The critical observer

Viktor Sukup

Viktor Sukup is an analyst of European and international affairs and regional integration. Former professor of international economics at the University of Buenos Aires in the 90s and official of the European Commission between 2000 and 2012. Author, in particular, “Europe and globalization“, Buenos Aires, 1998. Member of the Steering Committee Club of Rome / Brussels.

Europe and China: Partners and Rivals

Written in conjunction with Jovana Savic

Somewhat obscured for the European public by simultaneous other urgent issues, the 17th EU-China summit took place in Brussels on 29 June 2015. It was chaired by the Presidents of the European Council and the Commission—Messrs, Tusk and Juncker, respectively—and the Chinese Prime Minister Li Keqiang, marking forty years of bilateral cooperation and diplomatic relations.

The “EU-China Strategic Association should contribute, the summit concluded, to the “promotion of peace, prosperity and sustainable development for the benefit of all”, based on “the principles of mutual respect, confidence, equality and cooperation”. Emblematic initiatives, such as Juncker’s Investment Plan for Europe, the new “Silk Roads” proposed by China, and the recent creation, under China’s leadership, of the Asian Infrastructure Investment Bank (AIIB), have generated great interest on both sides, as have measures to avoid conflicts in the fields of trade, investments and intellectual property rights.

 

An Asian century?

It is customary to talk about the 21st century as the “Asian century” and China as the emerging new superpower, as extensively documented by the bestselling British specialist Martin Jacques in his recent book When China Rules the World. But there are reasons for a more skeptical view given the huge unresolved problems, particularly in social and environmental areas, that China faces. Other elements should not be forgotten either, especially the accelerated ageing of the Chinese population and the multiple threats to peace in Asia.

China’s fast-growing cities, with their acute health-damaging air pollution, show the downside of the high growth rates of recent years. Several percentage points of growth should be deducted to take into account the environment. China is the great victim, and simultaneously a major cause of global problems, such as the expansion of deserts and the increasing scarcity of water, with its pressure on the global environment felt increasingly every year. In fact, the “workshop of the world”, to a large extent, imports the West’s environmental problems. Beijing authorities warn that people should be outside, on days of extreme smog, as little as possible. China is becoming increasingly conscious about environmental challenges: in 2008 only 31% of the population found air pollution a “very big problem”, while in 2013 already 47% expressed this same opinion.

China’s fast-growing cities, with their acute health-damaging air pollution, show the downside of the high growth rates of recent years.

China became the world’s export champion in 2009, the second-largest economy in 2011, and in 2013 the largest oil importer as well with a total of over four trillion dollars of exports and imports, making China the world’smost important trading power. It is about to overtake the USA also in terms of GDP and has accumulated a trade surplus of almost US $150 billion in 2013, in particular through its exchanges with the old industrial countries, with the exception of Germany, which tend to have balanced trade relations with China. Specialists forecast that by 2020, some 600 million of China’s inhabitants will constitute a “middle class” according to European criteria, and their cities, which today already have around 100 million cars and are plagued by infernal traffic jams, ] will have more than 350 million cars by 2030. In its vicinity, and scarcely less in Europe, the Middle East, Africa and Latin America, China has become a first-rank trading partner. It is also a major source of foreign direct investment, as demonstrated by the acquisition of the automobile powerhouse Volvo, as well asthe large investment in the main Greek harbour of Piraeus: China provides capital and buys technology and market access.

 

The (re-) emerging powers of Asia – new alliances and contradictions…

China’s exports, from 1980 to 2010, increased nearly 90 times and, among these, the share of industrial products climbed from approximately 50 to 95%. In 1978, the sum of its exports and imports was just US $20 billion, placing the country, with less than 1% of world trade, at 32nd place worldwide. Now, however, it is approximately 150 times more, with an average annual growth of around 17% since that year, reaching over 10% of today’s global trade.

The Middle Kingdom has always seen itself, not without reason, as the center of the world, but suffered a devastating decline after 1820. Today, it is beginning to occupy its former place in the world. According to historian Angus Maddison, China in 1820 counted for about 33% of world production, later 17% (1870) and less than 4.5% (1950). In recent decades, though, it started to grow again and in 1998 it had already reached 11.5%. Another prestigious historian, Paul Bairoch, estimated that Europe probably had a lower standard of living than “the rest of the world” around 1750, because China, with over one third of that “rest”, had increased its average significantly.

For dozens of countries, including such diverse ones as Japan, Brazil and Angola, China is today the largest export market and generally one of the main sources of imports. Also in Europe, the trade with China and other Asian countries constitutes a crucial factor, even if it is unbalanced, with Europe in great deficit.

Since 1996, regular Asia-Europe Meetings (ASEM) are held every two years. The EU leaders meet their counterparts from 16 Asian countries who represent more than half of humanity: China, Japan, South Korea, Mongolia, India, Pakistan and the ASEAN ten. They discuss cooperation and conflict, environment and commerce, and, primarily, trade.

China alone, now clearly the main partner in Asia, accounted for about a third of EU exports to those 16 ASEM countries in 2007, while providing nearly half of EU import.

At the outbreak of the global financial crisis, already around a third of EU imports from third countries came from ASEM partners, but only 18% of EU exports went to these markets, resulting in a huge EU deficit of €231 billion—a clear increase since 2000 when it was €139 billion. China alone, now clearly the main partner in Asia, accounted for about a third of EU exports to those 16 ASEM countries in 2007, while providing nearly half of EU imports (compared to about one-sixth and one-quarter, respectively, in 2000). The bi-regional EU deficit reached more than two-thirds in 2007 due to its trade with China, compared to just over one-third seven years earlier. Germany accounted for about one third of EU exports, but only a fifth of the imports from the 16 ASEM countries, and its deficit with this group actually declined between 2000 and 2007, while the deficit more than doubled for France and Spain. Since then, the same trend has continued, thus the “special relationship” between Germany and China, with Berlin’s particularly conciliatory attitude in trade disputes, as in the case of the solar industry, which is crucial for Europe while also enhancing the intra-European disagreements and conflicts of interest. In the first half of 2013, Germany supplied 45% of EU exports to China, but took in only 21% of imports from China.

These Euro-Asian and intra-European imbalances cause serious problems for many European industries, make a common and coherent response difficult and deepen intra-EU contradictions. The attitudes towards China, given the very different competitive pressures and opportunities for European industries, are therefore very contradictory. New alliances with complementary economic structures could be built, particularly in light of the already initiated green revolution in China -the radical reorientation towards renewable energies, whose success should bring substantial benefits for the whole world. But it is also evident that new difficulties are arising: the sudden increase in competitiveness of Chinese solar energy technology has brought German companies to the brink of bankruptcy.

Euro-Asian and intra-European imbalances cause serious problems for many European industries, make a common and coherent response difficult and deepen intra-EU contradictions.

In 2007, China set up the First National Development Plan for Fighting Against Climate Change, and numerous official statements reflect an increasing environmental conscience. Also, China’s 2013 Action Plan for Air Pollution Prevention and Control is the most visible measure taken by the government, showing that reorientation towards more sustainable development is now seen as essential for China’s future: “Of the many factors impacting China’s development strategy”, says an influential group of experts, “tackling pollution has quickly become a top priority. A growing sense of urgency to reduce pollution and improve quality of life in cities is compelling China to adopt a greener, smarter and more productive approach to development”.

 

China, Western and Eastern Europe – a triangle under pressure

The former Eastern Bloc has seen a modernization of production processes and, to an even larger extent, of consumer models. They also have adopted more or less functioning Western forms of democracy, but are also facing obstacles such as social inequalities, mass migration and the emergence of powerful extreme-right parties. If real socialism was hardly successful, the current capitalism under the EU umbrella means that the EU will probably continue to be challenged for some time to come by a deep North-South divide and a no less serious East-West one.

China has started a kind of offensive on the peripheral countries of Europe, with the already mentioned purchase of harbour facilities in Piraeus as one of several such initiatives. In Ukraine, just before the recent turmoil, it was projected that about 5% of the land in this former breadbasket of Eastern Europe had been leased to China. Elsewhere in Eastern Europe, both within and outside the EU area, China is ready, in the countries shaken by the crisis, to come up with capital, technology and good advice, so Beijing’s new friends will probably be more understanding in the context of EU-China conflicts. Whatever the outcome of the EU-Russia tensions, China, which has forged closer relations with Russia, especially in the strategic energy sector, is clearly the big winner.

 

Free trade, protectionism, and industrial and energy policy

Since the 1980s, China has radically changed the world: the new working masses of East Asia bring cheaper consumer goods to the market, but also fierce pressure on wages and jobs in the industries of the rest of the world. In this way, it has divided the workers of the world. US specialist in European issues, Barry Eichengreen, emphasizes that the EU states suffering the most from the financial crisis have probably made significant progress ​​in bringing their unit labour costs back in line with those of Germany; but this is not sufficient today, he adds, because they also have to compete with those of China, among others. Thus, in recent years, Spain had significantly increased its exports, which have now stagnated once again.

All this raises fundamental questions–in particular in terms of protectionism, industrial policy and other common EU strategies such as energy and research. In the latter field, the Europe 2020 Strategy proposes increasing spending on research and development to 3% of GDPs, but the percentage at EU level has only risen from 1.8% in 2005-7 to around 2% today. And while it has reached nearly 3% in Scandinavia, and not much less in Germany and Austria, it has remained far lower in the EU South and East, thus further deepening the North-South and East-West dividing lines.

 

European investment in China and Chinese investment in Europe

Since the opening up of China, many European, North American and Japanese companies have found a true Eldorado in the Asian powerhouse, with their direct investments in China have really exploded. Large corporations in the chemical, electronics and automotive industries invested billions and took home hefty profits. Even medium-sized enterprises entered Chinese markets, for example, in the textile industry, attracted by the cheap labour and reaping enormous profits. Investors from Hong Kong and Taiwan were even more active than the rest in areas such as clothing, toys and the consumer electronics industry, and thus formed a kind of “Greater China”, which grew ever closer together. All these investments, however, had to be made ​​in a general framework that was defined by the political leadership, i.e. in particular with a Chinese partner in the case of large industrial projects, though often under social circumstances which corresponded to the worst excesses of early capitalism in Europe. For a number of years and as a result of major strike waves in 2010, there have been improvements in salary levels and working conditions. The repeated emphasis on more domestic consumption by the new leadership in Beijing should bring about further improvements, while the “fight against environmental destruction” should mitigate the most acute pollution problems. In terms of renewable energies and more efficient use of energy, there is undoubtedly huge potential for a mutually beneficial cooperation.

Chinese investments in Europe and elsewhere have greatly increased since the turn of the century and the financial crisis has also meant that the countries of Europe, and even the EU itself, look for China’s aid, which is not without irony, given their much higher per capita prosperity. In any case, the countries of the EU periphery, in particular, see China as an acute threat to their industries and exports while, at the same time, also as a possible friend whose investments are sought after in the process fueling intra-European tensions. Although Chinese investments in Europe are still quantitatively small, their concentration in strategic sectors, the risk that EU countries try to outbid each other in order to attract them, and other issues such as potential industrial espionage, led the EU to look for a bilateral investment treaty, which is in the process of negotiation since 2013, to protect their interests.

 

Understanding rather than criticizing – a perspective on China

Perplexity, misunderstandings and inaccurate preconceptions often characterize European views of China, but this is also true the other way around. Souvenirs of colonial attitudes, the Opium Wars and the burning down of the Summer Palace in Beijing in 1860, and even of the NATO bombing of the Chinese embassy in Belgrade in 1999, complicate bilateral ties.

While Europeans have reasons for emphasizing their political values and their desire to make them also prevalent elsewhere, the Chinese are understandably often critical of such interventions. They remind Europeans of their own contradictions in this field and their past records. They underline that the utmost priority of the Chinese authorities is to raise the living standards of their population. China is still a low income country, they emphasize, with a per capita GDP, placing it at 100 on the list of countries worldwide with nearly 150 million Chinese living in absolute poverty. Therefore, the most fundamental human rights challenge in China remains fulfilling basic needs of the majority of the population.

While Europeans have reasons for emphasizing their political values and their desire to make them also prevalent elsewhere, the Chinese are understandably often critical of such interventions.

When Europe tells China about the urgency of adopting environmental measures, China responds that, after all, the old industrial powers deteriorated the world’s environment for centuries, and now China should simply stop doing the same?

Confucianism is deeply rooted in more than 2,500 years of Chinese culture. Hierarchy, harmony, family, collectivism, conflict avoidance by large consensus building and saving face are crucial values, while individualism, competition and desire for resolving conflicts with Western democratic procedures are core elements of European culture. Confucianism serves as a guide to Chinese behaviour and is linked to daily realities, where private and professional lives are almost always inseparable. Regarding intellectual property rights (IPR), Confucian ideology, essentially focused on the transmission of knowledge, strongly encourages the imitation of teachers as a way of learning, showing uncompromised loyalty to masters and subordination of individual interests. Until recently, China, thus, never viewed IPR violations as the taking away of one’s individual rights. Sharing and even copying are highly valued in China’s tradition. But with its WTO accession in 2001, the attitude in this field is slowly changing.

Chinese officials view institutional differences—especially those of the political systems-human rights and the Tibet question—as the most controversial issues affecting EU-China relations. Europe, they say, has difficulties in understanding the differences in political and economic priorities between developed and developing countries. How should, therefore, the EU handle these issues? Much diplomacy is required, but, as the then President of the European Council recalled last year, “Europe and Asia (are) becoming more and more interdependent in the fields of politics, security, economics, trade, finance, and the environment”. A Chinese scholar from a specialized Brussels think tank, speaking in the wake of the Chinese President’s visit to Europe in the spring of 2014, adds, “regional and sub-regional cooperation has thrived and Eurasia trade and investment is surging, heralding a golden era of ever increasing common interests and cooperation potential. President Xi Jinping’s proposal to build a ‘Silk Road Economic Belt’ has been strongly endorsed by many European and Asian countries. We should seize the opportunity and explore synergies to broaden and elevate regional cooperation and breathe new life into the old Silk Road”.

 

Jovana Savic is a sinologist and 2013 graduate in language, culture, and literature of China from the University of Belgrade. She also finished a postgraduate degree in China Business Development from Vrije Universiteit Brussel, Brussels Institute of Contemporary China Studies in 2014. At present, Jovana studies European politics and EU-China relations.

 

Analyst on European and international affairs, author of several books including Europa y la globalización (Buenos Aires, 1998), visiting lecturer at the University of Buenos Aires and former public servant at the European Commission.


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