China and the EU – Hand in Hand?

After a breaking-in period, the relationship between China and the EU is showing encouraging momentum.

Premier Wen Jiabao paid a formal visit to Greece, Belgium, Italy and Turkey in October 2010. The relationship between China and Europe has attained unprecedented breadth and depth, Wen said in a speech to the Greek parliament.

Meanwhile at the Eighth ASEM Summit and the 13th China-EU Summit in Brussels last October, leaders of China and Belgium voiced satisfaction with the strength bilateral relations were gaining despite the global financial crisis. They expressed the belief that as the world economy recovers and as China and the EU enter important stages in their relationship, both parties are in a position to realize greater development in bilateral relations. Later Premier Wen went to Germany to meet Chancellor Angela Merkel.

Foreign Minister Yang Jiechi, commenting on Premier Wen’s European trip, said though the world economic recovery was showing progress, the base was not solid and the underlying impact of the crisis remained unresolved. Europe and Asia share the same challenge and shoulder joint responsibility for managing it. Wen’s visit aimed to strengthen mutual understanding through dialogue, and facilitate common development through cooperation.

A month later, President Hu Jintao paid a state visit to France and Portugal. It was his second visit to France in six years, promising a more mature and harmonious relationship between the two countries. Nicolas Sarkozy took office more than three years ago but this was the first time he welcomed a foreign leader at the airport. Hu told Le Figaro that among the areas of cooperation on the table, the most important thing was to go beyond the simple “trade - invest” model and establish an “equal” partnership. He hoped to strengthen the exchange in intellectual fields, especially in the humanities. Hu also visited Portugal, the first time that Chinese president has done that in 11 years, with the intention to promote bilateral cooperation in various fields.

Just after President Hu returned from Europe, British Prime Minister David Cameron visited China with the largest ever business delegation in tow. During the intense two-day visit, China and Britain signed several treaties related to the economy and education, and signed off on intended cooperation within the pharmaceutical, energy conservation and environmental protection sectors. Sino-British bilateral trade volume in the first three quarters of 2010 reached US $35.7 billion, an increase of nearly 30 percent over the corresponding period of the previous year. The UK’s exports to China included in this figure grew by 43 percent. The investment of Chinese companies in the UK has now surpassed £300 million, creating more than 1,200 jobs for Britons.

The reason why China and the EU can prevent their trade relations from being sidelined is that the development of their relationship is aligned with the wishes of the people and the interests of both governments. China and the EU differ in terms of their developmental sophistication, political systems and culture, but they have highly complementary economies with no fundamental conflicts of interests. They both support multilateralism and preservation of diversity in the civilizations of the world, and back that up as active participants and builders of multilaterism.

To enhance the relationship between China and the EU, we need to think seriously about the following issues.

Mutual Understanding

China and the EU can expand their fields of consensus, and support each other on concerns of major interest, but international exchanges towards this end must be first directed to gaining mutual understanding. Lack of mutual understanding is not only a deficit in Sino-EU relations, but has been the source of persistent troubles. Therefore, both sides need to renew their intentions to further the relationship.

A close high-level exchange is undoubtedly a necessary first step. However, we need to undertake more specific tasks: first, strengthen academic exchanges. China and the EU both attach great importance to the role of academic circles in bilateral ties. More academic exchanges increase the accuracy, fullness and quality of information and advice put at the disposal of decision makers. Second, media exchange. The media spare no effort to report twists and turns in the China-EU relationship, so it makes sense to create situations where media outlets also conduct exchanges and learn from each other; both the public and leadership benefit from objective reporting.

Obviously there are disagreements between China and the EU on issues such as democracy and human rights – thanks to evident differences in political systems, stages of development, culture and values. China will definitely make efforts to move on democracy and human rights, to better reflect the superiority of socialism. However, the EU should respect the sovereignty of China, take national conditions into full consideration, and eliminate bias against China.

State Councilor Dai Bingguo and Catherine Ashton (first left), EU high representative and vice president of European Commission, co-chair the first China-EU Strategic Dialogue on September 1, 2010.    Cnsphoto

Trade Friction

Abundant labor resources remain one of China’s comparative advantages. Thus, exporting labor-intensive products has been the sensible economic tack for China in the last 30 years. However, the EU implemented anti-dumping measures to protect its domestic market against cheaper Chinese products.

The Chinese goods influenced by the anti-dumping maneuver accounted for a limited proportion of all exportation, but it indeed hampered, as it was meant to, relevant industries in China. According to WTO statistics, since 1979 when the EU first implemented anti-dumping measures on Chinese saccharin, it has become China’s most active anti-dumping partner.

As the EU does not recognize China’s market economy status, it often improperly makes reference to the prices of a third country when evaluating China’s export products; this practice puts China’s products at great disadvantage. In response, China should upgrade its export structure, shedding products that may give other countries excuses for anti-dumping charges. On the other hand, the EU should abide by the WTO rules, and expand exportation of high-tech products to China. Practice what you preach, in other words, rather than impose trade protectionism while advocating free trade.

Correct Understanding of China's Investment Environment

On November 22, 2010, the Italian Trade Commission and Confindustria, the Italian industrial employers’ federation, led 66 delegates from the Italian automobile industry on a trade visit to China. The establishment of factories was under consideration. Mauro Ferrari, president of ANFIA, Association of Italian Automobile Industry, said the organization hoped more medium-sized and small Italian car makers could enter China to share in its fast developing car market, especially after Fiat’s success here.

In contrast to the keen interest showed by European companies, the EU governing body has voiced many criticisms of China’s investment environment in recent years. For example, EUCCC (European Union Chamber of Commerce in China) released the European Business in China 2010/2011 Position Paper on September 2, 2010, which stated that the Chinese market is still under stringent control, therefore EU companies would face many obstacles. The report also pointed out that a more relaxed market access and fairer environment would help China to attract investment and transform its economic growth using a more balanced model. To make sure EU companies can play a bigger role during the process, it concluded, China should exhibit more equitable treatment and a more open market.

However, the judgment of the EUCCC is biased. In any country, the economic development and market environment is subject to constant change. China is no exception. In the early stage of reform and opening-up China provided a series of “supernational treatment” policies for foreign companies, mostly centered on tax relief and exemptions meant to compensate for the extra institutional cost of international investment in a nascent market economy. After 30 years, the Chinese market economy has improved quite a lot, significantly lowering the institutional costs of foreign companies. At the same time, competition among foreign-funded companies in China became more fierce. The time had come to gradually abolish the preferential policies foreign companies enjoyed. EU companies should not complain about policy adjustments any more but give full play to their comparative advantages, rearrange their investment instruments, and operate in a manner designed to seize the huge strategic opportunities inherent in a Chinese market ready for another burst of activity.

A special session of the 2010 Summer Davos, held in Tianjin last September, was devoted to China’s investment environment. Senior managers of three international companies – GM, Coca Cola and Lawson – all believed that it is not on a retrograde trend. The emcee asked the 200 participants on the spot: “How many of you think China’s investment environment is deteriorating?” No more than 10 of them raised their hands.

Protection of Intellectual Property

The EU often complains China does not attach enough importance to the protection of intellectual property. Indeed, as a developing country, China faces many tough challenges in protecting intellectual property rights. But the EU should note that China is serious about the issue, and has implemented a series of strong measures. The State Council Executive Meeting presided over by Premier Wen Jiabao in October 2010 announced that China will carry out an intense half-year campaign combating violations of intellectual property rights. The action, starting from late October, focuses on protecting copyrights, trademarks and patents in news, publishing, culture, entertainment and high tech industries; it does the same for new plant varieties in the agricultural industry. A crack down on counterfeit and shoddy goods in manufacturing and distribution centers is also underway, exposing and punishing violators and effectively promoting awareness of IPR protection among the public.

On July 22 and 23, 2010, the EU Trade Days were held at the Shanghai Expo. Visitors could taste world famous specialties produced in France, Italy and Spain – wine, ham and cheese were prominent. The EU calls them Geographical Indications products, similar to the idea of time-honored brands in China. Exhibitions like this promote European products in China and also strengthen Chinese consumers’ awareness of intellectual property rights. China would do well to organize similar events in Europe.

Face a Stronger China

The rapid growth of China has greatly influenced global relations. The EU’s policies should take into account that the development of China is inseparable from the development of the world, and vice versa. As a responsible country, China has always safeguarded world peace and promoted common development. China will unswervingly take the road of harmony and stability, progress governed by peace, and opening-up strategies based on mutual prosperity. The EU isn’t looking at a threat but a golden opportunity.

In addition, China’s rise has provided opportunities for cooperation in many fields. For example, as the G20 plays a more important role in the world, China and the EU can coordinate and collaborate on this stage. The two sides can also find common ground on major international issues like climate change response, anti-terrorism and the goals of the Doha Round, as well as in energy savings and the development of low-carbon economies.

“China’s success – and continued success – is good for Britain and good for the world,” David Cameron said in a speech at Peking University in November. “In the argument about how to react to the rise of China I say it’s an opportunity. I choose engagement not disengagement, dialogue not stand-off, mutual benefit not the zero-sum game, partnership not protectionism.”

In summary, the prospects for China-EU relations should be bright. Politically, the leaders of China and the EU have established a mechanism of annual meetings and 17 other political consultation events. China-EU Partnership and Cooperation Agreement negotiations have been launched. Bilateral relationships have gone from a constructive partnership, to a comprehensive partnership, and currently a comprehensive strategic partnership. Economically, the bilateral trade volume has increased 176 times in the last 35 years. The EU has been China’s largest trading partner for six years in a row and China has emerged as the EU’s second-largest trading partner. What’s more, the EU is China’s largest technology source and its fourth-largest source of investment. On the cultural front the two sides are seeing more frequent interactions.

China and the EU are important to each other. If they can rightly address the issues mentioned, the bilateral relationships will surely achieve unimaginably good ends.

JIANG SHIXUE is deputy director of the Institute of European Studies, the Chinese Academy of Social Sciences.