China imports threaten EU’s economic growth

By Stewart Fleming

Date: 04/05/05

A flood of imports from China is threatening economic growth in the European Union, especially the stuttering expansion in major eurozone countries, according to several private-sector economists.

EU officials believe that the recent surge in imports of textiles is just the tip of an iceberg.

"The euro-area's trade deficit with China is increasing exponentially," said Klaus Baader, an economist at investment bankers Lehman Brothers in London.

"Chinese imports grew $11 billion [@8.5bn] in the first quarter of this year compared with a year ago," said Julian Callow, chief European economist at Barclays Capital in London. "The exploding trade surplus of a super-competitive China is proving devastating to many European producers," he added.

Last week, Trade Commissioner Peter Mandelson announced an EU investigation which could result in protectionist 'safeguard' restrictions on textile imports unless the Chinese act to curb the flow voluntarily.

Asked whether it was just textiles or a broadly based inflow of manufactured goods which was causing a sharp deterioration in the EU's trade deficit with China, a Brussels-based official said: "It's everything, across the board."

The surge in imports is raising fears of weaker demand for EU-produced goods.

"In a world in which global growth is now slowing we are getting concerned about the impact on euroland of the deterioration in the traded goods sector," said Michael Dicks, chief economist for Europe at Lehman Brothers.

The estimate for first quarter gross domestic product figures for the eurozone is expected from Eurostat, the Commission's statistical office, on 12 May. Recent trends in industrial production and business survey evidence are already leading some economists to suspect that, as in Belgium where first quarter data has just been released, the eurozone figures will show renewed economic weakness.

A senior EU economic policymaker said this week that he was hoping that when the European Central Bank (ECB) discussed its monetary policy today (4 May) it would signal its concerns about the economic outlook.

"It is time for the ECB to make clear that it no longer has a bias towards tightening monetary policy," he said.

The deterioration in the EU's trade accounts has been highlighted by the surge in imports from China.

Baader said that, particularly in the last three years following China's entry into the World Trade Organization, imports from China have been growing much faster than exports. They had been helped by the 30% fall against the euro of the international value of the yuan. China is one of several major trading nations which has pegged the value of its currency to the value of the US dollar.

With the eurozone growth faltering, other major exporters to the EU becoming more price competitive and the dollar expected to fall further in the face of America's $600bn (€466bn) trade deficit, demands for protection against Chinese imports are likely to increase. "The political heat under this issue is likely to rise," said Baader.

Article says that according to several private-sector economists a flood of imports from China was threatening economic growth in the European Union, especially the stuttering expansion in major eurozone countries.