Mediation best approach to easing trade disputes

Reports say Chinese govt to scale back supports for emerging industries

After fraying under a steady stream of disputes over the last two years, China-Western trade relations took a much-needed turn for the better last week with new reports showing that the Chinese government and China's major trading partners were taking constructive steps to reduce the tensions. Two reports indicated Chinese authorities will move to reduce some of the government support they give to emerging high-tech industries, addressing a sore spot in its trade relations with the West.

At the same time, a third report of a major new tie-up between China Mobile and European networking equipment giant Nokia eased concerns that Chinese State-run carriers might favor domestic suppliers due to the trade tensions. These signals could point to a new era of mediated settlements in China's trade disputes, amid a broader drive by Chinese authorities to force local emerging high-tech manufacturers to survive as true commercial companies.

Such new moves would reflect a more conciliatory attitude by both sides, and indicate that Chinese officials are ready to take a more market-oriented approach to development of key industries. All parties need to seize on the positive energy created by these new moves and maintain the momentum to build a sturdy framework for the development of healthy long-term trade relations.

After two years of accusations, threats of punitive actions and counter threats of retaliation, reports emerged last week that the European Union (EU) and China were on the cusp of a major agreement to end their long-running dispute regarding telecoms equipment.

EU trade leaders have accused the Chinese government of unfairly supporting domestic high-flyers Huawei and ZTE through a wide array of policies, ranging from export credits to cheap product financing for their overseas customers. Both ZTE and Huawei have made huge roads into Europe over the last decade, taking a quarter of the market from a group of older, mostly European companies like Ericsson, Alcatel-Lucent and Nokia.

According to reports late last week, the two sides were in late stage talks that were expected to produce a landmark settlement as soon as this week. The centerpiece of the deal would be China's agreement to limit export credits for Huawei and ZTE, which effectively give government money to the companies when they sell their equipment to overseas buyers.

Nokia announced its own mega deal at almost the same time, saying a new framework agreement would see it sell nearly $1 billion worth of networking equipment to China Mobile this year and next. That announcement comes as China's three major carriers are spending billions of dollars to build out 4G networks. It sent a signal that the European suppliers would get equal access to contracts to help build those networks, after disappointing early results appeared to favor Huawei and ZTE.

Meantime, a separate report on ambitious buildup plans for China's green energy sector also contained hints that Beijing intends to pare back its current support for makers of wind and solar power generation equipment. In discussing the ambitious buildup, an unnamed official said government subsidies to makers of new energy generation equipment will be capped in the future. The source added that domestic companies need to improve their technology and control costs to succeed, rather than depending on government subsidies.

These remarks should be welcomed by governments in both Europe and North America, which have accused the Chinese government of unfairly supporting its solar panel sector that has risen rapidly over the last decade and now provides more than half of the world's supply.

Those accusations led to investigations by both the US and EU, which ended with Washington imposing anti-dumping tariffs on Chinese panels last year. The EU and China managed to reach a settlement that avoided such tariffs, after Chinese manufacturers agreed to voluntarily raise their prices. But that deal has shown recent signs of unraveling amid accusations that the Chinese firms aren't keeping their word.

These latest signals from Chinese officials look like a much better long-term solution to current and future similar disputes, since reduced subsidies will naturally force companies to raise prices to levels similar to their global rivals. The Chinese government should be commended for its efforts, and both sides deserve praise for their more constructive approach to resolving their differences. Such efforts will ultimately benefit everyone, creating cutting-edge products and healthy industries that can innovate and thrive over the long term in these important emerging sectors.