Sino-European relations: Profitable, could be more so, and yet fraught with tensions
 Given that the European Union is moving away from being a simple trading bloc and acting more like a sovereign state, it now seeks to attach trendy social strings to trade deals as Canada tried to do last year - much to its cost.
The issue today is whether Europe will accord China Market Economy (ME) status. Whether the EU decides to back the bid, it would be best to avoid the harsh snub Canada suffered for laying down conditions China was not likely to meet. Europeans hoping to become politically cozy with China say Yes, and those fearing economic harm that might befall Europe, say No. With the nay-sayers, the United States agrees.
They see Beijing enhancing the role of powerful state-owned enterprises, which has the economy moving away from free-markets, not closer. So the yea-sayers have very little on their side except the hope that going along to get along with China will pay dividends in mutually "civilisational" terms some day soon.
There is a lot at stake, of course. In terms of goods, bilateral trade amounted to EUR466 billion (US$577.7 billion), China was the EU's largest source of imports and second largest export market. In total, China constituted 13 per cent of all of the EU's business.
This consisted overwhelmingly of trade in industrial products, accounting for 98 per cent of the EU's imports and 95 per cent of exports to and from China. Over the same period, only the United States, with a combined total of US$698 billion had greater levels of trade with China.
In terms of investment, Sino-EU links are strong and strengthening. By the end of 2013, the EU had EUR119 billion invested in China, 50 per cent more than three years earlier. But this was still only two per cent of foreign direct investment in China.
But China only had EUR16 billion invested back in the EU, coming in at less than one per cent of its overall FDI stocks. The much smaller economy of the Hong Kong aggregate total of FDI into the 28 EU member states comes to triple that directly sourced from the mainland.
The government under President Xi Jinping from 2012 on has become even more determined about those seeking to work within China and with Chinese partners in order to forge what they called "domestic change" unsupported by the Communist Party and potentially threatening to it.
China's 2014 State Policy White Paper on the EU rejected western lectures about political reform and sought help on conferring market economy status and held out hopes that in 2016 its delivery might be imminent. Hopes were dashed and it remains one of the few things China really wants from the EU.
Chinese officials complain that not getting ME status from Europe means treating Chinese businesses in "unfair, unjust, unreasonable and discriminative" ways and would be an "evasion" of obligations under international treaty.
Despite this, it is difficult not to sympathise with those who warn of the downside of granting ME status. China, they say, would seek to exploit new economic advantages that promote success of its existing exports into Europe, the trade deficit would grow. After all, anyone in such a position would be expected to take such a course in the absence of restraints.
China could, for instance, set a higher natural value on the exported goods of its companies into Europe, thus dulling the effect of anti-dumping duties and meaning that it could still flood the market competing with local ones which had been made with Chinese state subsidy.
The European Policy think tank in Washington has said if China were to be allowed ME, then the reduction in EU outputs would potentially come to one to two per cent of GDP, jeopardising 1.7 million to 3.5 million jobs.
Chinese state involvement in business amounts to a level of intervention that substantively negates deserving market economy status, they say. This includes Chinese state ownership in most of China's biggest and most strategic enterprises, the entrenchment of top cadres and their family members in significant managerial posts and state financing through state ownership of state and commercial banks.
Moreover, if China retains its non-market economy status, there remains flexibility in the methodology by which the market value of Chinese products in China for import can be calculated in anti-dumping regulations.
Under ME status, say nay-sayers, importing countries stand to lose the wide discretion granted to them in their independent fair value calculations for anti-dumping purposes. As a non-market economy now, China can have this treatment, but not after its status changes.
China's diplomatic recognition predated the EU and started with the European Economic Community (EEC) in 1975. And this still stands as the basis of today's relationship. It is called the "EEC Trade and Economic Cooperation Agreement". It reads as a solid trade agreement, granting most favoured nation status for a number of classes of Chinese goods.
But while the deal did not change when the EEC became the EU with the Maastricht Treaty in 1994, the EU began to change its nature, assuming the colours of a quasi-sovereign national status. Far from being a purely common trading bloc, it had been, the new treaty set out a number of social and political aspirations, some of which proved contentious even within the EU.
The Social Chapter, for instance, encoded certain working rights and social welfare levels, for which the United Kingdom negotiated an opt-out clause. The EU also started to figure much more strongly as a community of values, not just economic expediency, and became keen on promoting this beyond its borders.
From 1995 to 2015, it also saw the accession of a group of new states, more than doubling EU membership by 15. For China, therefore, a relationship which had initially focused purely on trade and transactions developed a new and less straightforward dimension after 1994, one in which the EU asserted a number of values and ideas, which became part of its internal and external identity.
Such nation state "likes" and "dislikes" would not have been in the vocabulary of a trading bloc, such as the old EEC. But now the EU was guided by the ambitions of Brussels-based policy makers as they sought to play a role akin to Prussia's in the unification of 19th century Germany.
Just as Prussian-led Germany fashioned itself in the style of its time, as an imperial power to rival Britain and France, so too do the EU's masters seek to emulate the leading western social democracies of our time, parading all accoutrements and attitudes of modern major democratic states.
But perhaps without realising it, the EU masters are now to discover that by fulfilling their new ambitions of becoming a national super state, they are undermining efforts to achieve what the old EEC so successfully accomplished as a simple trading bloc.
Hence a series of meetings at head of government level between major European countries with the Dalai Lama, the exiled Tibetan leader, needlessly annoyed Europe as a whole with Chinese retaliation against countries that did not participate.
China strenuously objects to other countries expressing negative views on its internal affairs, which it construes as interference. The ruling Communist Party of China is quick to react with strong language and action to behaviour by other states supporting political, social and religious separatism within its borders. That includes its dealings with issues and events in Hong Kong, Taiwan and Tibet.
Any moves by a party like the EU or its member states to become involved, or to be perceived as becoming involved with these issues and events, is met with great resistance.
It is natural that those favouring a stronger, more resolute EU, are disappointed in its failure to come up with a coherent unified response to these issues in the face of the differing weights each member state places on Sino-EU relationship thus diluting any truly representative message the European Commission could devise.
Disappointing as that is for those seeking to create a United States of Europe, from a polyglot EU of nations with their own very different histories, it may well be wiser to retreat to its older, far more successful role as a trading bloc in which its members have always felt comfortable. |
