Thursday

23rd Nov 2017

Opinion

Old Europe, New China

  • The primary Chinese interest in Europe is hard assets rather than financial paper (Photo: dolmansaxlil)

After leadership transition, China will move toward liberal reforms, but in the uncertain world such changes require tough hands. How will the new Beijing approach Europe?

As the Eurozone slipped into its second recession since 2009, Beijing’s new leaders will seek to protect the mainland from the global crisis, while supporting China’s deeper integration into the world economy.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

In the case of Europe, the Xi Jinping and Li Keqiang era shall mean more extensive ties – if the new opportunities are seized in an appropriate way.

Conservative leaders, liberal reforms

In the next few months, Xi and Li will seek to sustain China’s legacy of growth and quest for equity, to emphasise continuity amidst change.

In March, Li will have his mandate. And by mid-2013, Xi is likely to develop his signature policy platform. At the broadest level, the Xi-Li policies are likely to focus on structural reforms economically, inner-party democratisation politically, an intensified struggle against corruption internally, and China's rising global clout internationally.

The times favor tough leaders who can execute in adverse circumstances.

After the insulation of Bo Xilai in Chongqing, Zhang Dejiang took over his position in the megacity. The new lineup also favored Liu Yunshan the director of the Party’s propaganda since 2002. With his political savvy, Yu Zhengsheng, the party leader of Shanghai, is among those who welcome greater scrutiny of public officials. Until recently, Vice-Premier Wang Qishan, the former mayor of Beijing was in charge of the economic track of the US-China Strategic and Economic Dialogue (S&ED). As the disciplinary chief, he will take the struggle against corruption to a new level. The new lineup also includes Tianjin’s “talk less, do more” party chief Zhang Gaoli.

Nearly half of the new Central Committee are newcomers. As big boomers march into the leadership hierarchies, Chinese governance will grow more professional, more diversified and more international. But what does this all mean from the European perspective?

Rise of two-way direct investment flows

For a year now, Brussels and euro economies have been gazing toward Beijing, hoping for a new savior. In the past, foreign direct investment (FDI) went primarily into China. Now Chinese outward FDI has taken off, first in Asia and now worldwide.

In principle, the Eurozone can provide China advanced knowledge, high-tech and innovation capabilities, and strategic assets, while China can provide the Eurozone what it needs the most: jobs, tax revenues and investment.

In fall 2011, Eurozone economies were still dreaming of China’s massive purchases in the bond market. Sure, China is gradually diversifying its dollar-denominated assets, but less than a fourth of China’s forex reserves (an estimated €480-600 bn) were held in euro assets, presumably in highly rated sovereign instruments like German Bunds. Only a fraction was liquid.

Another obstacle was that 50% of the €6.5 trillion stock of the Eurozone government debt issued was showing signs of heightened credit risk.

In Beijing, the Eurozone is seen as China’s most important trading partner, which takes up 20% of China’s total exports, and China’s most vital technology partner. The primary Chinese interest is in FDI in Europe; hard assets rather than financial paper.

As the Eurozone’s economic condition has deteriorated, Chinese FDI in the region has climbed rapidly. Annual FDI flows to Europe tripled from €2.3 billion in 2009 and 2010 to almost €7.4 billion in 2011. Geographically, Chinese FDI is focused primarily on Germany, the UK, and France. Sectorally, there is breadth and momentum across industries.

However, the absolute FDI values remain very small compared to Europe’s total inward FDI and to China’s total outward FDI stock.

European-Chinese relations in multipolar world

As China’s economic integration into the world economy will intensify, its role in the European economy should deepen as well, as reflected by rising FDI flows, and the rapidly-expanding role of the renminbi with London as a major offshore center.

While Chinese-European cooperation has intensified in the past year or two, even more could have happened.

From the perspective of Beijing and other large emerging economies, the European economies remain over-represented in the international multilateral organisations, such as the World Bank, the International Monetary Fund, and the World Trade Organisation.

A genuine support for institutional reforms in these organisations would make Europe’s democracy quest more credible in Beijing – as it would in India, Brazil, and other large emerging economies.

Moreover, a decision to recognise China as a market-oriented economy ahead of the WTO’s schedule of 2016 would provide another push for bilateral trade and investment flows.

The Xi-Li goals support deeper EU cooperation

In the coming decade, China shall seek to double its 2010 GDP and per capita income for both urban and rural residents.

The medium-term objective can be accomplished only through structural reforms and a shift from investment-driven growth to consumption. That, in turn, is predicated on expanding social security and health services, a shift from cost efficiencies toward innovation-driven competitiveness, as well as sustainable development. It will also require increasing local governance and integration of China into the world economy.

All of these shifts provide extraordinary opportunities for European-Chinese trade and investment, social exchange, joint ventures and strategic partnerships, cleantech collaboration, not to speak of cooperation in global governance.

In the Xi-Li era, these opportunities will be increasingly partnerships between two equals. And that requires reforms on both sides.

The writer is Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).

Eastern partners, eastern problems

The EU must hold out the olive branch of possible membership in the distant future - but the current domestic problems in the ex-Soviet states, let alone their links to Russia make more than that difficult.

EU must put Sudan under microscope at Africa summit

The EU is throwing a lot of money at Sudan to manage migration from the Horn of Africa to Europe - but the upcoming Africa Union-EU summit is a chance to probe Sudan about its own human rights record.

The EU's half-hearted Ostpolitik

If, as the EU claims, the Eastern Partnership summit is not a format for conflict resolution, where else will the security issues that hold the region back be resolved?

EU must confront Poland and Hungary

Curtailing NGOs and threatening judicial independence are the hallmarks of developing-world dictators and authoritarian strongmen, not a free and pluralistic European Union.

Mind the gap: inequality in our cities

Minimum wages, 'living' wages and a universal basic income are all part of the ongoing mix to find ways to reduce social inequality across the EU.

EU must confront Poland and Hungary

Curtailing NGOs and threatening judicial independence are the hallmarks of developing-world dictators and authoritarian strongmen, not a free and pluralistic European Union.

Mind the gap: inequality in our cities

Minimum wages, 'living' wages and a universal basic income are all part of the ongoing mix to find ways to reduce social inequality across the EU.

News in Brief

  1. Spain sends migrant arrivals to unfinished prison
  2. Iceland prepares for biggest volcano to blow
  3. Greek parliament postpones debate on Saudi arms deal
  4. Family of murdered Malta journalist to sue police
  5. UK to sell RBS bank stake, boosting government coffers
  6. December euro summit still on, Tusk confirms
  7. EU calls for end to Kenya election crisis
  8. Report: Israeli PM invited to meet EU ministers

Stakeholders' Highlights

  1. International Partnership for Human RightsEU Leaders Should Press Azerbaijan President to End the Detention of Critics
  2. CECEKey Stakeholders to Jointly Tackle the Skills Issue in the Construction Sector
  3. Idealist Quarterly"Dear Politics, Time to Meet Creativity!" Afterwork Discussion & Networking
  4. Mission of China to the EUAmbassador Zhang Ming Received by Tusk; Bright Future for EU-China Relations
  5. EU2017EEEstonia, With the ECHAlliance, Introduces the Digital Health Society Declaration
  6. ILGA EuropeFreedom of Movement For All Families? Same Sex Couple Ask EU Court for Recognition
  7. European Jewish CongressEJC to French President Macron: We Oppose All Contact With Far-Right & Far-Left
  8. EPSUWith EU Pillar of Social Rights in Place, Time Is Ticking for Commission to Deliver
  9. ILGA EuropeBan on LGBTI Events in Ankara Must Be Overturned
  10. Bio-Based IndustriesBio-Based Industries: European Growth is in Our Nature!
  11. Dialogue PlatformErdogan's Most Vulnerable Victims: Women and Children
  12. UNICEFEuropean Parliament Marks World Children's Day by Launching Dialogue With Children

Latest News

  1. Eastern partners, eastern problems
  2. Germany's Schulz under pressure to enter coalition talks
  3. LuxLeaks trial re-opens debate on whistleblowers' protection
  4. Wilders says Russia is 'no enemy' ahead of Moscow visit
  5. EU must put Sudan under microscope at Africa summit
  6. Mali blames West for chaos in Libya
  7. Orban stokes up his voters with anti-Soros 'consultation'
  8. Commission warns Italy over high debt level

Stakeholders' Highlights

  1. European Jewish CongressAntisemitism in Europe Today: Is It Still a Threat to Free and Open Society?
  2. Counter BalanceNew Report: Juncker Plan Backs Billions in Fossil Fuels and Carbon-Heavy Infrastructure
  3. Nordic Council of MinistersNordic countries prioritise fossil fuel subsidy reform
  4. Mission of China to the EUNew era for China brings new opportunities to all
  5. ACCASmall and Medium Sized Practices Must 'Offer the Whole Package'
  6. UNICEFAhead of the African Union - EU Summit, Survey Highlights Impact of Conflict on Education
  7. Nordic Council of MinistersNordic Council Calls for Closer Co-Operation on Foreign Policy
  8. Swedish EnterprisesTrilogue Negotiations - Striking the Balance Between Transparency and Efficiency
  9. Access EuropeProspects for US-EU Relations Under the Trump Administration - 28 November 2017
  10. Nordic Council of MinistersSustainable Growth the Nordic Way: Climate Solutions for a Sustainable Future
  11. EU2017EEHow Data Fuels Estonia's Economy
  12. Mission of China to the EUChina and EU Step Up Water Management Cooperation