REPEAT - China warns EU to drop telecom probe, solar panel tax

BEIJING (AFP) - China warned the European Union against escalating trade disputes on Thursday, urging Brussels to drop plans to probe Chinese telecom products and impose hefty taxes on its solar panels.

The two sides are embroiled in a series of tit-for-tat disputes on items ranging from agricultural products to steel tubes, highlighting growing trade tensions amid financial uncertainties around the world.

China is the world's second-largest economy and the EU is its biggest trading partner, with total two-way trade reaching US$546 billion (S$682 billion) last year according to Chinese Customs figures, making it a key global business relationship.

In the latest development, the European Commission said on Wednesday it would open an anti-dumping and anti-subsidy investigation into mobile telecommunications network equipment and components from China if bilateral negotiations fail.

The decision followed reports that Brussels was planning to impose anti-dumping taxes of up to 68 per cent on China-made solar panel products - a row that has been brewing since last year.

Beijing's commerce ministry spokesman Shen Danyang said European mobile telecom equipment firms enjoy a "much bigger" market share in China than Chinese companies have in the EU, and any moves by Brussels will harm them both.

"We hope the EU will not take actions that do no good to either side," he told reporters at a regular news conference.

Beijing will take "assertive" measures to "defend our lawful interests and rights" according to World Trade Organisation rules and Chinese laws, he said, if the EU follows through with the investigation.

China "does not want to go into a trade war with the European Union", he said, but warned: "Any consequences caused must be borne by the party who provoked the friction."

Beijing's foreign ministry also weighed in, calling on the EU to provide a "fair, equitable and transparent environment" for Chinese companies.

Total trade between the two sides was down 3.7 per cent year-on-year in 2012, with China's imports from the EU rising 0.4 per cent to $212 billion, while its exports to the single market went down 6.2 per cent to $334 billion.

Analysts said that economic woes were probably the main driver of rising trade tensions between the two sides - both of them major trading entities.

"Domestic protectionist sentiment rises when recovery momentum is weak," Zhang Hanlin, a professor at the University of International Business and Economics, said.

China grew at its slowest pace in 13 years in 2012, with gross domestic product expanding 7.8 per cent in the face of weakness at home and in key overseas markets.

Growth rebounded to 7.9 per cent in the final quarter of 2012, raising hopes for a recovery, but in the first three months of this year it slowed to 7.7 per cent.

Recent EU data showed the eurozone economy shrank 0.2 per cent in January-March, the sixth consecutive quarterly contraction.

Official EU data shows China exports telecom network equipment to the EU worth around a billion euros (S$1.6 billion) each year.

Shen also urged Brussels not to impose the solar tax and added that the EU would "seriously damage" bilateral trade relations if it went ahead.

"The abuse of trade remedy measures in a reckless and arbitrary manner will... do nothing to solve trade frictions and will also impede the progress of economic recovery and severely dampen confidence."

According to Chinese industry figures, China exported $35.8 billion of solar products in 2011, more than 60 per cent of them to the EU, while the country imported $7.5 billion-worth of European solar equipment and raw materials.

In an apparent retaliatory move, Beijing's commerce ministry in November launched an anti-dumping and anti-subsidy investigation into solar-grade polysilicon from the EU, a key material used to make solar cells.

Last week, it also opened an anti-dumping probe into some seamless steel pipes from the EU and other markets, after slapping punitive taxes on another type of steel tube imports from the region and Japan.