The EU-China Relationship: A Key to the 21st Century Order

The EU-China Relationship: A Key to the 21st Century Order

Theme: This article analyses the European perspective on the dynamics and effects of the relations between the EU and China.

Summary: For the EU, China’s opening up to the world is a test. Brussels is in the process of conceiving an ambitious and comprehensive foreign policy towards Beijing but, for both internal and external reasons (a lack of general European cohesiveness and the influence of the US), is finding it difficult to fully implement it. Even if there is no necessary contradiction between a strong Euro-Chinese link and the traditional –and vital– transatlantic relationship, a positive triangulation between the EU/US and China would require a politically united EU willing to act as a strategic player in world affairs. In that sense, for the world’s largest trading block, the integration of one-fifth of mankind into what we call the mainstream is not only a test but also an impulse for further political deepening. Europe is being asked to face its historical responsibility, and this task might help focus the Union’s energies and divert it from other issues, perhaps more urgent, but certainly less important.

Analysis: A 26-point statement was issued after the 8th EU-China summit in September 2005, reflecting the intensification of the cooperative links between Brussels and Beijing. The recent summit is in continuity with an extremely positive momentum. Following the handover of Hong Kong (1997) and Macao (1999) there are no more substantial disputes between China and Europe; for Beijing and Brussels it is an advantage to be free of any contentious inheritance. China’s 2003 EU policy paper insists: ‘There is no fundamental conflict of interest between China and the EU and neither side poses a threat to the other’. In the coming years, it will be interesting to observe Beijing’s reactions to Turkey as a possible new EU member since Xinjiang’s Uyghur issue could directly affect the relationship between the EU and China.

The dialogue between the EU and China took a more concrete turn on occasion of the first summit attended by heads of state and of government in 1998 in London. It was there that all the major themes concerning the bilateral relationship were discussed constructively.

As a result of globalisation, trade is booming between the EU and a China that is increasingly more open. Since Deng Xiaoping started opening up the country in 1978, EU-China trade has increased more than 40-fold, reaching around €170 billion in 2004. China is currently the EU’s second-largest trading partner after the US, and the EU became China’s largest trading partner in 2004. In recent years, EU companies have invested heavily in China (annual flows of utilised FDI have totalled around US$4.2 billion on average in the last five years), bringing stocks of EU FDI to over US$35 billion. There is reason to expect current trade friction to continue, as is normal in any integration process. So far, nothing has happened that cannot be managed inside the WTO framework; and, although the impact of trade is not uniformly distributed across Europe’s countries and regions, the overall impact is undoubtedly positive.

The main legal framework for relations with China is still the ‘1985 EC-China Trade and Cooperation Agreement’ which replaced an earlier version of 1978 and covers economic and trade relations, as well as the important EU-China co-operation programme. This agreement was complemented in 1994 and 2002 by exchanges of letters establishing an EU-China political dialogue. A major agreement granting Approved Destination Status (ADS) came into effect in 2004 and allows Chinese tourists to benefit from easier procedures to visit Europe. This will have a tremendous impact on the European tourism industry and should create the conditions for a better understanding between Europe and the ‘Middle Kingdom’. A Science and Technology Agreement came into force in 2000 and was renewed in 2004. A new agreement on cooperation in the EU’s central Galileo satellite navigation programme was signed in 2003. An agreement covering joint research on the peaceful use of nuclear energy was signed at the 7th EU-China Summit.

EU leaders refer to the EU-China link as a ‘strategic partnership’. The matters discussed by Brussels and Beijing and on which they seek to progress are global strategic issues, such as the proliferation of weapons of mass destruction, international terrorism, global security of energy supply, regional crises and the environment. Moreover, China and the EU are partners with significant global strengths, capabilities and responsibilities. Aware of their respective weights, the two edges of the Eurasian continent place their interaction in a global perspective.

Both Brussels and Beijing have clarified their intentions in official documents and are now attempting to manage –in Romano Prodi’s words– ‘a very serious engagement’. Current EU policy towards China is based on the policy paper of the Commission adopted in 2001 and titled ‘EU Strategy towards China: Implementation of the 1998 Communication and Future Steps for a more Effective EU Policy’. A new policy paper of the Commission titled ‘A Maturing Partnership: Shared Interests and Challenges in EU-China Relations’ was endorsed by the EU on 13 October 2003. This paper indicates ways of further developing EU-China relations by defining action points for EU policy on China for the coming years. The EU will enhance political dialogue, make sure that cooperation on illegal immigration becomes more results-oriented and improve the efficiency of the human rights dialogue. In the economic and trade field, priority is given to cooperation on the Doha Development agenda and to monitoring China’s compliance with its WTO commitments. In an effort to better structure the trans-Eurasian relationship Beijing made a highly meaningful move: mirroring European practices, in October 2003 China released its first-ever policy paper on the EU.

To sum up, the EU is seriously engaging with China’s gradual opening and China is making efforts to move closer to the EU. Beijing is now focusing on the EU in order to better understand a new political entity, is increasingly active within the ASEM framework and is showing some willingness to improve in issues important to Brussels: environment, the rule of law and compliance with international norms. Moreover, when facing difficulties (such as in the recent talks on the textile industry) both sides are actively seeking through negotiation to achieve solutions satisfactory to all; the negotiation process at the very heart of the EU system plays a key role in the EU-China relationship.

But is the EU-China relationship already the best possible?
It has been difficult for the EU to reach a single common policy towards China. Each member state has its own history –from extremely rich to almost inexistent– with Asia and especially China, and some have competing economic interests. Values and their understanding and interpretation can be a factor of divergence; on human rights there are different sensitivities amongst European countries. Ireland, Sweden, Finland, Denmark and the Netherlands put the issue at the top of the agenda since their public opinions and parliaments pay great attention to the problem. At the other end of the spectrum, the Latin countries seem relatively less concerned. Germany, the UK and France fall in the middle. However, the human rights issue can potentially harm the overall EU-China relationship. The EU’s 2004 Annual Report on Human Rights is clear on this point: ‘Although China amended its constitution in March 2004 to include a reference to human rights and although there have been positive developments on social questions including migrant workers and HIV/AIDS and on the ongoing reform of the judicial and legal system, the EU remains concerned about continuing violations of human rights in China’.

Varying European economic interests are also a source of divergence within the EU over China. The highly visible textile issue falls into this category. In June 2005 the negotiations of EU Trade Commissioner Peter Mandelson mainly had in mind Europe’s textile producers, while three months later he was under pressure from retailers. At the Council held on 3 October 2005, a regulation imposing a definitive anti-dumping duty on imports of trichloroisocynanuric acid originating from China was adopted against the opinion of Denmark, the Netherlands, Estonia, Finland and Sweden. Although much less visible than the Bo-Mandelson negotiations and renegotiations on textiles, the disagreements over the acid question show that the 25 member states have different interests. Hitherto, their expressions have been managed within the EU’s mechanism without serious damage. However, should nationalism grow in Europe and China continue to prosper there is a risk of certain European states jettisoning European solidarity and thereby damaging the EU’s credibility.

The boom in trade itself –and its nature– can be a point of friction between the EU and China. Even if in a globalised economy bilateral deficits do not mean much per se, Europeans complain and will continue to complain about their fast growing trade deficit with China. Whereas Europe enjoyed a trade surplus with China at the beginning of the 1980s, EU-China trade relations are now marked by a sizeable and widening EU deficit of around €55 billion in 2003 –this is the EU’s biggest bilateral trade deficit–. The Chinese for their part complain about EU trade barriers. Even if China’s WTO accession stimulates commercial exchanges with Europe, some trade friction remains inevitable –for instance on food products–).

Neither do member states agree on the interpretation and consequences of China’s strategic rise. China’s 2003 paper on the EU stated: ‘The EU should lift its ban on arms sales to China at an early date so as to remove barriers to greater bilateral cooperation on defence industry and technologies’. Under Jacques Chirac’s leadership, Paris is convinced that the EU arms embargo on China must be lifted. Paris and Berlin believe that today’s China is not a threat to East Asia. This is not UK’s opinion, which is in tune with Washington’s worries about the rise of an aggressive China, a 21st century version of Japan’s colonial adventures in Asia after WWI. There is a serious risk of seeing a transatlantic divergence and subsequent divisions within the EU over China’s strategic rise. This is why Brussels, Washington and Beijing must establish mechanisms to create the conditions for positive triangulation.

The development of European sinology studies is essential to manage China’s gradual opening up. As noted by David Shambaugh in the Washington Quarterly (Summer 2005), Chinese studies are relatively weak in Europe compared with the US. The EU cannot establish an appropriate agenda or implement an ambitious series of policies without a better knowledge of the Chinese world.

It is necessary to have a long-term vision on China and therefore avoid a one-off approach, which is generally fruitless and could even be harmful. Both the construction of a united Europe and the growth and opening up of China are processes of a considerable magnitude. Constructive interaction between such phenomena requires time. European policy on China should not be the result of a juxtaposition of projects, however well managed, but of the lucid and informed management of a process.

China should be a place, if not the place, for Europe to act cohesively rather than as the sum of individual nation states. The European nation-states’ historic relations with China –when they have existed– have left a somewhat less bitter taste than they have in other parts of the world. It is easier to create a more cohesive European presence in China than in the Middle East or in North Africa, for example. Europeans could learn from the reasons why the China Europe International Business School (CEIBS) is a widely recognised success in Shanghai: it would have been impossible for a single EU member state, whatever its relative weight within Europe, to achieve what the CEIBS has in only ten years largely due to the strong European awareness in the Pudong business school campus. It is interesting to note that in its October 2003 historical paper on the EU, China explicitly mentions the CEIBS as a project of the greatest importance (‘Work should be done to make a success of the China Europe International Business School’).

In the post-Cold War world, the relationship between Europe and China has gained momentum. However, as the world dramatically changed for a second time in a decade in the fall of 2001, both Beijing –a model for developing countries (moving towards the reduction of poverty)– and Brussels –a model for cooperation between countries (moving towards the articulation of sovereignty and globalisation)– must take on greater responsibilities to work together as the principal architects of a cooperative Eurasia. In the post-September 11 world disorder, the EU and China must develop a genuine strategy to become the pillars, along with the US, of a stable world order. To face the challenges of the ‘Grand Chessboard’ (Brzezinski, 1997) Brussels and Beijing have to agree on a grand strategy for Eurasia. They have both the material and cultural resources to become the sources of stability for our dangerous and volatile ‘global village’. Fundamentally, on the European side this would require a Common Foreign and Security Policy reflecting a united and independent Europe.

On 22 September 2005 José Manuel Durão Barroso gave a speech in Lisbon in which he referred to a recent visit –in fact two visits in three months– to China: ‘In order to be able to move on and put Europe back to work, we must build a new consensus around renewed policies for a new period in European integration. My Commission is set and ready to take the initiative. (…) The area in most urgent need of action is the renewal of Europe’s different economic and social structures while respecting the principles and values that shape our European way of pursuing competitiveness ad social justice (…) Why this urgency? I’ve just come back from China and India and what I saw was a vivid demonstration of the sheer speed and scale of the changes going on in the world’.

The object of the quotation is to indicate that European policymakers are directly reacting to the challenge posed by China: when they use the world ‘globalisation’ they are often thinking mainly about China. But the magnitude of China’s process of opening up to the world requires not only the Commission to make some adjustments or even to push for economic and social reforms; it also calls for member states to take the necessary initiatives to deepen Europe’s political integration. After all, the post WWII European integration encouraged by Washington was also externally stimulated –if negatively– by the USSR. Following the collapse of the Soviet Union the Maastricht Treaty established the EU and the European family started to extend eastwards. The opening up of China could also push Europe towards a new level of integration.

In a global perspective, the EU –a model of cooperation between nations–, the US –a reference point for technological and economic vitality– and China –an example for developing countries– all complement each other. Potentially these three matrices can help mankind overcome war, poverty and obscurantism. A positive EU-US-China triangulation –a renewed West, a cooperative Eurasia under Sino-European leadership and a China-centred US policy towards Asia– would definitely close the 20th century and give way to a 21st century world order. Brussels, Washington and Beijing (both governments and think tanks) should establish the mechanisms necessary to make the best of a positive triangulation.

Conclusion: If properly understood, the opening up of China could serve as a catalyst for the deepening of the European integration process. The European Union, which is now at a highly critical moment in its history, must articulate more options with respect to China than seeing it simply as a threat or an economic opportunity. By interacting, the two edges of the Eurasian continent can have an extremely positive influence on each other.

Alfredo Pastor
Professor of Economics, IESE, Barcelona, CEIBS, Shanghai

David Gosset
Director of Academia Sinica Europæa, CEIBS, Shanghai

Alfredo Pastor

Written by Alfredo Pastor

David Gosset

Written by David Gosset