ECB Economic Bulletin: Need to Ensure Level Playing Field Conditions with China

29 July 2024

By Isabel Teles – FRANKFURT (Econostream) – The economic transformation in China impacts the country's trading partners, demanding a European response that ensures fairness on global markets, according to the Economic Bulletin pre-release published Monday by the European Central Bank.

‘Given these shifting trade policy dynamics, the role of the EU as an export market for China could potentially become more central’, the bulletin said. ‘Given the potentially significant effects on output, inflation and labour markets, the European policy response needs to be carefully calibrated to ensure level playing field conditions.’

According to the bulletin, a supply-driven expansion of production in China could affect trade prices and inflation in the country’s trading partners.

‘[B]y lowering prices or increasing exports of heavily-subsidised products, a rise in exports could lead to international spillovers of disinflationary pressures. These could be further exacerbated if trading partners’ domestic firms in turn lower their prices to remain competitive with Chinese exports’, the authors of the bulletin said.

This dynamic could trigger second-round effects on consumer prices even in advanced economies, the authors noted.

The Chinese substitution of imported industrial goods for domestically produced ones would lower its demand for imported goods and increase competition in third-country export markets, the bulletin said.

‘Both phenomena will put downward pressure on the trade balance of industrial goods exporters, such as the euro area’, the bulletin said.