China's Commerce Minister Bo Xilai (L) poses with European Trade Commissioner Peter Mandelson before their meeting at the European Commission headquarters in Brussels June 12, 2007. [Reuters]

The European Union is considering recognizing China as a "market economy" in exchange for concessions deemed crucial to balancing trade ties, the Wall Street Journal reported on its website on Monday.

The EU aims to use the designation as a bargaining chip to coax Beijing to stem the proliferation of pirated goods and to offer greater market access to European companies, especially in the service sector, the newspaper cited people familiar with the matter as saying.

This matter is still under discussion as EU countries with heavy manufacturing sectors such as Spain, France and Italy are opposed to the policy shift, according to the newspaper.

Calling the shift largely a technical matter, the report said the policy change will offer China practical gains, especially in the defense against complaints of dumping - selling products for less than the cost of production.

When probing such complaints against a non-market economy, investigators tend to use surrogate "market economy" to determine the so called "real" cost before deciding whether goods are being unfairly under-priced.

As far as China is concerned, Turkey or India, where prices are higher than in China, is often used as a proxy in anti-dumping investigations in the EU. That makes China more vulnerable to punitive import tariffs.

To reverse this situation, China has been lobbying for a market economy status for some time. China has made significant progress towards a market economy status in the last three years, the European Commission said in an assessment report earlier this month.

However, China has completed only one out of five technical conditions necessary to be granted the status, the commission pointed out.

The WSJ report came as the EU attempts to balance the trade relationship between the two economies and gain more market access for European companies.

China enjoyed a trade surplus of US$91.66 billion with the EU in 2006, with exports hitting US$181.98 billion and imports reaching US$90.32 billion, official statistics showed.

As of the end of last year, China approved an accumulated 25,418 EU-funded projects, involving a contracted EU investment of US$97.95 billion. China had used US$53.18 billion of EU funds by the end of last year, or 8 percent of total foreign funds used in China.