Financial Times[Tuesday, November 27, 2007 10:45]
By Mure Dickie in Beijing

When Chen Feng, head of China's Hainan Airlines, was asked last month 
about his plans to open new routes to Germany, he responded with an 
angry tirade against the "impolite" and "unfriendly" Berlin government.

"I am working like an entrepreneur, but I am a Chinese entrepreneur, 
so I am very upset," said Mr Chen, referring to a meeting in 
September between Angela Merkel, the German chancellor, and the Dalai 
Lama, Tibet's exiled spiritual leader. "People have to work in 
friendship."

Mr Chen's frosty tone - echoed by Chinese officials who have ditched 
several bilateral exchanges with Germany over the Dalai Lama talks - 
highlights the challenges now facing Sino-European Union relations.

China's soaring trade surplus has drawn warnings of possible EU 
counter-measures, fuelled by Beijing's unwillingness to let its 
currency appreciate against the euro. Friction over Chinese barriers 
to EU businesses is also growing. A tougher tone towards Beijing 
taken by Ms Merkel and President Nicolas Sarkozy of France has upset 
Chinese leaders.

"German government chilly on China," complained Beijing's Communist 
party-controlled Global Times newspaper in a recent headline. Despite 
such strains, however, Chinese officials and analysts say they remain 
upbeat about the prospects for EU ties.

"It's normal to have these kinds of disputes," said Zhu Liqun, 
assistant principal at the China Foreign Affairs University. "EU-
China relations are growing more complex because the relationship is 
expanding." Even with the recent tougher tone from Berlin and Paris, 
Chinese analysts say Beijing appreciates the EU's less 
confrontational and more co-operative strategy for influencing China 
compared with America's more direct approach.

While Chinese officials no longer tend to emphasise the EU's role as 
a counterbalance to US hegemony in a "multipolar" world, they still 
see Brussels as a valuable moderating influence. Professor Zhu says 
China is also keen to learn from the EU, seeing it as a reference 
model for ways to balance social and economic progress and to achieve 
regional integration and multilateral co-operation. Still, Chinese 
diplomats have been disappointed by their failure to make progress 
towards a lifting of the EU's arms embargo or recognition as a market 
economy.

China's recent economic success, meanwhile, does not appear to be 
making it more willing to accept European advice, whether on the 
death penalty, human rights, currency value or the openness of its 
markets.

A survey of EU companies released by the European Chamber in Beijing 
this month found widespread dissatisfaction with a lack of government 
transparency, China's record on intellectual property protection and 
cumbersome bureaucratic procedures. Jörg Wuttke, the chamber's 
president, feels the investment climate is not improving, but is keen 
to point out that European calls for freer markets align closely to 
the interests of China's own smaller and privately owned enterprises, 
a key source of future growth.

He is also sanguine about the impact of disputes such as that sparked 
by Ms Merkel's meeting with the Dalai Lama. "Things like this come 
and go and I don't see a direct translation into the business 
sector," he said.

The ferocity of Beijing's reaction to the Dalai Lama meeting may 
reflect in part a feeling that it can afford to "punish" Berlin 
without provoking a general reaction from an EU, for which true unity 
in foreign policy remains a rarity.

"China recognises that even if it takes a very tough approach on 
individual EU countries, it will not lead to overall deterioration of 
its relations with the EU community," said Jin Linbo, senior fellow 
at the China Institute of International Studies.

Some analysts say Chinese policymakers should be careful not to 
overreact to tougher talk from Europe, whether over political or 
economic issues.

"The Chinese government should maintain a normal attitude - neither 
servile nor supercilious," said Ding Chun, a specialist on European 
issues at Fudan University in Shanghai. "The response should be 
relatively moderate. You want to make it easier for others to treat 
you as an equal partner."

Certainly, the ire of Hainan Airlines' Mr Chen over the Dalai Lama 
meeting could threaten the carrier's future engagement with Germany. 
For the time being, a company official said on Monday that the 
airline had not changed its plans to fly from Beijing to Berlin four 
times a week from next May.