?

My first point is that indeed the United States has a lot of complaints, and no one can tell for sure what it actually wants at all. And my second point is that the WTO belongs to the whole international community. It doesn’t belong to China, the U.S. or the EU alone. So any matter related to the organization cannot be determined by one party alone. This is the democratic spirit of global governance.

Since this matter concerns the interest of all parties, it needs to be dealt with through wide consultation. As for China, we always stand for improvement and development of the global governance system.

The EU, U.S. and Japan also launched a trilateral initiative end of last year, which aims to take action against overcapacity, intellectual property theft, market distorting subsidies or forced technology transfers — all issues they criticize China of. Is China concerned that some of the biggest global economies are teaming up against it?

It is quite normal and natural for members of the international community to have different views on economic and trade issues, and they could well be discussed under multilateral frameworks like G20 or WTO and get resolved through negotiation.

The biggest problem right now is that the rules-based multilateral trading system is being challenged by unilateralism and the prospects of the global economy are being threatened.

The European Commission said it is ‘closely examining’ the launch of WTO cases against China over issues such as intellectual property. Are you concerned that trade relations with Brussels could deteriorate because of such actions?

I have been here in Brussels for almost half a year and over the past six months I have been talking to colleagues from the EU institutions, think tanks and the business communities. And from my engagement with European friends, I’m very optimistic about China-EU cooperation in a wide range of areas, including in the area of trade. In my view, fundamentally, China-EU relations are in good shape. This relationship is by nature mutually beneficial and enjoys broad prospects for further development. With over 40 years of diplomatic relations, we can say: China needs Europe, and Europe needs China as well.

On economic and trade relations, China and the EU are now one of the largest trading partners for each other. This is supported by a shared commitment to the rules-based multilateral trading system. Also, given the various challenges we are facing now, China and the EU have effective coordination and cooperation on issues such as climate change, terrorism, global governance and other hotspot issues. China and the EU share a strong commitment to furthering our cooperation with greater mutual trust and to countering the instability in the global environment with a stable China-EU relationship.

Given the large size and the fast growth of China-EU trade, it is not surprising and quite understandable for us to have some frictions and differences. These frictions and differences are within the normal range, and there is no need to overreact to them or exaggerate them artificially. But as the Chinese ambassador to the EU, I will take them very seriously and I’m ready to work closely with my EU colleagues to manage these differences well.

Actually, as for most of the frictions and differences we are having now, the two sides are already working very hard to seek solutions. But this is a process that takes some time. As the pie of China-EU economic and trade cooperation gets bigger and bigger, the problems existing today might disappear tomorrow. What’s more important is that China and the EU have more than 70 mechanisms for dialogue at different levels. For example, we have the annual China-EU summit, the high-level economic and trade dialogue, strategic dialogue, high-level people-to-people dialogue, the mixed economic and trade committee, the economic and trade working group meeting, among others. These mechanisms are important platforms for the two sides to enhance mutual understanding and manage differences.

The EU and China are also in negotiations for an investment agreement for many years, but Brussels is showing increasing frustration that talks on issues such as market access for foreign investors and intellectual property protection don’t seem to make sufficient progress. What makes it so difficult for China to agree with the EU on this agreement?

It has been over four years since the start of the BIT [bilateral investment treaty] talks. Our two sides are making very active efforts. We work very hard and have already achieved positive progress. But on the other hand, I’m even more anxious than my EU colleagues to see the early conclusion of the agreement.

This is a negotiation that involves the two parties, so both parties are expected to show a spirit of compromise and to show more mutual understanding. As you just referred to, the EU is showing a growing sense of disappointment regarding the talks, and in my view, these sentiments are not constructive. As I observe, our teams at the working level work very hard and are taking solid steps forward. As Chinese Ambassador to the EU, I will do my best to push them.

There have been repeated commitments from the Chinese site in favor of open markets and free trade, for example last year by President Xi Jinping at the Davos Economic Forum. Nevertheless, EU Trade Commissioner Cecilia Malmström has criticized that those words were not followed by deeds. How would you react to that criticism?

China’s opening-up is proceeding in an independent way. If I may, I could go back even further: The very initial stage for China’s opening up happened in 1840. But that opening-up happened due to coercion — you know that part of history. The opening we are talking about right now started in 1978. That opening-up happened after our repeated trials and errors and after we came to realize that it is important to open up our doors to the outside. So this is an indigenous process. We are not forced to do so.

Forty years have passed since 1978, and it’s very clear for all to see how much progress China has made. And today, if someone tells China to close up its doors, not to open up, I’m sure that the 1.3 billion Chinese people will not say yes.

Last year, the 19th National Congress of the Chinese Communist Party outlined a long-term vision for China’s development in the coming 30 years. We are going to have a transition from high-speed growth to high-quality development. And such an achievement would not be possible without opening up as well.

Actually, in terms of opening up, we do not need to make any promise to anyone else. If there is a promise, that’s a promise to our own Chinese people. But I know that our partners from the international community have a great interest in China’s opening up, so that’s why China is happy to present our opening-up process and to reaffirm our commitment to opening-up to them. We want to make this process transparent.

Our Chinese people have benefited much from the opening-up measures taken in the past 40 years, especially from what has happened in the past decade, the past five years or even the past one year.

I’m sure you have noticed President Xi Jinping’s speech yesterday (10 April) at the Boao Forum for Asia. In the speech, he announced a series of major measures for further opening up. And these measures are very significant in nature. Actually, we have been preparing for these measures all the way from last year’s Davos in January to the 19th Party Congress in October to this past March’s annual sessions of the NPC & CPPCC. We have never stopped our efforts to open up.

To get such significant measures ready, we need sufficient preparations. For example, if you are about to run a 100-meter dash, you have to squat first to prepare for the start of the race. So it’s unfair to accuse one of squatting there, or even backtracking, and not start running right now. Actually, squatting is to prepare for a faster run.

Chinese philosophy is to seek progress while maintaining stability. As we often say: More haste, less speed. In other words, if you want to get some big things done, we need to first get the direction right and make full preparation for that.

Since I arrived in Brussels, I have met with a former EU leader. I’m deeply impressed by his words. He told me: Direction is much more important than speed. So if you want to have a whole picture of China, don’t get fixated on the speed at a certain moment, but on the overall direction.

European businesses tell us they are very concerned in China about forced technology transfer and IPR protection. They are concerned that secrets may be leaked. What is your response to that?

First I want to get the facts straight. EU companies are mostly doing very well in the Chinese market. Most of them are making profits there. Also most of them are satisfied with China’s business environment and are optimistic about the future prospects.

According to a survey conducted last year, the satisfaction rate of EU businesses operating in China about the investment environment in China went up by 11 percentage points.

But we understand that, for businesses, there is always room for further improvement. We fully understand that desire.

One reason for their complaint is that in the very initial stage of our reform and opening up program, we gave supra-national treatment to foreign companies. But after our joining of the WTO we began to gradually adjust our practice. We are now giving national treatment to foreign companies. Such a gap might explain why some foreign companies think that the investment environment is not as good as what it used to be.

The so-called forced technology transfer is a false accusation. It’s totally groundless. There is not a single piece of Chinese law or regulation that obliges foreign companies to transfer their technology to their Chinese partners.

Indeed, there are some industries and sectors that require the establishment of joint ventures for the access of foreign capital. But such practice is in line with WTO rules. Market entities are playing the dominant role in the technology transfer. The Chinese company and the foreign company involved have negotiations with each other and reach agreement on the transfer of technology voluntarily. And the party that takes the transferred technology will pay for the technology. This has nothing to do with government interference. Government departments are not in a position to tell enterprises to transfer or not to transfer technology.

Now some people have fabricated the concept of forced technology transfer. Perhaps their argument is based on their doubt why China has made such a fast progress on technology in recent years.

Of course our progress is partly attributable to our economic and technological cooperation with other partners. In this process our partners also get benefits. But more importantly, such progress is attributable to the hard-working and innovative spirit of the 1.3 billion Chinese people.

Strengthening IPR protection is a set policy of the Chinese government. We are going to do more in this regard.

It’s also the direction outlined by President Xi’s speech yesterday. We are already doing good work and we are going to do even better.

Many EU countries have raised concerns that Chinese investors are taking over strategic industrial sectors in Europe. Last September, the European Commission proposed a screening mechanism for foreign investment, which is currently being discussed among EU countries and the European Parliament. How do you respond to these concerns and the screening mechanism?

The EU is an important partner for China. Our cooperation is mostly about trade and then about investment. Initially, it was more about the EU’s investment to China, but recent years have seen growing Chinese investment here in Europe. Such investment has given a strong boost to the European economic recovery and job creation. In particular, when Europe was having a hard time due to the financial crisis, China offered a lot of help.

Merging and acquisition are in nature commercial activities and are undertaken by businesses themselves. It’s quite normal for Chinese enterprises and EU enterprises to sit down and talk, and after that reach agreement on the terms of cooperation on a voluntary basis and an equal footing. This is very natural for a market economy and that can bring benefits to all parties concerned. It has nothing to do with government.

We have noticed the recent moves by the EU to step up the screening of foreign investment, including Chinese investment, out of security and public order consideration. Strictly speaking, this is an internal affair of the EU. That being said, both China and the EU are long-time advocates of trade and investment facilitation and liberalization. We hope that the EU will continue with its commitment to an open world economy, match its words with deeds, and work in the same spirit together with China to promote economic globalization and share the opportunities and benefits in the course of opening up. This can be a mutually beneficial process for our economic and trade cooperation.

As China is taking new steps to further opening-up, we are also closely watching what our EU partners are doing. We care much about the direction that the EU is going forward: toward greater openness, inclusiveness and multilateralism or the opposite. It is our hope that the relevant foreign investment screening measures of the EU [will] comply with the basic principles of the WTO, in particular the principle of non-discrimination.

We hope that the EU will not be affected by the protectionist sentiments and can send a positive message to the outside.

Brexit is coming in less than a year. How do you think it will affect China’s economic relations with the EU and with the United Kingdom? Have there already been any discussions concerning a trade deal with the U.K.?

As a friend of the U.K. and the European Union, China regrets to see Brexit, because in our philosophy we believe marriage is more pleasant than divorce. Getting together is much better than getting separated. But at the end of the day, this is an internal matter of Europeans, so we hope that everything will end up well. We respect the decision jointly made by the UK and the EU.

But as a cooperation partner of the two sides, we have to say that Brexit will have a great impact on Europe’s politics, economy, society and integration process, but also will have a spill-over effect on the whole world. That’s why China is closely watching the Brexit talks. We hope that the two sides can reach a win-win deal through negotiation.

Prosperous, stable and open Europe and the U.K. are in the interest of all parties. China stands ready to further advance the growth of China-EU and China-U.K. relations on the basis of mutual respect, equality and mutual benefit.

After Brexit, China-U.K. relations will not start all from scratch. We stand ready to further enhance our economic and trade cooperation with the U.K. and explore possible opportunities for further cooperation, so that commercial ties will continue to be a propeller for China-U.K. relations in the Golden Era.

How concrete are these talks? Have you already done a scoping for a trade deal or any preparations for a trade deal that could be done directly after Brexit?

Between China and the U.K., we have the joint economic and trade commission. That’s why I just said that not everything will start from zero after Brexit. We already have a solid basis. If the EU and the UK fail to reach agreement in the first place, discussions on other matters may have to face great uncertainties.

That’s why China closely follows the Brexit talks and hopes to see that the EU and the U.K. can reach an agreement that works for both sides.

So you need a trade agreement between the EU and the U.K. first, before you can start individual talks with the U.K.?

I mean that with an EU-U.K. deal can the U.K. be in a better position to have more detailed discussions with other players of the international community. As for our economic and trade cooperation with the U.K., there are already close contacts and effective mechanisms for communication, so we can build on what we have achieved.

What can we expect for the upcoming EU-China summit? Can we expect a deal on geographical indications to be signed?

Now the Chinese and the EU teams are working very closely for the preparation of the summit. This summit is foreseen to be a very productive one because Chinese-EU cooperation covers a lot of grounds.

As for the GI agreement, technically our teams have done a lot of work for that, and maybe there’s only one inch to go before the signature.

Personally I’m optimistic about the talks.

What are the main examples you would give for the risk of protectionism in the EU?

For example, screening of foreign investments on security grounds is a new step to be taken by the EU. As an interested party, China will for sure follow the developments. We can see a lot of media coverage on this issue. Some say that the EU is cautious about Chinese investment in the EU market, and that there appear to be some signs of protectionism. China will closely follow that.

We know Europe is a strong advocate of investment and trade liberalization and facilitation, so we do not want to see the risk of protectionism in Europe.

I want to make sure I understood this correctly. You said that if there is no Brexit deal, it is hard to talk about trade agreement between the U.K. and China. Are you saying that if there is a hard Brexit there can be no China-U.K. deal?

China-U.K. cooperation has been going on for decades. Whether there is a Brexit or not, this kind of cooperation will go on anyway. But now there’s a Brexit, and after the Brexit, in light of the new circumstances there will be new measures and practices accordingly.

Our position is that we sincerely hope that the Brexit talks can go smoothly. And we do not want to see spill-over effects on the global economy as a result of setbacks of the talks.

If Brexit goes well, I believe there will not be a big impact on U.K.’s cooperation with other members of the international community.

China says that since the end of 2016 it has to be considered as a market economy under WTO law. The EU has reformed its anti-dumping rules to evade saying whether China is a market economy or not. What is your take on the reform? Is it fair, or do you still disagree with Brussels?

We have noticed that on 19 December 2017, the EU officially published its legislation containing the new methodology. And we have noticed that in the new legislation the EU removed the list of non-market economies, and the legislation no longer assumes that China is a non-market economy from the legal perspective. In my understanding, that is a move taken by the EU to fulfill its obligations under Article 15 of the protocol on China’s accession to the WTO.

It is a bound duty for a party concerned to honor its commitments and fulfill its obligations under international treaties. But in our view the EU has not made thorough efforts in this regard.

Because in the legislation the EU introduced a new notion known as the significant market distortion. According to this legislation, when there are so-called significant market distortions, the EU can use the prices and production costs of a third country or on the international market, instead of those of the exporting country, to calculate the value of the product from this exporting country.

In our view, such a move is to put the old wine into a new bottle. China is of the view that the EU move violates WTO rules because there is no such a notion as “significant market distortion” in WTO rules, nor is there the concept of social and environmental dumping. The EU is trying to use its own criteria to judge whether other members have the so-called significant market distortions and this will weaken the authority of the WTO anti-dumping legal system.

We think the EU move is not wise, because it is very ill-received by the Chinese people. Every person, from very early childhood, knows that it’s important to always honor the commitments and promise that they have ever made to others. We have read a lot of Western books which value the spirit of contract. This spirit is much endorsed by Westerners. Actually before my arrival here in Brussels, a friend of mine complained to me why you EU did not keep your word. And he just put me and the EU together in the same brackets.

So we urge the EU to strictly abide by the WTO rules and fulfill its obligations under international instruments in good faith.

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