With Europe's trade deficit with China exceeding 100 billion euros ($125 billion), Peter Mandelson had a warning for an audience at Beijing's elite Tsinghua University. "Europe will defend itself against unfair trade," he said, "just as China does all the time, and just as we are allowed to do under WTO rules."

"When I went to (the southern Chinese port of) Shenzhen earlier this year," Mandelson added, "I was struck by the fact that for every four containers leaving China for Europe, three were returning empty." But he also stressed that the EU had no plans at present to haul Beijing in front of the WTO.

Ball and chain

Mandelson's criticism comes after his commission published a policy paper last month that contemplated a formal complaint against China, if Beijing failed to lift barriers to European businesses in a number of major industries.

Mandelson also called upon Beijing to peg the Chinese currency, the yuan, to other currencies beside the US dollar and to crack down on rampant copyright infringements. Pirated Chinese versions of products like CDs and DVDs were "a ball and chain on European competitiveness," Mandelson said.

Developing country or economic giant?

Mandelson later met with Chinese Commerce Minister Bo Xilai. The two leaders agreed to set up a framework for negotiations on a new trade and investment treaty. They also said they would begin an "unofficial dialogue" on the steel industry, where the EU wants China to lift protectionist restrictions. But they declined to specify what that dialogue would cover.

Bo defended his government's policies, arguing that China's economy needed a certain amount of protection. "People who call on China to open up its markets to the outside world," Bo said, "must recall its basic national condition as a developing country."

Mandelson rejected those arguments. "China plays in a different league," he said. "The expectations are higher."

Economists predict that China will be the world's largest exporter by the end of the decade.