The EU and China: Talking past each other

Did anybody notice the recent EU-China summit that took place at the end of November in Nanjing? No? The summit only lasted an hour and forty-five minutes

ECFR Alumni · Director, Asia and China Programme
Senior Policy Fellow








Did
anybody notice the recent EU-China summit that took place at the end of
November in Nanjing?
No? The media seemed more concerned with the nominations at the Commission and
EU Council. Yet the summit was seen as important enough to warrant Jose Manuel
Barroso, along with Sweden’s
prime minister Fredrik Reinfeldt and foreign minister Carl Bildt, making the
trip to see Premier Wen Jiabao.

The
three certainly made impressive use of their time, bringing out a joint
statement of 2782 words despite the summit lasting only an hour and forty-five
minutes. What followed was less satisfying, however. While Mr Barroso cancelled
a press conference, Premier Wen held forth publicly about how China
refused to talk about currency issues, particularly with countries that
contemplated protectionist measures. Any positive results that might have been
buried in the joint statement (and there were some: talk about more political
dialogue; joint efforts on proliferation; a commitment by China to ratify the
ICCPR (the UN covenant on civil and political rights) “as soon as possible”)
paled in front of this visible disagreement, on the issue at the heart of
EU-China relations: economic interests.

So
was this another sign of European weakness, or are we seeing a pattern, with China
toughing it out and hammering its way through international dialogues? The
answer lies perhaps more with the latter explanation than with the former.

True,
this EU-China summit happened at an inauspicious juncture. We have barely
digested the ratification, at last, of the Lisbon Treaty. The new Commission is
hardly in place, the new EU president and High Representative are not yet in
place, while the previous is departing – in general, China prefers to make
gifts to partners with which it is going to have a long relationship.
Evidently, China
will require proof that the new institutional set-up is resilient and somewhat
dynamic before it grants full attention to Team Europe.

But
the situation is perhaps the sign of a larger malaise.  Chinese leaders
say they pay a lot of attention to Europe.
And indeed they should, since in recent years the EU has become as important as
the US
as an export market. The EU provides development aid, funds training and
studies about Europe,
and is a key supplier of science and technology. Much of this also comes
without the strategic implications that come with Sino-American relations.

But
as successful as China
seems to be in pushing through the global economic downturn, it is defensive
and even apprehensive about two issues: monetary re-evaluation and any measure
that would result in limits to China’s
exports.

As
much as they worry about the safety of their immense dollar holdings, China’s
leaders feel they have a handle on the situation with the United
States.
Interdependence, and what some call the spectre of mutually assured destruction
in case of a strong monetary and trade rift between the two countries, have led
to a quiet understanding – often at the expense of third countries.

China’s stand on monetary
and trade issues is to do as little as possible, and to move as late as
possible, in order to preserve China’s
very competitive position. Even the talk about shared monetary responsibilities
through the internationalisation of the renminbi rests on a misunderstanding. China
is currently raising the role of its currency in trade linked transactions, and
getting close neighbours and partners to use it more often. That’s a self-centred
move, which does not imply any decisive role as a reserve currency in the
prevailing international system.  

Unavoidably,
a serious debate and search for convergence with the European Union would wreck
this delicate balance, where China
feeds the Fed (in itself a useful role) but gets back benefits in terms of
trade advantages. Just as unavoidably, China’s
focus on short term interests will create an impossible situation, where its
partners have a choice between protectionism and bankruptcy. The argument does
not apply to the US,
whose insolvency is prevented by Chinese surpluses, but it does apply to Europe, which uses up
domestic savings and central bank borrowing to pay for the consequences of an
absurdly high currency. 

Foreign
policy and economic choices are inextricably linked together where China
is concerned. The European Union will need to work collectively to demonstrate
its capacity in  both areas. While China
cries wolf over insignificant anti-dumping decisions, the EU is behaving as a
rational, moderate but unimaginative actor. It could put much more pressure on China
if it became serious about a carbon border tax. And it could bring some
positive enticement into the bargain if it chose to open a new round of mutual
investment talks – one where welcoming Chinese investment in some sectors of
the European economy was balanced with major changes on China’s
domestic front: finance, services, public procurement, IPR protection all
beckon.

The
alternative is very high risk:  a shouting match about market access
restrictions in China
and anti-dumping by Europe, a Chinese trade policy based on currency
manipulation until China’s
partners – other than the U.S.,
silenced by the enormity of its China-held debt – rebel. That would not be a
pretty sight, and Messrs. Barroso and Reinfeldt were probably right to tread
softly, and not use a public boom box.  Nonetheless, the EU will need to
demonstrate that it means business, and that it has a pretty open choice of
policies at its disposal in the near future.

François
Godement,
ECFR and Asia Centre at Sciences Po

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.

Author

ECFR Alumni · Director, Asia and China Programme
Senior Policy Fellow