Samuel Marshall writes from Brussels: Worried faces among members of the EU Commission. All is not well when it comes to trade relations with China. Brussels is alarmed by the trade deficit with the Middle Kingdom that has now climbed to 156 billion euros. Mind you, trade with India shows a small surplus but it’s touch and go, if you know what I mean.
Germany and France are getting pretty nervous about their trade with the Dragon. Siemens, one of the largest engineering groups in the world, is sacking staff as a result of the Chinese onslaught.
Trade with China generally is becoming more and more difficult. Beijing demands technology transfer in big projects. It imports German advanced technology, copies it, and then exports it to Europe. The latest breakthrough is in transport technology. Intellectual property rights are difficult to protect. Local government decision making is often arbitrary and the state subsidises the company’s competitors. The state sector is growing as China develops.
The EU treats China as a developing country and has reduced tariffs to the extent that the Middle Kingdom has almost unrestricted access to EU markets. There is no agreed policy on Chinese investment. Beijing, on the other hand, restricts foreign investment in strategic industries and the list is growing by the day.
Back in the heady days when the euro was introduced in 1999, the EU regarded itself as a global power. It was the largest trading block in the world and sought to transfer its values to other parts of the world. It entered into strategic partnerships with China and India. Brussels imagined this would lead to these countries sharing common values about democracy, human rights and culture. In other words, the world would be an enlarged EU.
This myth was exploded with the Lehman Brothers’ collapse of 2008. The western economic model, to which China and India had been deferring, was suddenly suspect. Following US and the EU norms was no longer a certain path to prosperity. China, especially, had to fashion an indigenous model.
The wake-up call occurred at the Copenhagen climate change conference of 2009. The EU wanted to bind all states to a 50 per cent cut in their CO2 emissions. China sabotaged this proposal and ensured that no binding obligations were entered into. Any cuts would be voluntary. To add insult to injury, Wen Jiabao, the Chinese Prime Minister, stayed in his hotel room and sent his deputy to veto the proposal.
The Eurozone crisis has severely weakened the EU’s clout vis-à-vis China and India. The EU regarded itself as a major international player but Beijing and New Delhi now place their relations with Washington well ahead of those with Brussels. The disunity of the EU has allowed these powers to play one country off against another. It was a shock when China refused to contribute to the European Financial Stability Mechanism. ‘Put your own house in order first,’ was the abrupt Chinese reply.
China and India share the view that there should be no intervention by outside powers in a sovereign state. Hence they oppose sanctions which aim at regime change. They see the EU as a servant of the US in foreign policy. The shift in economic power in the world is leading to a rejection of Western values on democracy and human rights.
How will the future pan out? It all depends on whether the present slowdown of the Chinese economy is temporary or structural. If the latter the Middle Kingdom will be faced with formidable problems. Growth will slow and more attention paid to improving living standards. This offers Brussels an opportunity to press its own interests and insist on fairer access to the Chinese market, greater legal protection and transparency. However Brussels must demonstrate a unified approach to ensure success. Has it the resolve or will the big players pursue their own national interests? Without a banking, fiscal and political union the EU will limp along and be in danger of being trampled on by the dragon and the elephant.