Premier of the State Council

Of the People's Republic of China

2006 China-Europe Business Summit

Helsinki, 12 September 2006

Honorable Prime Minister Vanhanen,

Ladies and Gentlemen,

It gives me a great pleasure to attend the 2006 China-Europe Business Summit in the beautiful city of Helsinki. I wish to begin by thanking the organizers for their warm invitation and thoughtful arrangement. Today, about 500 Chinese and European business leaders are gathered here to discuss strategies for boosting China-EU economic and technological cooperation. This in itself testifies to the vibrant growth of China-EU Comprehensive Strategic Partnership.

I know you are all keenly interested in China's economic development and particularly, its market prospect. So I will give you a brief overview and then share with you my thoughts on what we should do to enhance our business ties.

Over the past 28 years of reform and opening-up, China's economy has grown rapidly, at an average annual rate of 9.6%. Its GDP reached US$ 2.23 trillion last year, ranking the fourth in the world. The Chinese economy continued to maintain fast yet steady growth in the first half of this year, with GDP increasing by 10.9% over the same period last year. This has led to fast expansion of China's trade, both internal and external, and brought about fundamental change in the size and structure of China's market. China's foreign trade last year amounted to US$ 1.42 trillion, making China the third largest trading nation in the world. China's market is thriving and holds tremendous potential for growth.

China's market is increasingly open. Opening-up is a basic policy to which China is committed. Since its WTO entry, China has honored its commitments in good faith. It has increased market openness, ended all non-tariff measures and lowered tariffs on industrial goods to 9.9%. If processing trade is included, China's average tariff level is now below 5%, even lower than that of some developed countries. In service trade, tourism, telecommunications, transportation, accounting, auditing and legal service are now open to foreign investment, and the banking sector will also be fully open by the end of this year. In Central and Western China, we have relaxed restrictions on the proportion of foreign equity and the access of foreign investment to some sectors. As a matter of fact, some sectors have been opened even earlier than required by China's WTO commitment. Of the 160-plus service sectors covered by the WTO, China has opened over 100, close to the level of developed countries.

China's market has huge potential for growth. To sustain economic growth by stimulating domestic demand is the long-standing strategy pursued by China. China has a population of 1.3 billion. It is in a crucial period of accelerated industrialization, urbanization and modernization. The rise of income of the urban and rural population and the change in patterns of consumption have generated a huge market demand. Housing, automobiles, electronic communication products, tourism and education are increasingly becoming priorities for urban and rural consumers. According to one estimate, by 2010, China's demand for automobiles will exceed nine million units and the number of mobile phone users will surpass 600 million.

China's market has enhanced win-win cooperation. China is both a major exporter and a major importer. By carrying out trade and economic cooperation with other countries, China has obtained capital, technologies and management expertise to meet its own needs and facilitated economic restructuring. Foreign investors, on their part, have also gained big profits from such cooperation. Between 1990 and 2005, foreign companies in China remitted over US$ 280 billion of profits back home. By entering the China market, EU companies have secured favorable a strategic position in global competition. China is now the biggest market for Airbus in Asia and the biggest market for Nokia mobile phones in the world. France has been in China's nuclear energy market for 20 years. Many British banks have equity in Chinese commercial banks. Last year, the sales revenue of Philips China and Siemens China accounted for 10% and 7% of their respective global sales. China-EU cooperation in science and technology, culture and tourism has also yielded fruitful results.

China's market environment is being steadily improved. In keeping with China's WTO commitments, we have conducted a general review and check of all foreign-related laws and regulations. The new Foreign Trade Law of the People's Republic of China has been in force for two years. Laws governing foreign investment have been brought into compliance with WTO rules. At present, the prices of over 90% of commodities are fully determined by the market. As China's economy is increasingly becoming market-oriented, markets for the full range of production factors have taken shape, market intermediary organizations have grown, and market competition unfolds in a more orderly way. All this has provided a level playing field for both Chinese and foreign companies.

China's sustained economic growth and its growing market have both brought benefits to the Chinese people and created tremendous business opportunities for the international business community. The development of China is, therefore, an opportunity for and contribution to the world. It is not a challenge, still less a threat.

Ladies and Gentlemen,

After over 30 years of growth, China-EU relations and business relations in particular have become more mature and wider in scope. The EU is now China's largest trade partner, top technology supplier and fourth largest source of foreign investment. China is EU's second largest trade partner. China-EU trade exceeded US$ 100 billion in 2003. And in just two years, it doubled and reached US$ 217.3 billion in 2005. Between January and July this year, it rose to US$ 143.5 billion, a year-on-year increase of 21%. By the end of last June, the EU had set up over 24,000 companies in China, with a total net investment of over US$ 50 billion. China-EU business ties, being mutually beneficial in nature, have delivered real benefits to our peoples. More importantly, these ties have constituted a solid foundation of China-EU relations and greatly boosted their growth.

As China-EU business ties expand in scope and scale, differences, misunderstanding and even frictions between the two sides over some issues are hardly avoidable. To resolve these problems, we need to deepen mutual trust and understanding. Now, I wish to address several issues of concern to you.

1. Trade imbalance. According to EU statistics, the EU ran a deficit of US$ 131.6 billion in its trade with China in 2005. A number of factors have contributed to the deficit. Ninety-five percent of the deficit occurred in processing trade and 81% was caused by foreign invested companies in China. Global relocation of industries has led to significant change in the flow of international trade. In looking at China's surplus in its trade with the EU, to just apply the current rule of origin does not give one the complete and real picture of interests and balance in our trade. China's policy is to maintain basic balance between import and export. It does not seek excessive surplus. At present, China's overall trade surplus only accounts for 4.6% of its GDP, much lower than that of some European countries, such as Germany, Norway, the Netherlands and Ireland. China will endeavor to increase import from the EU. Meanwhile, we hope the EU will relax its restrictions on the export of high-tech and dual use products to China and work with us to bring about balance in China-EU trade.

2. IPR protection. IPR protection is necessary, both for China to fulfill its international obligations and to promote its development and enhance its capacity of independent innovation. China is firmly committed to IPR protection. China has adopted the Copyright Law, the Patent Law, the Trademark Law and other IPR-related laws. It is a party to major international conventions on IPR protection and has signed bilateral agreements and established dialogue mechanisms on IPR protection with EU member states and many other countries. The Chinese Government has set up a task force on IPR protection, opened 50 centers for handling IPR violation complaints across the country and strengthened government IPR protection agencies. We have stepped up law enforcement, lowered the threshold for imposing criminal penalty on IPR violations and intensified efforts to crack down on IPR-related offences. We hope to strengthen cooperation with the EU by giving full play to the role of China-EU Dialogue Mechanism on IPR. On the other hand, we are critical of the practice of maintaining technology monopoly by abusing IPR agreements and rules. Knowledge of mankind should be used to better serve mankind.

3. Energy consumption. The main thrust of China's energy strategy is to rely mainly on domestic supply and lay equal emphasis on conservation and development while giving top priority to conservation. We will promote technological progress and pursue a new path of industrialization to ease shortage in energy supply. China is both a major energy consumer and a major energy producer. Since the 1990s, China has always been able to meet over 90% of its total energy needs by itself. China is rich in coal resources. Two-thirds of China's hydropower remains untapped, and the use of renewable energy such as nuclear energy, wind energy, solar energy and biogas has just started. We will work even harder to save energy. In the coming five years, China's per unit GDP energy consumption will be cut by 20%. This is no easy task, but we are confident to meet the goal. China can certainly blaze a new trail in sustainable development. Meanwhile, we are also actively seeking international cooperation to jointly safeguard global energy security.

4. Trade frictions. Recent years have seen some increase in China-EU trade frictions. However, China-EU trade relations as a whole remain sound. China runs both a big surplus and a big deficit in trade. To maintain a good trading environment serves the common interests of both parties in trade. Trade frictions are natural. The principle of mutual respect and consultation based on equality should be followed in addressing these problems. Each side should accommodate the concern of the other side while pursuing its own interests, and should refrain from politicizing trade issues. Through addressing textile products and other bilateral trade disputes, we have gained much experience for ensuring mutual benefit and win-win outcome. We should bear in mind the overall interests of China-EU cooperation, continue dialogue and consultation, respect and trust each other and seek common ground while shelving differences. By doing so, we can surely guide the ship of China-EU economic cooperation to cleave waves and charge ahead.

Ladies and Gentlemen,

The theme of this Summit, namely, "Boosting Innovations, the Era of EU-China Economic Cooperation" is an important one. Economically, China and the EU are highly complementary, with great potential for cooperation. We have now reached a new stage in boosting our business ties. We should expand the scope of cooperation, explore new cooperation models, raise level of cooperation and elevate our business relations to a new height. To this end, I would like to propose the following:

1. Expanding technological cooperation in various fields. China's modernization endeavor is driven by science and technology. We encourage both independent innovation and introduction of technology through enhanced international cooperation. Europe, which is strong in information technology, bio-medicine, machinery, automobile, electronics, chemistry and energy sector, will find ample opportunities for further development in China. China and the EU should explore new areas, projects and modalities of cooperation and carry out scientific and technological cooperation in diversified forms and at various levels.

2. Strengthening cooperation in energy and environment protection. China is endeavoring to build an energy-conserving and environment-friendly society. As a result, it has a growing demand for new energy and environment-friendly products. Europe leads the world in waste treatment, energy-conserving building, environmental management and renewable energy, such as wind energy, solar energy and bio energy. It is thus well positioned to establish itself on the China market. We hope to work with the EU to strengthen cooperation in energy conservation and environmental protection.

3. Deepening cooperation in agriculture and service sector. China is working to build a new rural area. Europe has advanced agricultural technologies and has much to offer to China in greenhouse technology and industrial management of agriculture. China and the EU can deepen cooperation in rural development, poverty alleviation, agricultural ecology, quality of agricultural products and animal health. China's service sector, which is opening wider to the outside world, has a broad prospect for development. As the EU has an advanced service sector, the two sides have great potential for cooperation in this field.

4. Promoting cooperation between small and medium-sized enterprises (SME). The EU is renowned as a "kingdom" of SMEs. Chinese and European SMEs are mutually complementary in capital, technology, business model and management. The Chinese Government has adopted a series of policies to support SMEs. Industrial parks for European SMEs have been opened in some Chinese cities. We encourage SMEs from both sides to make full use of the existing platform and expand cooperation in technology transfer, market sharing, processing trade and human resources.

Ladies and Gentlemen,

Both China and Europe have long history and splendid cultures, and our peoples have time-honored friendship. In the new century, our peoples can surely, through hard work and drawing on their wisdom, create a more splendid future. Let us join hands and work together to raise China-EU economic cooperation and trade to a new height!

Thank you all.