Both economies recognized as interconnected after gloomy IMF warning

BRUSSELS - European scholars said it would make sense for Europe to compromise with China on concerns over market economy status and arms deals, but they added that next week's summit is likely to focus on economic and trade cooperation.

Sources within the European Parliament said that the continent's politicians have been holding market economy status and an arms embargo as "bargaining chips" with Beijing, and they wouldn't yield without major concessions from China.

Duncan Freeman, a research fellow at the Brussels Institute of Contemporary China Studies, told China Daily: "It would seem logical for Europe to compromise on certain issues like market economy status and the arms embargo in exchange for help from China. But it has not done so."

Officials from China and Europe are scheduled to hold their delayed summit in Beijing next Tuesday.

There is rising speculation that Brussels might take steps to respond to China's concerns in return for Beijing's support in solving the sovereign debt crisis.

Freeman noted that China hadn't directly linked the issues.

Sources from the European Parliament said: "Market economy status and the arms embargo are very big sticking points in the EU. They are our last bargaining chips."

From China's point of view, Freeman said, a bargain would make more sense on a global level rather than in bilateral relations on issues like the arms embargo or full market status economy.

A "global level", Freeman said, meant that China would prefer to aid the European Union under a multilateral framework through the International Monetary Fund (IMF). In return, China would receive a larger role in multilateral institutions.

"If China is to provide aid to the EU through the IMF, then it would certainly like to have a bigger say in how it is used," said Freeman.

Men Jing, a professor of Sino-EU relations at the Belgium-based College of Europe, ruled out the possibility of a deal at present, given "the complexity of the two issues and the worsening European and world economic outlook".

Men said that European politicians had devoted themselves to resolving Europe's debt problem and didn't have the "energy and time" to deal with granting full market economy status to China and lifting an arms embargo.

That situation also explains why the EU sought to delay the summit, originally scheduled for late October last year, Men said.

"Because of huge differences in positions among the 27 members, it will be a tough challenge for European leaders to clinch such a deal with Beijing," she said.

Countries such as Spain, Portugal and Greece, which are at the epicenter of the crisis, are proposing to lift the arms embargo on China.

But on the issue of granting market economy status, the EU and its member countries have shown no strong intention to move, although nearly 100 countries have granted China such status.

The EU will automatically grant China such status by 2016 even if the grouping takes no further action by then, according to the agreement signed when China joined the World Trade Organization in 2001.

"I don't think Beijing will push for that this time, as my observation is that China's leadership will not link the issues of full market economy status and the arms embargo with possible steps to help Europe out of its debt crisis," Men said.

"Beijing has accepted idea that we are in the same boat when facing the gloomy economic outlook."

The IMF warned on Monday that if Europe went into a sharp recession, China's economic growth would be abruptly halved to 4.2 percent, meaning a huge increase of factory closures and a surge in unemployment.

"I think Beijing has made a smart choice by not linking them," Men said.

There are two scenarios under which EU leaders might take quick action.

"One is that (the EU) member states' debt crises come to the worst and without Beijing's help, the economies will collapse," said Men. "I don't think there is a possibility to realize such a scenario."

Under the second scenario, Men said Beijing and Brussels would cooperate more closely on the unfolding debt crises and with Beijing's help, Europe would avoid a disaster.

"Then Brussels may be motivated to respond to the issues of a full market economy and the arms embargo," Men said. "To thank China, the EU will do that then, but not now."

However, there have been many critics in China of the EU's stance, and they believe it is time for the EU to act.

Some even claim that the EU has discriminated against China, even as it opened free trade negotiations with India and clinched a deal with South Korea last year.

"The negotiation and eventually conclusion of an EU-India FTA (Free Trade Area) Agreement doesn't constitute direct discrimination against China," said Freeman.

Freeman speculated that some Europeans might think that they could use the FTA to balance the conflicts in EU-China commercial relations by opening other markets, but given the interdependency of the EU and China, such "balancing" was unlikely to have a significant effect.

There has also been a trend for the EU to approach its trade problems with bilateral solutions rather than seeking a resolution under a multilateral framework.

"Given the protectionism in India and that it is a much more closed economy than China, it would be difficult for free-trade agreement negotiations to achieve results," Freeman said.

Tan Xuan contributed to this story.