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Sherry Wang

As Beijing and Brussels prepare for October talks on trade imbalances, an EU trade association has called for more concrete action, such as China shifting towards a more service-based economy, to address the country’s domestic supply-demand imbalances that have contributed to trade tensions.
The European Union Chamber of Commerce in China (EUCCC), which has more than 1,600 member companies, said persistent supply-demand imbalances had fuelled neijuan or “involution” – a form of excessive competition marked by sluggish demand, excess supply and eroding margins.
While China’s latest five-year plan has called for greater efforts to address these structural problems, the chamber said it hoped those commitments would translate into meaningful action.
“The Chamber hopes [China’s latest five-year plan] ... can alleviate third market concerns over China’s increasing exports and the subsequent trade imbalances that have developed,” it said in its annual position paper released on Tuesday.
A shift towards a more service-based economy would be beneficial both in terms of curbing the flow of excessive support into manufacturing and responding to the growing needs of China’s ageing population, the paper argued.
While still at a very low level relative to other economies, the service sector now accounted for more than half of China’s gross domestic product, with its contribution steadily growing, the paper said. Developing the sector was also in line with the country’s five-year plan through 2030.
The chamber also recommended restructuring talent-development policies to steer more students into service-related fields, while encouraging greater private sector participation and removing barriers to foreign participation to support the sector’s growth.

“We don’t really see any progress in terms of resolving the fundamental issue of involution,” EUCCC president Jens Eskelund told the media ahead of the paper’s release, pointing to August data showing China’s industrial output growing at a pace far beyond what the domestic market could absorb.
“The imbalances are growing considerably,” he said, adding that he didn’t see any signs of China’s exports slowing down.
China’s swelling exports and widening trade surplus have fuelled mounting unease across Western economies, prompting the EU and others to impose trade curbs and demand that Beijing redress the imbalance.
The EU now has the largest trade deficit with China of any economy, with China’s trade surplus with the bloc growing by about €1 billion (US$1.15 billion) a day, according to the chamber.
The bloc has set an October deadline for Beijing to deliver “tangible” progress in rebalancing trade or risk facing further trade restrictions.
“We are looking into a reality where trade is becoming much more unstable unless we are able to identify value creation for both sides,” Eskelund said.




He expected China to “push hard to maintain unfettered access” to overseas markets, while warning of the risk of new tariffs if the two sides failed to find a solution to address EU economic concerns.
The trade tensions come as European companies continue to face a challenging business environment in China, with overall business confidence remaining low despite a modest uptick in sentiment this year.
The chamber’s annual Business Confidence Survey, released in May, showed the share of respondents optimistic about profitability over the next two years rose to 17 per cent, while the share expecting growth increased to 35 per cent.
At the same time, European companies are increasingly integrating into China’s cost-effective and comprehensive supply chains to remain competitive. Fifty-six per cent of respondents said they were increasing onshoring in China, while just 7 per cent said they were only increasing offshoring, the survey showed.
“If you are to be able to compete on price and quality, very often the only way you can do so is by becoming a part of the Chinese supply chain yourself,” Eskelund said.
The position paper called on both sides to establish a framework defining areas essential for economic security while providing greater openness, reliability and predictability for businesses.
For China in the longer term, the paper said this could include clearer export-control licensing processes, more explicit rules governing data flows and easier cross-border payments and trade.


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The nation has seen little progress towards addressing ‘involution’, with output still growing beyond absorption rate, says an EU trade group


The nation has seen little progress towards addressing ‘involution’, with output still growing beyond absorption rate, says an EU trade group.


A shift by China towards service-based economy could help trade imbalance: EU group

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The nation has seen little progress towards addressing ‘involution’, with output still growing beyond absorption rate, says an EU trade group

The nation has seen little progress towards addressing ‘involution’, with output still growing beyond absorption rate, says an EU trade group