EU Arms Embargo
Angela Merkel, leader of Germany's Christian Democrats and the Chancellor-elect, plans to reverse that tide. (Hat Tip: East Asia Watch) Unlike outgoing Chancellor Gerhard Schroeder, who co-led the effort to end the embargo with France, Merkel supports the continuation of the embargo.
The Pentagon's 2005 China Report "Implications of Lifting the EU Arms Embargo" section concludes that:
In the medium to long term, however, the acquisition of European defense technology would significantly improve PLA capabilities. 
What specifically is China seeking?
China is most likely interested in acquiring advanced space technology, radar systems, earlywarning aircraft, submarine technology, and advanced electronic components for precision-guided weapons systems. and
Ending the embargo could also remove implicit limits on Chinese military interaction with European militaries, giving China’s armed forces broad access to critical military "software" such as modern military management practices, operational doctrine and training, and logistics expertise. [24-25]
In addition to those obvious implications, the Pentagon found reason to be concerned about secondary effects:
Lifting the EU embargo would also lead to greater foreign competition to sell arms to the PLA, giving Beijing leverage over Russia, Israel, and other foreign suppliers to relax limits on military sales to China. 
For more on the embargo and its implementation, see this Taipei Times article.
Update: In my original post, I forgot to mention a key player in the move to remove the embargo: EU High Representative for the Common Foreign and Security Policy Javier Solana. He also has been working to end the ban.