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China turns the screw

Posted by Richard Friday, December 03, 2004

With the European Council due on 17 December to consider whether to lift the EU's arms embargo on China (link here), the Chinese seem to be ratcheting up the pressure by threatening to delay finalising an order for five Airbus A380 airliners – the European answer to the Jumbo - worth 1.4 billion dollars.

The Asian Wall Street Journal, which broke the news, quoted Lu Xiaosong of China Aviation Supplies Import & Export Group, a spokesman for the Chinese government-controlled company that serves as an agent for aircraft imports. He is cited as saying that several factors, including EU arms embargo, were are standing in the way of finalising the deal. "It's understandable," said Lu. "Politics and economics can never be separated."

No sooner was this news out, though, when the French agency AFP rushed out a report stating that Beijing had “strongly rejected accusations” that it was blocking the deal. "For any kind of commercial contract it is up to the enterprises and companies involved to make the decision; it has nothing to do with the arms embargo," Vice Foreign Minister Zhang Yesui told journalists.

"My first reaction is that I was surprised by the imagination of the journalist that wrote this report," Zhang added. "As long as they are beneficial to China's aviation and China's tourism industry we will buy those airplanes."

Zhang went on to insist that the Chinese government does not interfere in commercial deals, and then came the sting in the tail. He said that the continued implementation of the arms embarge would have a "negative influence" on Sino-EU relations. "If the EU continues to maintain the arms embargo, it may have some negative impact on China-EU relations. Mainly we refer to political cooperation between China and the EU," Zhang said.

"If the EU keeps the embargo, we believe it is a kind of political discrimination, it is kind of an unequal relationship in the political field, so we hope for an end soon to the embargo and for cooperation on a more equal basis." He added that an early end to the embargo would "greatly push forward bilateral relations".

Read into that what you may, but commentators believe that it is unlikely that Lu Xiaosong, an employee of a state-controlled company, would have expressed his views unless he had, at the very least, been given the "nod" by senior state apparatchniks.

Zhang's does not entirely contradict Lu, so it looks as if the Chinese might be playing their own version of "good cop - bad cop" as a means of increasing their leverage.

The next test will come when deal Gerhard Schröder makes an official visit to China, which begins Monday, when the deal is expected to be signed.