Saturday

22nd Jul 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 and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  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).

Winter is here for Spitzenkandidat, but he'll survive

Candidates from all political families should be presenting their vision on where the Union should be headed. European socialists want to keep the Spitzenkandidat procedure for future elections.

Greece needs a new plan

Two years into its third bailout, Greece needs to combine the necessary fiscal targets with a new vision. This can be done in the context of the ongoing industrial revolution.

Ceta and pesticides: A citizens' rights issue

The trade agreement with Canada will begin to apply on 21 September. But there is still a potential conflict on the right to data protection vs. the right to access information.

Greece needs a new plan

Two years into its third bailout, Greece needs to combine the necessary fiscal targets with a new vision. This can be done in the context of the ongoing industrial revolution.

News in Brief

  1. Polish parliament adopts controversial justice reform
  2. GMO opt-out plan unlikely to go anywhere in 2017
  3. Slovak PM threatens to boycott inferior food
  4. France takes Google's 'right to be forgotten' to EU court
  5. Turkey accuses German companies of supporting terror
  6. Israel's Netanyahu caught calling EU 'crazy'
  7. UK does not collect enough data to expel EU nationals
  8. Polish president threatens to veto justice reform

Stakeholders' Highlights

  1. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  2. ACCAAnnounces Belt & Road Research at Shanghai Conference
  3. ECPAFood waste in the field can double without crop protection. #WithOrWithout #pesticides
  4. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  5. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey
  6. Martens CentreWeeding out Fake News: An Approach to Social Media Regulation
  7. European Jewish CongressEJC Concerned by Normalisation of Antisemitic Tropes in Hungary
  8. Counter BalanceOut for Summer Episode 1: How the EIB Sweeps a Development Fiasco Under the Rug
  9. CESICESI to Participate in Sectoral Social Dialogue Committee on Postal Services
  10. ILGA-EuropeMalta Keeps on Rocking: Marriage Equality on Its Way
  11. European Friends of ArmeniaEuFoA Director and MEPs Comment on the Recent Conflict Escalation in Nagorno-Karabakh
  12. EU2017EEEstonian Presidency Kicks off Youth Programme With Coding Summer School

Latest News

  1. Dutch coalition talks lengthiest in 40 years
  2. Polish parliament steps up showdown with EU
  3. EU urges UK to clarify its Brexit positions
  4. Law expert: direct EU powers have become too complicated
  5. Winter is here for Spitzenkandidat, but he'll survive
  6. Mafia money pollutes the EU economy
  7. Central Europe should be wary of Brexit stopping
  8. Poland's 'July coup' and what it means for the judiciary

Stakeholders' Highlights

  1. EPSUEP Support for Corporate Tax Transparency Principle Unlikely to Pass Reality Check
  2. Counter BalanceEuropean Parliament Improves the External Investment Plan but Significant Challenges Ahead
  3. EU2017EEPM Ratas: EU Is Not Only an Idea for the 500mn People in the Bloc, It Is Their Daily Reality
  4. Nordic Council of MinistersCloser Energy Co-Operation Keeps Nordic Region on Top in Green Energy
  5. ILGA-EuropeGermany Finally Says Ja - Bundestag Votes for Marriage Equality!
  6. EPSUJapanese and European Public Sector Unions Slam JEFTA
  7. World VisionEU, Young Leaders and Civil Society Join Forces to End Violence Against Girls
  8. UNICEFNarrowing the Gaps: The Power of Investing in the Health of the Poorest Children
  9. EU2017EEEstonia to Surprise Europe With Unique Cultural Programme
  10. International Partnership for Human RightsEU-Kyrgyzstan Human Rights Talks Should Insist on Ending Reprisals Vs. Critical Voices
  11. European Free AllianceEFA Is Looking for a New Intern
  12. Malta EU 2017Conservation of Atlantic Tunas: International Measures Become EU Law