Domestic demand, suppressed by a weak currency and high levels of precautionary saving, is still extremely low. Inflation is serious, especially in food prices.

A quarter of a billion people will move into cities in the next twenty years. The infrastructure boom that this is creating will put intense pressure on China's environment. The tensions between the needs of a new urban class and those who stay on the land could become a growing problem.

China needs to be a constructive part of a global strategy. This will be a central theme of the visit by President Jose Manuel Barroso, and members of the European Commission to Beijing next week.

As the dollar falls against the yuan, the bulk of China's export growth is now being absorbed by the EU.

So in Europe, we face booming imports and constrained export growth. That spells growing anxiety, and frustration. The wave of Chinese investment on the horizon risks deepening those anxieties.

Europeans will only accept an open trading and investment relationship with China.

The overwhelming interest of Europe, indeed of the world, is that China deals with these challenges effectively and responds to those expectations. But getting Beijing's attention means pitching our expectations right and recognizing the balances that Chinese policy makers are trying to strike, and the speed at which they can move.

In Beijing next Friday, the EU and China will launch a new High Level Mechanism for managing their longer-term trade and economic relations. On the Chinese side it will be chaired by Vice-Premier Wang Qishan. A delegation of seven commissioners will attend the inaugural meeting.

Like the US Strategic Economic Dialogue with China, the real value of this mechanism lies not just in its ability to help us manage and resolve frictions, but in the institutional framework that it creates for senior policymakers.

Managed well, an institutional channel of communication ensures that the EU and China keep talking and acting on trade and economic issues – even when they have strong differences.

It's important that this was a Chinese initiative – a response to the growing concerns about the spiraling trade deficit and barriers to trade. Many of the issues that will be high on the agenda are central to China's interests as well as ours.

But for the mechanism to work, China will have genuinely to engage. China has had the courage to bring both sides to the table. If it has the further measure of courage to seriously engage, then both sides can win. If they do not, they risk a lot more exhausted patience in Europe.

Improving the situation is clearly in the interests of both sides.