EU-PRC Relationship (Part 2/3: Economy)

By Jacob Sienar. Originally published on 2013/01/22

France’s support for a multipolar world order had resulted in a series of high-level exchanges during the 1990’s, which facilitated the establishment of  annual  EU-China Summits, which continue today.  The summit was cancelled only once in 2008, causing a temporary cool down of Sino-European relations.  However, despite this the business exchange between China and the EU remained intense.

Despite the interest of France to build a multipolar world order, the European Union as a whole nowadays prefers a multilateral approach, rather  than a multipolar world.  The prime example of that stance is one of the reports of Javier Solana, in which he pointed out that, “the end of the Cold War has left the United States in a dominant position as a military actor. However, no single country is able to tackle today’s complex problems on its own.” This offers a good opportunity for a rising Europe to take its responsibility in the global order. According to him, “Europe should be ready to share in the responsibility for global security and in building a better world.” Later in the report, he said that “international cooperation is a necessity. We need to pursue our objectives both through multilateral cooperation in international organizations and through partnerships with key actors.”

China on the other hand is pursuing  multipolarity as its preferred world order. When speaking of Sino-American relations and Chinese external policy, especially in recent years, one can observe the rising power of China and its will to project influence over its neighbours. It is therefore not surprising that in the last  20 years American foreign policy started to focus mostly on Asia and the Pacific region instead of Trans-Atlantic Relations. Constant tensions between China and the USA in recent years have become a common issue.

A firm statement of China’s position was expressed by the ministry of Foreign Affairs in stating that multipolarity “helps weaken and curb hegemonism and power politics, serves to bring about a just and equitable order and contributes to world peace and development.” The USA was not addressed in name as a target of that speech, however the Chinese position was made clear. The virtue of that statement and recent Chinese policies is to counterbalance American power in any form.  That statement shows that China stands firmly against any form of hegemony; e.g.  the political and economic domination of the United States, especially in South-East Asia.

The textile dispute and trade inequality             

The textile dispute between the EU and China in early 2005 was the effect of the forty year old quota regime that had been issued as an antimonopoly mechanism to prevent the taking over of certain market by goods from one country or company. During the initial  months of 2005, imports of Chinese textiles increased more than 78.4% to the EU-15 countries, compared to the same period a year before.  Concerned about thesharp increase in imports to European markets, some member states pressured the European Commission to issue emergency measures against China.  In order to avoid conflict, the EU opened negotiations to solve the trade dispute. Official agreement was achieved in September. In 2008 temporary restrictions had been replaced by a Joint-monitoring system. China works closely with the European Commission in export licensing and product surveillance in order to avoid a future repetition of the situation of 2005.

It is worth adding that China has joined the World Trade Organization (WTO) in 2001.In the admission agreement a clause states that WTO members can safeguard their home textile industries if Chinese imports could damage domestic producers.

Another issue which attracts the attention of European leaders is the inequality in the trade balance between China and the European Union.  The current trade balance is in favour of China, however during the last EU-China summit, in joint press releases both sides agreed to work more closely together to improve trade exchange and to make it smoother. Trade in 2010, from China to the EU was equal to 292.1 billion USD, while EU-China trade was merely 136.2 billion USD. However the FDI factor is higher on European side, 7, 1 billion USD, whereas Chinese investments in Europe amount to only a tenth of European FDI.

Debt purchases

The biggest problem Euro-Chinese relations are facing currently is the European Sovereign Debt Crisis.The European Commission, the European Central Bank (ECB) and the IMF (International Monetary Fund) decided to buy off  junk-rated  bonds of member states on the bond market. China assisted in bailouts and throughout the past months provided massive loans to European countries. China cooperates very closely with the ECB and European Commission, buying Euro zone debt papers, mainly issued by Greece, Ireland, Italy, Portugal and Spain. During a meeting with Chancellor Angela Merkel, Prime Minister Wen Jiabao assured Europe that China is ready to keep buying European government debt. Nevertheless he called on Europe to mobilize efforts to overcome the debt crisis. He said that,” The European debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly speaking, I am also worried. The main worries are two-fold: first is whether Greece will leave the eurozone…The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and other countries have the determination for reform.”

What is very often skipping attention of the commentators is that China is not only helping by buying euro debt bonds, but what is more interesting China is also purchasing many valuable assets in European Countries, especially in the south, where the crisis hit very hard.  By buying sea ports and transport infrastructure China wants to make its way to Europe and gains access to European markets. China increases its influence on Europe by buying debt papers. Officially the Chinese Authorities deny accusations of wishing to use economic factors to gain political influence; however, unofficially they purchase political influence acting as a disinterested state.

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About the author:

Born in Warsaw, Poland, a graduate of the Political Science with focus on European Administration. Currently a student of the European Law at Maastricht University. He is also writing for The Political Bouillon, an EST partner. His major interest is the foreign policy of the European Union.