EU should rethink resolution on China's market economy status

European Union lawmakers' vote against granting market economy status (MES) to China sends a worrying signal that one of the world's most important trade relations risks deteriorating.

The EU Parliament said in a resolution on Thursday that China's excess production capacity and cheap exports are hurting EU jobs, urging the European Union not to grant China the MES.

Although the non-binding resolution by the EU parliament is not legally effective, it could carry the wrong message that China's booming trade with the EU is based on artificial and unfair price advantages, which distorts the real picture.

Since China joined the World Trade Organization (WTO), it has been relentless in trying to reduce the government's sway in economic activity and give market forces a bigger role.

As the world's second-largest economy is working to transition from relying on exports to consumption, China is grappling with soaring production costs. The country's exporters have felt the growing pains.

With the global economy battling with a prolonged and slow recovery, major trading countries tend to seek protectionism to support domestic industry. Trade frictions have been rising dramatically in the steel sector globally of late, as the world's major steel makers are facing production overcapacity.

The EU's censure of China as being accountable for the steel glut in the 27-country bloc is untenable. China's steel exports to the EU are small compared with other countries. The Asian giant's low value-added steel products are complementary to the EU's steel market portfolio.

Without exports from China, the EU would still have to turn to other countries to import similar products. That will not stem job losses in the EU.

The opposition to giving China MES within the EU mainly comes from southern European countries, where steel, textile and other manufacturing sectors have been hard hit. More competitive manufacturing countries such as Britain and Holland have voiced their support for granting China the status.

In its resolution statement, the European Parliament recognized the importance of the EU partnership with China, stressing that Chinese market "has been the main engine of profitability for a number of EU industries and brands."

China is the EU's second-biggest trading partner, with daily trade flows of over 1 billion euros (1.14 billion U.S. dollars). Giving China MES will make China-EU trade ties stronger than ever before, given the increasing interdependence between the world's two major economies.

The EU should think twice before making a final decision on China's MES. Only by heeding the progress China has made in its market economy agenda and discarding deeply-rooted prejudice can China-EU trade relations move forward in a healthy way that bodes well for both.