China's leader has told German Chancellor Angela Merkel he does not want trade tensions with the European Union, a vital market for a huge economy facing falling exports, to descend into a trade war. Sonia Legg reports.
Side by side and seemingly at ease in each other's company. Germany is China's largest trading partner in the European Union - a helicopter deal with Airbus and another with Daimler to expand engine production - the latest lucrative tie-ups. But there is tension. China's market economy status under the World Trade Organisation expires at the end of the year. Without it, Europe may find it easier to defend itself against cheap Chinese imports. (SOUNDBITE) (Mandarin) CHINESE PREMIER LI KEQIANG, SAYING: "We don't want to fight a trade war because this will benefit nobody, particularly when the global economy is undergoing a sluggish recovery." China is hoping Germany will help it secure a new deal with the WTO. But anger over its undercutting of foreign industries with heavily subsidized goods like steel could be a problem, despite the Chancellor's encouraging words.. (SOUNDBITE) (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING: "I am convinced this will be successful, in fact it will be so successful we can find a solution on the lines of what was promised 15 years ago." Merkel promised to speak to the European Commission. But it may take more than that. (SOUNDBITE) (English) MARKET ANALYST, CMC MARKETS, MICHAEL HEWSON, SAYING: "The best way to get that is to reform its economy, look at its production of steel because certainly I think there is an expectation that they are continuing to overproduce." Li insists China is phasing out low-end steel production. But the playing fields aren't yet level and there's growing pressure from industry to confront China more forcefully.