(China Daily)
Updated: 2007-11-30 09:15

As a great market and trade partner for each other, China and the European Union (EU) have a huge stake in advancing their bilateral relations.

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The two separate high-level dialogue mechanisms on trade and finance the two sides agreed to set up will improve their understanding of each other to help address emerging disputes over trade imbalances and currency issues.

The EU is the largest trade partner and export market for China, whereas China is the EU's second largest trading partner. Bilateral trade volume has quadrupled over the past decade.

As a developing country that boasts a huge comparative advantage of cheap labor, China has understandably enjoyed a trade surplus with the EU.

Bilateral trade between the two economies reached US$272 billion last year, while China's trade surplus against the EU hit US$91.7 billion.

Such a trade imbalance should certainly be a cause for concern. If not properly addressed, it could fuel protectionism that will seriously hurt the mutually beneficial Sino-EU trade ties.

In this sense, the two new dialogue mechanisms on trade and finance are more than needed.

But to achieve progress on bilateral relations, EU leaders who are blaming the Chinese currency for their trade deficit should take a broad view as Chinese leaders suggested on the issues as part of the imbalance of the world economy.

It is true that the rise of the EU's trade deficit against China has come with a depreciation of the renminbi against the Euro.

But it is also true that the fast appreciation of the Euro in recent years, largely due to devaluation of the US dollar and the international market's turbulence, than the relative fall of the renminbi that has affected EU's exports.

The Chinese government has long made it clear that China is not intentionally pursuing a trade surplus but is aiming for an overall balance of trade. And it is also resolved to let the market have a bigger say in determining the renminbi exchange rate.

The EU's concerns on the exchange rate issue are justified. The new dialogue mechanism will provide the two sides a needed chance to seek joint solutions. But it is impossible to address the imbalance in the world economy without all major developed economies shouldering their responsibility for keeping the international currency system stable.