On 19 June 2008, H. E. Mr. Song Zhe, Ambassador and Head of the Mission of the Peoples' Republic of China to the European Communities, gave an exclusive interview to Mr. Erik Ziarczyk, senior international financial news reporter of DE TIJD. Ambassador Song Zhe first extended appreciation to Mr. Erik for the efforts he made to promote understanding and friendship between the Chinese and Belgian people and asked him to convey warm greetings and best wishes to the readers of DE TIJD.

Ambassador Song gave an introduction on China's development and China-EU relations. He stated that this year marks the 30th anniversary of China's reform and opening up policy. Over the past three decades, great changes have taken place in China. The international community has often noticed China's rapid economic development, to the neglect of the tremendous progress China has made in the social and political fields. Today's China is different than before. I hope the readers of this newspaper can come to China and see its huge transformation. I believe people in Europe will be impressed by the real China that they see, a China which is friendly and making progress.

The past thirty years are also a period of major progress in China-EU relations. A look at the economic picture is already enough to prove that. Trade volume between China and the EU grew from 2.5 billion from the year of establishing China-EU diplomatic ties to 356.3 billion US dollars last year, which is a 142 fold increase. Particularly, in the recent 10 years, China-EU relations have advanced through 3 stages from a constructive partnership of long-term stability for the 21st century to comprehensive partnership to today's comprehensive and strategic partnership. The EU has always occupied an important position in China's foreign relations. China-EU relations have already gone far beyond the bilateral scope and acquired a global and strategic significance, whose importance is still growing. Close cooperation between China and EU is a must not only for development of China or EU themselves, but also for tackling global challenges and resolving major hotspot issues in the world. The sound and healthy development of China-EU relations is not only in the interest of China and EU, but also contributes to world prosperity and stability. Therefore, we must ensure a sound relationship with each other and we cannot afford a relationship that is otherwise.

There are different forms of democracy and we shouldn't expect one single form of democracy. A country should choose the development path suited to its own conditions. Due to differences in history, culture, tradition, political system and level of socio-economic development, China and the EU do have different views on some issues, which is only natural. These differences should not affect the broader China-EU relationship. We hope friends in Europe will view and uphold China-EU relations from a strategic perspective and make active efforts to support the development of China-EU comprehensive and strategic partnership in greater depth.

Ambassador emphasized that while China has made big progress after 30 years of reform and opening up, we are still a developing country, with per capita GDP ranking behind the world's 100th, one-twentieth of that of Belgium and lower than some developing countries in Africa. Nevertheless, China is still playing a positive and constructive role in world affairs in a responsible attitude to shoulder our international responsibilities and obligations. The Chinese nation is a peace-loving nation. China pursues an independent foreign policy of peace and is committed to peaceful development. We embrace the world with the spirit of openness and friendship, and we also hope friends in Europe will do the same. In its history of thousands of years, even in its most powerful period, China has never invaded or threatened any other country. China's development is not a threat to any one. This is true not only for today, but also true for the years to come if China should become more developed. This is our solemn commitment to the international community.

Ambassador then answered the following questions from the newspaper.

On the question of the pace of China's political reform compared with economic reform, Ambassador Song stated that in the 30 years of reform and opening up, China is not only advancing economic reform, but also exploring and advancing political reform. China has made big progress in improving socialist democracy and the rule of law along that process. This is reflected fully in China's current election system. According to the Election Law, deputies of the national people's congress at and below the county level is directly elected and at the level above, it is indirectly elected by practicing multi-candidate election. The Chinese people enjoy full freedom of speech and expression. Protection of human rights is enshrined in China's Constitution. China will continue to further deepen economic reform and advance political reform and the building of socialist democracy and the rule of law.

On the question of accusations in Europe on China over Tibet, Ambassador Song cited his personal experience since arriving in Europe 3 months ago and stated that many things happened in such a short period. Some were good and some were not. At times, unfortunate events were turned into good things. After the incident in Lhasa on 14th of March involving beating, destruction of property, looting and arson took place, some media in Europe made wrong reactions. This was mainly due to lack of knowledge and understanding about the reality of Tibet. For instance, before democratic reform in 1959, Tibet was a theocracy and practiced brutal and dark feudal serfdom, similar to the Middle Age of Europe. 95% of Tibetans were serfs willfully traded and slaughtered by owners and for them there was no human rights to speak of. After 1959, great changes have taken place in Tibet, thanks to support of the Central Government and the whole country. Anyone that has ever visited Tibet will not agree on the distorted reports by some Western media or the vilification of China. Some untrue reports by European media and some strong reaction by politicians in Europe cannot but produce certain impact on China-EU relations. The violent attacks on during the Lhasa incident and the Olympic torch relay in Europe exposed the false mask of Dalai group as "peaceful" and "non-violent". Some sensitive reports on the incident with ulterior motives and violent attacks on China's Embassies and missions abroad aroused the aversion of Chinese people. This is not what we want to see. We hope Europe will view and handle the sensitive issues from a strategic and long-term perspective to uphold and promote the sound and stable development of China-EU relations. This is in the interest of China and the EU, and also contributes to world stability and prosperity. In sum, a lot of misunderstanding is caused by lack of knowledge in China. I particularly hope that your newspaper and other European media will do more to promote and enhance understanding and cooperation and I am confident that more and more, the western media will report on China in a fair and objective way.

On the question of China's economic growth stability, Ambassador Song stated that since 2003, China maintained an annual average of 10.8% growth rate. This year, a slower growth speed is caused by both internal and external factors. At present, China's economy is going through stable adjustment, but the development speed will not have a dramatic slowdown. On the other hand, China is facing pressure of inflation, resources and environmental protection. The Chinese Government is focusing now on promoting structural adjustment to change the growth pattern. If we look at the picture for the first half of this year, China's economy has maintained sound and stable development on the whole and is better than expected. I am very happy that China expects to see a bumper harvest for the summer crops. Against the background of rising food prices internationally, this undoubtedly will bring more stability to China's agricultural food prices.

On the question of China-EU political and economic relations, Ambassador stated that there are many favorable conditions for China-EU cooperation. Many other countries do not enjoy the depth and breadth of China-EU cooperation. There are many common points between China and the EU. Both are in favor of a multi-polar world and diversity. Both want to see the UN playing its role in resolving some hotspot issues of the world. To some extent, both as emerging global player, China and the EU need to strengthen cooperation and they have very strong desire to do so. In addition, there is no fundamental conflict of interests between China and EU. Instead, there are strong complimentarities in the economic and technology fields. On the whole, China-EU relations are developing in good momentum and great potential exists for its further development and deepening. The recent visit by Commission President Barroso to China with as many as 9 Commissioners is unprecedented in the history of China-EU relations, which fully demonstrated the importance that EU attaches to relations with China and the depth and breadth of China-EU cooperation. In addition, there are great potential for China and the EU to further deepen and expand cooperation on international issues, economic and trade, climate change, sustainable development and other issues. Therefore, I am full of confidence in the prospect of China-EU relations.

Ambassador Song also answered questions on China's economic transformation, trade balance, the new Labor Contract Law, tax reform, controlling economic overheating, addressing inflation, China's western region development, energy saving and environmental protection and market access. Following is the excerpt.

Q & A

1. The Chinese economy is growing at a record speed. How stable is the economy?

Since 2003, the Chinese economy has been growing at an annual average rate of 10.8%, handling quite well the relationship among speed, quality and efficiency.

Early this year, China was hit by a series of major natural disasters including rare cold rain and snow and the devastating earthquake in Sichuan, which will have a certain impact on the economy. At the same time, China is also faced with challenges posed by marked world economic slowdown and quite rapid domestic price increase. It should be said that this year the Chinese economy is facing a quite serious internal and external environment and economic growth might be slower than that in the previous five years. This is a result of the dynamics of the economic cycle.

China's economic growth slowdown is an adjustment on the basis of high growth. There will be no sharp drastic slowdown. There are several reasons. First, although the two natural disasters bring serious impact on local economy, its impact on the whole country is only limited and temporary and will not have a major effect on overall growth rate. Reconstruction often boosts local investment and offset the negative impact. Secondly, although China's export this year is affected by world economic slowdown, we are actively adjusting export mix to address the problem. We are also stimulating domestic demand, particularly consumption, to keep steady economic growth. Thirdly, the structural price increase since the second half of last year was due to several factors, especially the high price of oil and food on the international market. Instead of cutting demand, China is taking comprehensive measures such as increasing supply, preventing chain reaction and stabilizing expectation to prevent sudden deceleration of growth because of price regulation. We expect that price increase will start to ease from the second half of this year.

In the long term, driven by industrialization, urbanization, market reform and international integration, the Chinese economy will maintain a fast yet steady growth. Development of industrialization, urbanization and market economy will bring about more investment and consumption demand in China, thus making China's economic growth based more on domestic demand. More consumption by Chinese people will play a more prominent role in boosting economic growth. In addition, China's stable economic growth will produce positive effect on world economic growth.

2. China wants to move from on economy based on mass production of cheap products to a high-tech economy. What are the prospects? And what are the weaknesses?

Since 1995, China has been vigorously promoting change of economic growth model from an extensive and quantity-based economy into an intensive and quality-based economy. After years of efforts, the Chinese economy is making substantial progress in terms of efficiency. There are new changes in regional development, agriculture as the basic industry is further strengthened, modern service sector and cultural industries are developing rapidly. The state-owned economic sector is accelerating its structural and strategic adjustment. State-owned enterprises reform is successful, with increased research and development input, improved self-innovation capacity, better corporate governance and improved macro-regulation. The goal for China's development of science and technology is to turn the country into an innovation country by 2020 and enable science and technology to become the strong pillar of the economy.

3. And what does it mean for Western investors who want to come to China?

China's economic development has provided good opportunity to foreign investors. Over the past 30 years of reform and opening up, China has turned rapidly from a closed economy into one of the world's most open big economies. Its big market and low cost of production is attracting more and more foreign investment. Since 1992, China has absorbed the largest amount of FDI among the developing countries. From January to May 2008, China utilized 42.8 billion US dollars of foreign capital, a 55% increase than the same period of the previous year. With China's further economic development, foreign-invested enterprises will find enormous growth space in the hi-tech, energy saving, environmental protection, service sector and other fields.

At present, foreign investment is gradually shifting from general manufacturing sector to service sector and high-end manufacturing sectors. China will pay greater attention to improving the quality of foreign investment and give better play to the active role of foreign investment in terms of boosting independent innovation, industrial upgrading and pursuing coordinated regional development

China will, as always, welcome all investors to invest in China. If at the beginning of China's reform and opening up, absorbing foreign capital was mainly to ease domestic shortage of funds and to expand exports, at the present time, attracting foreign investment is mainly to learn from the advanced technology, professional and management expertise of other countries in order to promote structural adjustment and optimization, speed up the formation of a service-oriented economy and promote the development of modern service sector and advanced manufacturing industry.

4. What is the Chinese view on the trade imbalance with the United States and Europe?

China's trade surplus with EU is mainly due to economic complimentarity. It is also a result of economic globalization. For one thing, through processing trade, other countries and regions in East Asia move their factories to China and their surplus with EU becomes China's surplus with EU. For another, foreign investors in China also contribute to the surplus, because foreign-invested enterprises in China see rapid increase of import and export in recent years, which accounts for 58.5% and 57.1% of total import and export, creating nearly half of China's surplus in trade in goods. EU companies also share the benefit of China's growth by investing in China, taking advantage of China's market, rich labor resources and other various resources to lower the cost of production and then exporting to other countries. According to EU statistics, EU's trade difference with all Asian countries has been basically stable in past 10 years. Different methods of statistics are also part of the reason for the different figures of trade balance.

China is not deliberately pursuing a trade surplus. China's import and export are both at large amount. The Chinese Government wants to maintain a basic balance between import and export. This is conducive to coordinated development of domestic demand and opening up and also to changing the model of trade growth. Currently, China has some surplus in terms of trade in goods, yet trade in services has been in deficit for a long time and the total surplus accounts for a small ratio of our GDP, much lower than some developed countries. In addition, China is an open market. We have earnestly fulfilled our WTO accession commitments and do not discriminate against any product of any other country.

We understand the EU's concern over trade imbalance with China. The Chinese Government is making positive efforts to address this issue. However, it is our view that adhering to the principles of free trade and expanding opening up not only is good to our own economic development, but also helps accelerate the development of trading and investment partners. Therefore, to resolve the issue of balance in China-EU trade, the most fundamental thing is to look forward into the future and solve the problem by increasing trade and achieve a win-win situation on a higher platform. Since 2007, the Chinese Government has actively held trade dialogue with the EU, and taken measures to adjust trade policy, expand imports from the EU to slow down increase of trade surplus. At the same time, we also hope that the European Union and other trading partners remove the unreasonable barriers in high-tech export to China, thus facilitate China's increasing imports from abroad.

5. Does China fear the competition of other countries in the region, e.g. India and Vietnam?

China, India and Vietnam are all developing countries facing the task of developing the economy and improving people's living standards. We have development needs in common and face the common opportunities and challenges brought by the rapid development of economic globalization. We have all made gratifying achievements in economic development. States should develop cooperation for common development under the principle of mutual benefit and win-win outcome. It is my view that further economic development of China's neighboring countries will help enhance the overall international competitiveness of the Asian countries as a whole and it will help attract not only more international investors, but also promote cooperation among ourselves at a higher level.

6. What is the impact of the recent changes in the Labor law and the tax system?

1. The Labor Contract Law entered into force on January 1, 2008. It is very important to balance employer and employee interests, regulate labor relations and develop orderly, harmonious and stable labor relations. This will not only help protect the rights and interests of employees but also strengthen the cohesion of enterprises and is therefore good for the long-term development of enterprises.

The Labor Contract Law reflects that the Chinese Government is devoted to labor rights protection. It will contribute to building social harmony. The rules for its implementation and other laws are being drafted in the quickest possible time to enhance its enforceability.

2. The new Labor Contract Law entered into force on January 1, 2008. It is based on international standards and follows the market rule of fair competition. There are four "sameness". Chinese and foreign companies are subject to the same tax law, the same tax rate or tax cuts, the same pre-tax deduction method and standard and the same tax incentive policies.

The new Enterprise Income Law is aimed at promoting service sector, encouraging self-innovation and environment and energy-saving industries. A principle is set to put incentives measures more based on industrial categories and less on regional groupings. A 15% income tax rate is applied to high-tech industries which needs major support from the state. There are tax exemption or tax cuts for agriculture, forestry, animal farming, fishery, infrastructure, energy saving, water saving and environmental protection industries. For services sector, income tax rate is lowered from 33% to 25%, easing the tax burden of related companies. A reasonable grace period is also granted to foreign-invested enterprises already established before the introduction of the new law.

3. Since 2007, there are quite many adjustments of foreign-invested policies, such as the before-mentioned two laws, and the laws on processing trade, export tax rebate and land policy. This is aimed to provide a more equal, open and orderly market environment for all kinds of companies, encourage them to adapt to the new situation and speed up upgrading. In the long run, this will be good to raise the competitiveness of foreign companies and good for their growth. Most of them understand the adjustments, although some investors are having difficulty in adaptation. We hope foreign investors will think long-term, constantly adjust and improve investment strategy and method in line of China's economic and social conditions. We believe China's continued economic growth and growing domestic demand will bring more opportunities to global investors.

7. The Chinese government has taken a lot of steps to avoid the overheating of the economy. Is it a success?

China's macroeconomic regulation has been successful. On the whole, the economy is growing steadily rather than becoming overheated. Economic structural reform has also made big progress. For the first quarter of this year, China's GDP grew by 10.6 percent than the same period last year, down by 1.1 per cent than the previous period. In the meantime, domestic demand contribution to economic growth is increasing. First, export growth continues to decelerate, import growth is further accelerating and trade surplus is on decrease. From January to April this year, China's export totaled 424.57 billion US dollars, an increase of 21.5%, 6% lower than the same period last year. Import totaled 366.57 billion U.S. dollars, an increase of 27.9 %, 8.7% less than the same period before. Trade surplus reached 58 billion dollars, a decrease by 4.95 billion dollars. Secondly, investment growth is decelerating, with structural improvement and the tendency of excessive investment under control. In the first 4 months, urban fixed asset investment grew by 25.7%, 0.2% lower than the same period last year, 0.2% lower than the annual increase of 2007. Investment increase in cement, nonferrous metal, steel and other high-energy, high-pollution and resources industries is markedly slowing down, consistent with the macro-regulation target. Thirdly, consumption is rising, in first 4 months of this year, consumer spending increased by 13.4%, up by 0.4% than the same period last year.

8. What is the danger of the accelerating the inflation? Does the government fear social unrest?

There are mainly the following risks which might trigger more serious inflation. Firstly, due to tensions between supply and demand, a weak dollar and active speculation, international commodity prices will remain at a high level and this will continue to bring inflationary pressure on China. Secondly, the price adjustment of resources and rising labor costs in China has the potential to drive up prices further. Thirdly, uncertainties in terms of inflation expectation will drive up inflation.

Since last year, the Chinese Government has adopted a series of measures which effectively controlled inflation and mitigated the negative impact of inflation on economic and social stability. Firstly, the Government gives priority in 2008 to control price increase and inflation and adopted a more tightened monetary policy which has already shown some effect. Secondly, through fiscal measures, the Government increases input in agriculture to improve the production facilities and increase output, therefore increasing total supply of farm products. A bumper harvest is expected for this summer, which will further ease the pressure of food price increase and food prices already dropped in recent period. Thirdly, the Government subsidized the population mostly affected by the rising prices of food and energy, which eased the impact of inflation on vulnerable groups.

At present, , excepting a very few kinds of food, supply of most consumer goods in China is adequate and price levels remain basically stable and will not have an impact on social stability.

9. The Chinese government wants to develop the western part of the country. Is it successful?

Since the implementation of the western region development strategy in January 2000, the western region has achieved remarkable progress in economic and social development. Statistics show that the past eight years was the period during which the western region achieved the fastest economic growth, improved significantly the overall strength, and produced many tangible benefits for its urban and rural residents. The past 8 years has laid an important material foundation and a good environment to continue to push forward the western region development. Facts show that the western region development strategy has achieved initial success.

The Chinese Government has played an important role in promoting the development of western region. Over the 8 years, central government has invested nearly 1 trillion Yuan to support key projects. One third of treasury bonds issued for long-term construction projects are used in the western region and in recent 5 years, the ratio has exceeded 40%. A large number of key projects are completed, which has significantly improved infrastructure in the western region. At the same time, ecological construction and environmental protection has achieved remarkable results. Key cities and competitive industries have made big headway. Public health care and professional training have been further enhanced. Regions of ethnic groups and remote and poverty-stricken regions are moving fast out of poverty and heading towards prosperity.

The Chinese Government is implementing in greater depth the western region development strategy. We have formulated and are implementing the 11th Five-Year Plan for western region development, with a focus on accelerating the transformation of economic development models in the western region. The priorities include: accelerate the construction of new rural areas, continue to strengthen infrastructure investment, accelerate the development of local competitive industries and promote faster development in some key areas, strengthen human resources management and encourage intra-region and outward opening up. The aim is to double per capita GDP of western region by 2010 compared with year 2000 and achieve an average annual growth of over 6% in terms of per capita disposable income for urban residents and per capita net income for rural residents.

10. What is the dangers of the environmental pollution on the economy?

There is always a question of how to develop the economy without polluting the environment. The current global environmental pollution is largely due to accelerated economic activity of mankind, especially economic growth. However, we should not set one against the other or restrict development for the sake of environment. It should be noted that economic development not only raises public welfare, but also enhances the capacity of pollution control. What is important is what type of development model and pollution control strategies we choose.

China pursues sustainable development. We stress treating environmental pollution along the process of development. China's strategy is that treatment of pollution goes hand in hand with development, rather than pollute first, treat pollution later. For years, through improving environmental protection legislation, increasing investment, strengthening law-enforcement and enforcing environmental impact assessment for construction projects, we are strengthening treatment of pollution. At present, China is turning from passive to an active position in environmental protection. In 2007, China saw drop in both Chemical Oxygen Demand (COD) and SO2 emission. The environment in terms of atmosphere, noise and radiation pollution is also kept stable.

11. More and more European companies see China as an important market for its products. What are the difficulties for these companies to enter the Chinese market?

Since the WTO accession, the Chinese Government strictly fulfills its commitments by actively opening up the market and making comprehensive adjustment of the trading system and policy. All this provides other countries with favorable conditions and immense opportunities for trade, investment and technical cooperation.

In terms of trade in goods, the average tariff level of China has dropped from 15.3% before WTO accession to 9.9% after that. On import management, China has canceled non-tariff measures for 424 tariff lines. On foreign trade license, since July 1, a registration system was introduced to liberalize foreign trade. In terms of trade in services, we enacted or revised laws in banking, insurance, securities, telecom, construction, retail, legal services, tourism, transportation and other sectors, providing legal basis for improving market access. We not only met our commitment, but also voluntarily opened up some sectors and the actual market access by foreign banks, insurance companies and retail groups are rising substantially. On IPR, we made major revisions of law and IPR legislation is already consistent with WTO requirements. We also strengthened law-enforcement and public awareness education on IPR protection. By meeting our commitment, China's achievements in WTO trade policy review is widely recognized.

In recent years, China's economy has been developing in good shape, with GDP growing at an average annual growth rate of over 9%. The market is growing with rising domestic demand and is expected to reach a value of 3.3 trillion US dollars by 2010. This means a big increase in import as well. China's annual import is expected to exceed 1 trillion US dollars soon to reach 2.8 trillion US dollars in 2020. In addition, China has tremendous development potential in terms of trade in services. It will further open service markets, which will create new investment opportunities to foreign enterprises including for the European Union.

The Chinese Government welcomes and encourages more European companies to come to China for business and is prepared to further provide support and facilitation. We hope the European companies will seize the opportunity of China's economic development and increase trade, investment and technology cooperation with China in the course of development, actively explore the Chinese market and seek win-win cooperation.