By Sebastian Moffett and Kevin Yao
BRUSSELS (Reuters) - European Union and Chinese leaders will try to bridge growing differences over trade and find common ground on tackling Europe's debt crisis at a summit in Brussels on Thursday.
Overseas trade is one of few bright spots in Europe and a critical source of growth for the region's economy, which has slumped under the weight of the debt and banking crises, with EU gross domestic product falling and unemployment steadily rising.
Trade between China and the EU, the world's biggest trading bloc with a market of 500 million people, rose to 428 billion euros in 2011, having doubled in size since 2003.
Chinese companies are increasingly investing in Europe, while the Chinese government is an important buyer of the debt of euro zone governments. China's foreign exchange reserves are the world's largest at $3.24 trillion, and economists say roughly a quarter of that consists of euro-denominated assets.
At the same time, trade disputes are intensifying. In the latest spat, the European Commission accused China of selling solar panels below cost on the EU market, angering Beijing and threatening wider business ties.
Beijing has not linked purchases of EU government bonds to trade disputes, said Zhang Yongjun, an economist at the China Centre for International Economic Exchanges, a Beijing government think-tank.
"But the two issues concern the bilateral relations and cannot be separated."
An EU official played down the problems ahead of Thursday's summit, which he said would not be a summit for big decisions but rather a meeting focused on "consolidation".
Chinese Premier Wen Jiabao will meet European Commission President Jose Manuel Barroso and Herman Van Rompuy, president of the European Council, which represents national governments. They will also discuss human rights and sustainable development.
Briefing journalists, the EU official, who spoke on condition of anonymity, described the trade disputes as "relatively routine" and said they were being worked at on a technical level at the Commission and World Trade Organization.
"There is a huge amount of trade between the EU and China, and yes there are some tensions," he said. "We have to keep these things separate from the dialogue that we have. We need a successful China ... China needs a successful EU."
The Financial Times, citing unnamed sources, reported on Thursday that the EU had stalled a controversial trade case against Chinese telecommunications companies ahead of the summit.
Europeans are increasingly concerned over what they call "state capitalism", where a government closely controls privately owned business, as well as state-owned companies. It can use a range of policies - such as cheap finance and raw materials - to give an unfair competitive advantage to a national company.
The theme has run through a series of flare-ups this year, including China's policy on exporting rare earth metals, trade in aluminum foil and the solar panels dispute.
EU trade commissioner Karel De Gucht said in May that the European Commission - the EU executive, which handles trade for the 27-member bloc - would consider new trade defenses for cases in which EU companies feared repercussions in China.
In March, the European Union joined the United States and Japan in challenging China at the WTO over its restrictions on rare-earths, which are used in advanced industries such as electronics and renewable energy.
The restrictions, say EU officials, give Chinese hi-tech companies access to cheaper raw materials.
The Commission is also investigating numerous accusations against China of dumping - where makers sell their products below cost in an effort to gain market share.
Until early September, the dumping accusations mainly concerned low-profile industries, such as aluminum foil, kitchenware and pipe fittings.
But two weeks ago, the Commission launched a probe into suspected dumping of solar panels, after a complaint by manufacturers in Germany, Italy and several other EU countries.
China exported more than $25 billion of solar panels to the European Union in 2011.
"The global financial crisis and Europe's debt crisis have already done a lot damage to the global economy," Chinese vice foreign minister Song Tao told a news conference on Monday. "Trade wars are not benefiting either side."
The euro zone crisis has hit EU demand this year, and the United States has overtaken the EU to become China's biggest export market. In August, Chinese exports to the United States were up 3 percent from the same month in 2011, while exports to the European Union fell 12.7 percent.
The leaders will likely confirm their willingness eventually to sign an investment treaty - something Europeans would like in order to be able to invest more freely in China and have better protection for their intellectual property there.
China has encouraged its firms to invest more in European firms, which help them get better foreign technology. The parent of carmaker Geely bought Ford Motor Co's Volvo unit in 2010. This year, Sany Heavy Industry bought German concrete pump maker Putzmeister.
Last month, China's Weichai Power, a unit of Shandong Heavy Industry Group, said it would buy a 25 percent stake in German's Kion Group, the world's number two fork lift truck maker.
(Reporting By Sebastian Moffett; Editing by Rosalind Russell)
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