* Ruling says China's Xinanchem not controlled by Beijing
* EU-China trade relationship hampered by divisions
By Robin Emmott and Ethan Bilby
BRUSSELS, July 19 The highest EU court has
cleared a Chinese chemicals company of accusations that Beijing
was controlling its trade with Europe, in a victory for private
Chinese firms who say they are unfairly labelled as subsidised
agents of the Chinese government.
The lower General Court in Luxembourg ruled in 2009 that
China's Zhejiang Xinan Chemical Industrial Group was
not guilty of dumping - selling for unrealistic prices -
chemicals on European markets.
The EU Court of Justice (ECJ) said on Thursday it upheld
that decision, turning down an appeal by the European Union's 27
At the heart of the court decision was its finding that the
company, known as Xinanchem, was free from state interference in
running its business - even though the Chinese state is a
The ECJ stood by the General Court ruling that "the control
exercised by the Chinese state, as a minority shareholder, over
Xinanchem cannot be equated, automatically, to significant state
interference", it said in a statement.
Efforts to deepen the relationship between the world's
biggest trading partners have been hampered by disputes over
what European companies say is unfair competition, accusing
Chinese firms of benefiting from illegal government subsidies.
Smoothing those difficulties could propel a wave of Chinese
direct investment of up to $500 billion in fresh capital to
Europe this decade, economists say. EU trade with China is
likely to reach a record of 500 billion euros ($625 billion)
EU trade chief Karel De Gucht has accused China of state
capitalism - close government control of privately owned
business - and EU diplomats say he is considering action against
China's top telecoms equipment makers, Huawei and ZTE Corp.
The European Commission thinks Huawei and ZTE
receive illegal state subsidies to undercut rivals
in Europe, diplomats say, an accusation the companies deny.
LESS STATE PRESENCE
In similar pending cases, other Chinese firms have filed
suits in EU courts to challenge punitive duties on goods ranging
from shoes to ceramics.
Such penalty charges are imposed on goods Brussels says are
being dumped and are damaging European industry.
Tariffs on Xinanchem's imports of glyphosate, a herbicidal
chemical used in farming, were dropped when the General Court
ruled in the company's favour in 2009.
A major issue for Beijing is that the European Union does
not recognise China as a market economy, so its companies are
more vulnerable to be found guilty of dumping goods.
But the court ruling could bring change, diplomats and
"The Court of Justice's ruling reinforces the right for
individual Chinese firms to get market economy treatment," said
Fredrik Erixon, director of the European Centre for
International Political Economy, a Brussels-based think-tank.
"Market economy status for China is an issue of big
symbolism, one of the chief ambitions for China in its
negotiations with Europe," he said.
China has repeatedly pressed the European Union to give it
market economy status and argues that the role of Chinese
state-owned enterprises in the world's second-largest economy
has decreased significantly over the past decade.
State firms accounted for almost 60 percent of all fixed
asset investment in China in 2004, but that number dropped to 36
percent last year, according to a study by the Hong Kong-based
consultancy CLSA Asia-Pacific Markets.
Industrial output by state-run companies has also declined
steadily from 80 percent of output in 1999 to 34 percent in
2011, the study showed.
"There is an impression in Europe and the United States that
everything in China is run by the state and, while there are
issues, it isn't really true," Erixon said.
(Writing by Robin Emmott; Editing by Pravin Char)