Creating Business and Dialogue

European Commission chief Jose Manuel Barroso has told the Chinese public that the EU will become a fully-fledged "political union" after the financial crisis.

Speaking to TV cameras after a meeting with Chinese leader Wen Jiabao in Bejing on Tuesday (14 February), he noted the EU has recently suffered mass strikes and protests, including violent clashes in Greece.

"It is true that in many of our member states there have been student protests and strikes. This is normal in our open societies where people have a right to protest," he said.

He added that the crisis has prompted a new wave of integration, however, citing the fiscal treaty agreed last month by 25 EU countries.

"I want to make this very clear to Chinese public opinion. Because I understand when you see the news you may be putting some questions. Is the European Union really going to progress? I say: 'Yes. No doubt about it' ... Precisely because of the problems in the euro area the conclusion has been to further integrate and to complete the monetary union with a fiscal union and, I believe, in the future toward a political union."

Barroso and EU Council President Herman Van Rompuy went to China to attract money for EU bail-out funds.

For his part, Van Rompuy highlighted a clause in the joint summit communique which says the EU is willing to "swiftly" give China market economy status - a move that would help it sell more cheap goods to Europe. "It's the first time we put this kind of agreement with this kind of langauge after an EU-China summit," he said.

Wen declined to give a concrete promise despite the charm offensive.

He said only that: "China is ready to increase its participation in resolving the European debt problems. We are willing to conduct close communication and co-operation with the EU side."

He also stonewalled on Iran and Syria.

Van Rompuy voiced "serious concern" about Iran's nuclear programme and violence in Syria. The EU last month imposed an oil embargo on Iran only to hear that Chinese firms are moving in to buy the oil at lower prices. It is also keen to send UN peacekeepers to Syria, but China recently vetoed UN action on the crisis.

Wen said nothing on Iran and indicated that China does not want outside interference in Syria. "The future of Syria is for the Syrian people to decide," he said.

Meanwhile, the summit communique was weak on human rights.

It mentioned that: "Both sides looked forward to the strengthening of the EU-China dialogue and co-operation on human rights based on equality and mutual respect."

The dialogue - a behind-closed-doors meeting of mid-level EU and Chinese diplomats which takes place a few days before each summit - is seen as a pointless exercise by NGOs, such as Human Rights Watch, in terms of putting pressure on China to stop abuses.

Neither the communique nor the EU envoys publicly mentioned Tibet, even though another Buddhist monk set himself on fire on Monday in protest against repression.

Back in Brussels, a spokesman for EU digital affairs commissioner Neelie Kroes emailed journalists to promote a minor summit initiative - the launch of an EU-China Cyber Taskforce, which he called "good progress."

Asked by EUobserver if China - a country notorious for Internet censorship - is an appropriate partner for the EU on managing the Internet, the spokesman, Ryan Heath, said: "It's not a partnership. It's a taskforce to see how we can deal with these issues co-operatively."

Four Chinese airlines are to legally challenge Europe's new carbon emission taxes, which are due to take effect from 1 January.

The four carriers - Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines - have the backing of the country's air transport association, which claims the new carbon emission rules will cost Chinese airlines some €95 million.

The association asked all Chinese carriers not to take part in the EU carbon trading scheme, not to submit carbon emission monitoring plans or to negotiate with the EU on a bilateral basis.

From 1 January airlines will be required to buy permits for 15 percent of the emissions generated on flights to, from and within the EU. The figure will rise to 18 percent in 2013-2020.

US airlines have already challenged the scheme in court.

A ruling by the European Court of Justice is expected on Wednesday. A legal opinion by the court issued in October said the carbon emission rules were compatible with EU law. The opinion is non-binding, but it is usually followed by the judges in their final verdict.

Some airlines, such as America's cargo giant UPS, are already thinking about re-routing flights in order to side-step the scheme and cut costs, reports the Wall Street Journal. The move is likely to end up creating more carbon emissions.

Mitch Nichols, president of UPS Airlines, told the newspaper that the company may look at redirecting flights between its hubs in Hong Kong and Cologne, Germany, by going through Mumbai. That will cut the cost of the tax by about a quarter because UPS would only be charged for the distance flown between Cologne and Mumbai. But the distance flown will increase by 1,100 miles, upping the emissions.

US foreign policy chief Hillary Clinton last week sent a letter to several EU commissioners urging them to suspend the enforcement of the carbon scheme and re-negotiate with governments around the world.

"Halt or, at a minimum, delay or suspend application of this directive. Re-engage with the rest of the world. The United States stands ready to engage in such an effort. Absent such willingness on the part of the EU, we will be compelled to take appropriate action," she warned.

In a statement on Tuesday (20 December), the Association of European Airlines expressed fears of an imminent trade war should the plan go ahead. "Even if the ECJ (EU court) decides that the EU (emissions trading scheme) conforms with EU law, this will not resolve non-European countries' vehement hostility," it said.

EU climate change commissioner Connie Hedegaard has refused to back down, however.

"It is not just an idea, it is EU law," she told Financial Times Deutschland, stressing that the commission will not give in to pressure from the US or elsewhere.

A collapse of the eurozone would be a "disaster for everyone" and EU leaders have not "fully realised" the urgency of the situation, a Chinese official said Tuesday (29 November), adding that Europe's problem is not so much money-related as a matter of lack of confidence.

"We don't want to see the collapse of the eurozone, it would be a disaster for everyone. We want to see a very quick recovery of the eurozone. China is a very firm believer in the euro, in European integration," Hua Chunying, a foreign ministry counsellor dealing with EU affairs told this website on the margins of the Understanding China policy summit.

China has invested in bonds of the troubled southern euro-countries already. "But the major problem with the EU is not the money, it's the confidence," she explained.

This lack of confidence is "natural" given the diversity between north and south, poor and rich countries, Hua said, adding: "But I do believe once everybody realises it's a problem of life and death of the euro, then they may take very rapid measures."

A 'core' or northern eurozone splintering off with a stronger currency is not viable, in the Chinese official's view. "They can only go as one area. It's not a matter of choice, it's a strategical asset. Europe for a long period in history used to be the pillar and source of stability and we hope it will continue to be so," she stressed.

Asked if the Chinese government is preparing any contingency plans for a eurozone break-up, Hua said: "No, we don't want to see that. Everybody will suffer if that happens."

Meanwhile, Wang Yiming, a Chinese official from the National Development and Reform Commission, spelled out that instead of asking for money, Europe should provide market access to Chinese companies.

"The European economy needs blood, but the way forward is not by asking China for blood. We need to create new blood together rather than to transfer some," he said at the conference.

Eurozone leaders had been hoping that China and others would help boost the single currency's bailout fund. But a meeting of G20 leaders earlier this month saw no offers forthcoming.

Lord Leon Brittan, a former EU commissioner and currently vice chair of UBS Investment Bank, also warned against the EU asking for Chinese financial assistance, but for different reasons.

"It would be a great mistake to ask for Chinese assistance in this crisis, because if you ask for money, there are always political conditions attached," he said.

Beijing in recent days has signalled that it would be willing to invest in infrastructure and state assets in Europe, but is still waiting for the prices to go down.

China is looking to buy EU factories and railways instead of wobbly government bonds as prices fall amid the eurozone crisis.

Minister of commerce Chen Deming articulated the strategy at a business congress in China on Monday (28 November).

"Next year, we will send a delegation for promoting trade and investment to the European countries ... Some European countries are facing a debt crisis and hope to convert their assets to cash and would like foreign capital to acquire their enterprises. We will be closely watching and pushing forward the process," he said.

Chen's remarks come after the chief of the $410 billion Chinese Investment Corporation, Lou Jiwei, wrote in an op-ed in the Financial Times on Sunday that EU infrastructure needs outside help.

"Traditionally, Chinese involvement in overseas infrastructure projects has been as a contractor only. Now, Chinese investors also see a need to invest in, develop and operate projects," he explained.

Lou praised the UK as "one of the most open economies in the world" and mentioned involvement in a new UK north-south railway project in the context of political hostility to China in some countries.

Chinese port operator Cosco last year bought a 35-year lease for two container terminals in debt-struck Greece. But crisis-hit Iceland last week blocked the sale of a large farm to Chinese businessman Huang Nubo on national security grounds.

Huang said he wanted to build a hotel and a golf course.

Speaking to the Sina Finance news agency, he hit out at what he called European "prejudice ... like the view that state-owned enterprises represent your country, that whatever your background is you're a military business."

"You can come and buy a house, and you can emigrate here and bring your riches with you, or you can buy my luxury goods, but if you want to touch my natural resources, then I'm sorry, I won't let you."

The EU in recent weeks had tried to interest China in buying weak Euroepan bonds instead through a special purpose investment vehicle.

For their part, Chinese analysts predict the spending spree will not begin until prices hit rock bottom.

"The euro zone crisis has not entirely played out and asset prices are very volatile. They haven't found their floor ... Europe is not a resources player, but its manufacturers are what would most interest us, with their market, their technology, and their strong experience," Wang Jun, an economist at the Beijing-based CCIEE think-tank told Reuters.

Chinese ratings agency Dagong on Tuesday (22 November) downgraded Greece's sovereign rating to the second-lowest 'default' level, a move suggesting that Beijing has no intention of 'playing Santa Claus' to the ailing eurozone, experts say.

"As Greece has completely lost its solvency, it has to prepare for a massive debt restructuring," Dagong said when announcing the downgrade from triple C to C.

Dagong also warned that it may downgrade Greece to the lowest default level if austerity further dragged the country downwards.

"Social unrest has intensified. The government's ability to control economic and social developments has been dramatically impaired," making the implementation of the EU-IMF aid package difficult, it added.

The ratings agency projects a recession of 7.2 percent in 2012 and 6.8 percent the following year, with very little chances of restoring growth in the medium term.

Neither does the Chinese ratings agency believe that the new €230-billion-strong aid package may "drag the Greek government debt back to a sustainable track."

While the standing of the Chinese agency has not the same impact on markets as the 'big three' Anglo-Saxon ratings agencies - Moody's, Standard & Poor's and Fitch - Dagong is indicative of what the Chinese government's intentions are when it comes to acquiring debt from Greece and other troubled eurozone countries, experts say.

"This downgrade is a confirmation of what we saw in recent weeks: There is no real appetite to invest in Greek bonds - and European bonds in general," said Carsten Brzeski, a senior economist with ING Bank.

Contrary to what EU officials had alleged earlier this year - that the 'big three' are deliberately attacking the sovereign rating of eurozone countries to their own advantage - Brzeski said that the Dagong move illustrates that "Chinese have the same information as all other investors."

It also spells out clearly that Beijing "is not going to buy Greek debt and play Santa Claus with the eurozone," he stressed.

What it means for EU leaders meeting again in Brussels next month is that the October deal on 'leveraging' the eurozone bail-out fund to €1 trillion was "wishful thinking", because it was based on the assumption that countries such as China will be interested in buying up debt.

One scenario would be to fast-track the adoption of the permanent bail-out fund - the European Stability Mechanism - currently planned for mid-2013. This would be more likely than overcoming German resistance to allowing the European Central Bank to lend enough money for troubled euro-countries to weather the crisis, Brzeski suggested.