Stanley's blog

This is a good time to review the state of the EU-China relationship, after the postponed summit which took place in Prague on 20 May and the High Level Economic & Trade dialogue which met in Brussels on 7-8 May (see post of 14 May).

The official reports and communiqués, following both meetings, are full of ‘motherhood and apple pie”. It is hard to see what serious strategic discussion took place at either meeting or actions that emerged from them.

The year 2008 ended with the postponement of the EU-China Summit in Lyon because President Nicolas Sarkozy, then rotating president of European Council, was receiving the Dalai Lama.

The year 2009 began with a charm visit in January by Premier Wen Jiabao to Davos, Berlin, Brussels, and London Cambridge. Paris was deliberately excluded. Germany had previously been punished for the same reason as France, but relations have been reasonably restored with Germany, and are since being restored with France.

The joint EU-China statement of 29 January, after a visit to the Commission by Premier Wen began:

“[t]he visit has increased mutual trust, promoted bilateral cooperation, and achieved complete success.”

and said:

“A strong Europe can ensure a multi-polar world. The biggest country in the world and the biggest group of countries in the world will create a big impact on the world”, Wen said.

Wen’s diplomats described his seven-day visit to Europe as a “journey of confidence”. The atmosphere was excellent and the Chinese delegation was determined to put the summit postponement issue behind the two parties and to move on.

The European and Chinese leaders believe that strengthened cooperation has global significance and is conducive to peace, stability and prosperity, and agreed to further boost trade and investment liberalization,and expedite resolution of issues such as climate change, energy security, food safety and sustainable development, and, above all, facilitate the resolution of the current economic and financial crises.

Prague summit

The postponed 2008 EU-China summit took place in Prague on 20 May. The only document issued after the summit was a short press communiqué containing nothing but ‘motherhood and apple pie’. (see 30 May post)

At first sight, this makes no sense. However, it is clear that the summit was not intended to discuss much substance. The object was to put the relationship back on track to what it was prior to the Chinese postponement of the Lyon November 2008 summit. The November 2009 summit in Beijing will address substance, and in particular climate change, ahead of the UN Copenhagen conference in December.

After the meeting, three agreements were signed: on cooperation in clean energy, science and technology and small-and medium-sized enterprises.

High Level Economic & Trade Dialogue (HED)

The HED took place in Brussels on 7-8 May. The atmosphere was very good but there were no concrete results (see 14 May post). Frustration in Europe remains over both increased market access and insufficient intellectual property protection. At the same time, greater Chinese assertiveness is being observed.

An optimistic view of the trade relationship cannot therefore be taken. At least the atmosphere remains friendly, and this is a good thing in itself. EU-China trade is not, however, a zero sum game. Although China may be the greater beneficiary, the EU also substantially benefits.

The sudden replacement of Peter Mandelson has not helped. Commissioner Ashton, although very able and quickly accepted by the Chinese, has not yet visited China.

State of relationship

There is increased discussion about the state of the Sino-European relationship. The Chinese despair at Europe’s failure to speak with one voice and having to deal with Brussels, Berlin, London, Paris…The Europeans are frustrated with making no progress in market access.

How do we assess the present state of the EU-China relationship, its future development and the challenges which lay ahead?

Assessing the relationship is doubly complicated today. The world is becoming increasingly complex because there are so many more actors and actions, and inter-relationships both between actors and between actions.

China itself is complex to analyse because of its size and lack of transparency. Access to what happens in the decision making process is closely guarded. And as Chinese Premier Wen Jiabao often says: any achievements and difficulties in China, multiplied by 1 300 000, will be very big, but very small when divided by 1 300 000.

China’s four identities have to be taken into account: China’s China, Asia’s China, the World’s China and China as a developing country.

Taking Iran as an example, China’s China must take into account its bilateral political, economic and strategic relations; the World’s China requires China to take full responsibility because of its seat on the UN Security Council; Asia’s China must emphasize regional security and stability; both China and Iran are developing countries. All four dimensions must be matched.

Zbigniew Brzezinski has opined that neither China nor the world are yet ready for China’s remarkable 21st century rise. A diverse China still finds it difficult to act and express itself in today’s dynamic world. After all, China cannot develop in isolation from the rest of the world, nor can the world enjoy prosperity and stability without China.

The economic crisis puts at risk China’s growing prosperity and stability. The legitimacy of the Chinese Communist Party (CCP) depends upon continuing domestic, economic success. With growth below 7% and 20 million or so newly unemployed, potential danger lies ahead.

China has not been as badly affected as the US and Europe, and there are signs that its huge stimulus package is beginning to work. But the government risks serous inflation and is finding it hard to increase employment by expanding investment. And savings are not sufficiently increasing.

Of course, China has huge currency reserves and is in a position to buy hugely underpriced shares and assets, subject to overcoming political opposition, such as that which thwarted Chinese oil company CNOOC’s bid for UNOCAL, California.

At the same time, Beijing is warning the West not to take for granted its massive currency and bond investments. China has signed a $32bn natural gas deal with Iran and has successfully faced down human rights criticisms, which in any case have become more muted.

Wen Jiabao in particular criticized the “unsustainable model” of development in the West that partnered a lack of savings with a blind pursuit of profit.

This increased assertiveness by Beijing should be noted.

The main challenges to the relationship are:

· Arms embargo.

· Market economy status.

· Market access.

· Climate change.

· Human rights.

Arms embargo

The embargo itself is only of symbolic relevance. The EU Code of Conduct on Arms Exports , which governs arms sales, will be strengthened before the ban is lifted. However, the symbolism is of great sensitivity to the Chinese. There is no early prospect of the ban being lifted: unanimity is required.

Market economy status (MES)

The EU insists that China has not complied with all the technical pre-conditions: China believes the decision to be politically motivated. The status will automatically be granted under WTO rules in 2015-6. No progress is likely without bankable trade concessions from Beijing. Further efforts should be made to achieve these. The granting of MES would stop the many EU anti-dumping actions against China.

Market access

The Union, and western companies working in China, insist that there is far from a level playing field in goods and worse still in services. The obstacles are legal, bureaucratic and practical. Early progress is not anticipated.

Climate change

China, Europe and the United States are the three most important players in combating climate change. China is a willing participant, provided that it receives the necessary technology and finance. The EU has established a good reputation in this field and close cooperation with China could both transform the problem and the bilateral relationship. Hopefully, the Beijing China-EU summit in November will demonstrate this.

Human rights

The human rights situation in China inevitably influences the EU and its Member States as result mainly of pressure from parliamentarians and special interest groups. We would all like to see the human rights situation in China improved, but Franklin D Roosevelt was correct in asserting that the poor have no freedom. However, excessive conduct by the Chinese police and officials is not in China’s own interests. If the record is to be improved, it will not be by using a megaphone but by showing where it is in China’s own interest to restrict the unwelcome conduct.

Particular attention needs to be paid to freedom of the press. I would not wish on China the excesses of a western-style press, but the press can play a valuable role in exposing corruption and non-enforcement of laws, in particular in the consumer/food safety and environmental protection policy areas. In so doing, they would usually be supporting Beijing’s policies. (see post of 30 May)

Tibet

European ‘behaviour’ towards the Dalai Lama is a sensitive issue in China, both with government and public, but there is no Tibetan issue as such in Europe, except for complaints about human rights abuse.

The EU and all 27 Member States recognize that Tibet is an inalienable part of China. The Dalai Lama is a popular public figure in Europe – charismatic, romantic, religious and mystical – but is not seen as the political figure he is. Leaders meet him because, if they refuse, it will provoke a public outcry. Nothing comes out of these meetings. In fact, they would receive little or no press coverage were Beijing not to protest.

There will always be trade disputes between China and the EU, and the greater the trade, the greater the disputes. It is essential to keep these inevitable disputes insulated from the political relationship as the EU and US do. This having been said, there may be a spillover if the trade deficit is not reduced, and this can only be done by increased access to the Chinese market.

Finally, accepting that China seeks he – peace and harmony – it has a common interest with Europe in long-term stability in the volatile area of India, Pakistan, Afghanistan, Iran and Iraq. China has a strong traditional relationship with Pakistan and a mutually suspicious one with India. It has strong commercial relations with Iran. This potential political cauldron of an area could well provide the impetus for a stronger EU-China partnership and indeed closer nternational cooperation. An excellent example of this is China’s problem in exploiting the 28 square kilometre Aynak copper field, which is said to hold the world’s largest unexploited deposits of copper. However, Aynak is in the war-torn Taliban region of Afghanistan, and most of the Chinese personnel have been withdrawn due to threats from the Taliban.

China also has a common interest with the rest of the world in dealing with North Korea. However, even China has had no leverage on North Korea and will only stand a chance of influencing Pyongyang if it is prepared to curtail aid and supplies. Such a course will inevitably give rise to serious refugee and other problems. Beijing really is between a rock and a hard place.

The EU, on the other hand, cannot get its act together with Member State leaders unwilling to swallow their egos and work together in their common interest. Until such time as Europe can speak with a single – not necessarily common – voice, the EU will not have serious influence with China, notwithstanding that the attitudes of both are closer together on a number of issues, than either’s with the United States. Imagine the difference if the EU and its 27 Member State leaders had adopted a common position on meeting the Dalai Lama. France, Germany and the UK go one step further and compete with each other to be China’s favourite European partner. Europe cannot therefore convert its economic weight into influence.

China’s interest in the Union has lessened over the last five years. The failure to ratify the Lisbon Treaty and the internal wrangling that has followed is a contributory factor, as is China’s failure to persuade the EU to lift the arms embargo, despite the promises of Chirac and Schröder.

The ‘habit of cooperation’ through over thirty sectoral and other dialogues should not, however, be overlooked. There are hundreds of EU-China meetings every year as well as bilateral meetings between China and the EU Member States, although lack of coordination decreases their effectiveness. There are no less than six separate EU and national dialogues with China on climate change.

As with almost all other external relationships, the Union has no agreed strategy, nor has it made a serious attempt to agree one.

On the other hand, any American idea of a G2 running the world is nonsense: for one thing, this would not interest China, and it would cause consternation among some of America’s friends, such as India and Japan. And the European voice on economics and trade cannot be ignored.

It should also be noted that China, the US and Japan are setting up an ongoing trilateral dialogue for the first time, on China’s initiative. The first meeting will be at director-general level but it is expected to be upgraded in the future. Items on the agenda for the first meeting in Washington, probably in July, include the overall Asian situation, climate change and energy. It is unclear how far security-related issues will be addressed.

Negotiations for a new Partnership & Cooperation Agreement (PCA) are proceeding quite well on the non-trade side. Indeed, the signing of a PCA separately from a trade agreement looks increasingly likely. Around 20 clauses have so far been agreed. As anticipated, the Taiwan and human rights clauses remain the most difficult to agree. It is hoped to have at least two more meetings before the November summit.

China-United States duo

It is clear that the China’s relationship with the US overshadows that with the EU.

The meeting between President Hu Jintao and President Barack Obama on 1 April in London was arguably the most significant happening during the G20 summit. They announced the creation of the “US -China Strategic and Economic Dialogue” (S&ED), the “strategic track” to be chaired by Secretary of State Hillary Clinton and Chinese State Councillor Dai Bingguo and the “economic track” by Secretary of the Treasury Timothy Geithner and Chinese Vice-Premier Wang Qishan. The first round of the dialogue will take place in Washington in July.

This is the culmination of the work carried out by former Treasury Secretary Hank Paulson and former Deputy Secretary of State Robert Zoellick in engaging China in the Strategic Economic Dialogue (SED) and the Senior Dialogue (SD), respectively. The upgrading of US participation in the S&ED is significant, having regard to the direct participation by the Secretary of State, who is normally only engaged in foreign policy issues of the highest priority.

The S&ED provides the opportunity for the two countries to raise their dialogue on global political to a higher level, and to consult closely on their longer term macroeconomic policies.

The China-US S&ED and previous dialogues are pitched at a higher level than the China-European dialogue and is much more publicised. It is arguable whether more is achieved.

The US claims a list of negotiated outcomes from the SED in relation to financial services: eg NYSE and NASDAQ being allowed to open a branch in China; investors in securities being allowed to issue papers in local currency; foreign banks being allowed to issue bank cards in local currency; easier branching for foreign insurance companies; licensing of international securities companies being resumed; China allowing, on a pilot project basis, non-deposit taking foreign financial institutions to provide consumer finance to local retail customers in China; China allowing qualified foreign companies to list on its stock exchanges through issuing shares or depository receipts; China allowing qualified foreign incorporated banks to issue subordinated RMB-denominated bonds.

Whether these are real concessions won by the US during negotiations cannot easily be answered. However, they are mainly relatively technical issues. Maybe it is in any case better to leave aside the big picture strategic policy issues, and concentrate on specific incremental achievable policy changes that China is willing and able to deliver on.

Although the US claims to have been more effective than the EU in wringing concessions from the Chinese, it too continues to suffer from insufficient market access and no level playing field. It has made little progress on intellectual property protection, reduction in export support, and opening up government procurement.

The EU is currently incapable of setting a clear set of priorities and tries to chase too many different agendas. The Commission lacks sufficient expert human resources, both direct and indirect (think tanks…). A handful of experts have to cope, with little external support. This compares adversely with the US.

Conclusion

It is therefore easy to end on a pessimistic note. But, the speech delivered to the College of Bruges on 26 March 2009 by Ambassador Song Zhe deserves analysis. He closed by saying that:

“We are witnessing profound changes in the world’s political, economic and security situations. Under current circumstances, China and Europe share more interest in common and enjoy broader prospect for expanding and deepening cooperation. We need to further our comprehensive and strategic partnership, not only for our own interests, but also for the world’s peace and prosperity.

We Chinese often say, crisis breeds opportunities. China-EU relationship has come to a new starting point. Now is the time to seize the opportunity and push our relationship to a historical new height.”

The Ambassador explained the importance of two Chinese characters which underpin Chinese political and social thinking and thus government domestic and foreign policy: he – peace & harmony and bian – change & reform.

China, he said, seeks equality among nations and solutions through dialogue and peaceful negotiation, rather than confrontation or force. He sees Europe having three important elements:

“political cooperation towards common strength, economic partnership for mutual benefit, and cultural diversity with inclusive assimilation.”

Song Zhe identifies in this a strong similarity with EU-China relations. He also supports the Jean Monnet approach of seeking common solutions to common problems.

These remarks are encouraging and, yet, Europe does not seem capable of benefiting from having much more in common with China than the US has. Beijing appears to prefer to work with Brussels but it looks to Washington for the decisions that really matter.

However, Europe (as well as the US) are going to have to cope with a China increasingly flexing its muscles, and departing from Deng Xaioping’s approach. This trend might augur better for the development of multilateral, rather than bilateral, relations.

Hopefully,the ratification of the LisbonTreaty, which now looks likely, will give the EU a boost of confidence, and its new leadership triumvirate of European Council president, foreign minister and Commission president, will make achieving a single voice a priority.

In the meantime, every effort should be made, in all sectors and at all levels of society, to increase mutual understanding and remove misperceptions. Widespread exchanges between Europeans and Chinese need to be promoted and financed. EU and Chinese leaders regularly emphasize the important role of think tanks and academic institutions: it’s time they supported their words by money.

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Comments

  1. Excellent article…whereas some temporarty setbacks, the cooperation between EU and China will prosper without any doubt, and during this process, both of them will change in their economy, social and culture by the influence of their counterpart. May be China’s human rights situation will change for the better in this process but our chinese culture and thought will also influence and change the world.

    [WORDPRESS HASHCASH] The poster sent us ‘1055386704 which is not a hashcash value.

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