(BRUSSELS) - China has made "considerable progress" on the road to winning coveted market economy status, the European Commission has concluded in an internal report obtained by AFP on Thursday.

"China now has in place almost all the legislation which is necessary for granting of market economy status. That is a considerable achievement," the report said.

Acknowledging China's "considerable progress" toward fulfilling the criteria necessary for winning the status, the commission said it "remains strongly committed to working with China to achieve that."

Beijing asked the European Union in 2003 to grant it market economy status, which is used when calculating tariff barriers in anti-dumping cases.

Specifically, the status is key in determining to what extent the costs of exports from China reflect the unfair influence of state intervention.

As a result, the status is particularly important for China because it has been the target of numerous European anti-dumping actions in recent years as the Asian giant becomes a major trading power.

So far, the European Union has found that China has only fulfilled one of the five criteria it deems necessary for being granted market economy status.

The one criterion covered state influence over privatised companies and the absence of market distorting compensation and trading systems such as barter.

However, the commission found in the report that "China has made considerable progress on the remaining four" criteria.

Of those four criteria, Brussels said that "progress had been slow" on reforms in the financial sector.

"While improvement is evident, for example in the area of corporate governance at commercial banks, problems are still widespread, notably (concerning) the state controls on interest rates," the commission lamented.

EU Trade Commissioner Peter Mandelson is to head to China next week for high-level talks, during which he is to present the report.

During his tenure as Europe's chief trade pointman, Mandelson has frequently visited China, which is now the EU's biggest trade partner after the United States and largest source of imports.

Trade between China and the EU has boomed in recent years and now totals 300 billion euros a year.

However, due to the emerging Asian economic powerhouse's massive exports, trade with Europe is largely balanced in China's favour, with the EU running a deficit of 160 billion euros in 2007 with Beijing.

That imbalance has contributed to trade frictions, which have also flared over numerous anti-dumping cases against Chinese imports believed to be made at below cost.

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