Decision Time or the Moment of Truth for China and the EU?

For the EU, and in particular the Eurozone, the last three months have been a never-ending trial by fire. Emergency summits have taken place almost weekly across the usual key parts of the EU power terrain—Brussels, Paris, Berlin and Rome. This turmoil managed to cause the postponement of the slated visit by European Council President Hermann Van Rompuy for the biannual high-level summit to China, originally planned for the October 25. For once, the postponement was not due to Chinese fury over a head of an EU member state meeting the Dalai Lama such as in 2007. Rather, Van Rompuy ”could not travel to China…because he was needed for a series of EU meetings.” When informed of the postponement in a phone conversation, Premier Wen Jiabao reportedly replied to Van Rompuy, ”the Eurozone crisis is not just closely related to the unstable recovery of the global economy against the backdrop of the international financial crisis but was also a result of the long term accumulation of internal problems” (Xinhua, October 21).

The Eurozone crisis brings into sharp relief the change in power dynamics between the EU and China. It also raises, for the Chinese and others, big questions about the unity of EU political decision making, even in a period of great need. The crisis has clarified China’s new expectations of Europe, and has made the Europeans think very hard about what they might want from the Chinese—and at what cost. Finally, the crisis reveals the immediate need for institutional reform in Europe, which has been concealed persistently under the EU’s highly aspirational language. Beijing now seems to feel it can comment openly on this issue because of the evident failure of many EU structures in coping with the burgeoning economic crisis.

In early November, the G20 met in France to have another go at solving the problems. The suffering however never seems to stop. The massive bailout— meant to deal with the instability of the Greek economy and its inability to service its massive debts—agreed to on October 27 provided only a few hours of calm. On November 1, the Greek Prime Minister George Papandreou’s declaration that he would be holding a referendum in order to let the public pass—or turn down—the terms of the bailout again threw the Eurozone, the markets and the political leadership of the EU and its member states into turmoil. On November 8, Papandreou had announced not only that the referendum would not be happening but that he was resigning.

There have been two levels in the Chinese response to the Eurozone crisis. The first has been a pragmatic acknowledgement that seeing one’s second largest trade partner—$49.4 billion in trade up to the end of July—come close to collapse is not desirable (Xinhua, October 16). On this level, Chinese officials have expressed great confidence that the EU leadership can deal with the current problems. China’s International Trade Representative Gao Hucheng stated “China is confident that Europe has what it takes to weather the current crisis” (Straits Times, October 7). Ministry of Foreign Affairs spokesperson Liu Weimin echoed this a few days later when he said China supported President of the European Commission José Manuel Barossa’s ”Road Map” for Euro stability issued a few days earlier (Xinhua, October 13). On another level, however, Beijing sensed a clear opportunity to place a few truths on the line to a partner who they had sometimes found morally hectoring, disunited and overly complicated. Premier Wen himself stated the Euro crisis showed up the ”long term accumulation of internal problems within the EU and the Eurozone,” which needed “fundamental financial reforms in addition to emergency bailout measures” (Xinhua, October 21).

Wen reinforced this point by declaring “China stands up ready to improve coordinating and cooperation with the EU and contribute to the global economic recovery” but “emerging economies should not be seen as the EU’s good Samaritan. In the end, the EU has to pull itself out the crisis.” The editorial in which Wen’s remarks appeared was issued on the day that European leaders had finally managed to hammer out their stability deal, and while Klaus Regler, Chief Executive of the European Financial Stability Fund (ESFS), was already on his way to China (Xinhua, October 27). The long term problems the Chinese have found of a disunited internal market in the EU, tariffs which the Chinese have long accused of being protectionist and unfair, issues of technology transfers, and a general slowness to be willing to change all came to the surface once more. China, however, focused in particular on the issue of market access, something 81 countries already grant China, but which the EU has so far refused (People’s Daily, September 27). During Crown Prince Philippe of Belgium’s visit to Beijing on October 21, Vice Premier Wang Qishan complained ”China hopes Belgium will exert its influence for an early recognition of China’s full market status”(Xinhua, October 21). This in particular was one of the great, perennial problems in EU-China relations, one which, at least in Chinese eyes, would serve as an appropriate ”friendly gesture,” and one worth resurrecting now that the EU was in a more vulnerable position.

Mr. Reglin’s visit to Beijing led to no immediate results. Rumors that China might put from 50 to 100 billion Euros ($68 to $136 billion) in the fund were scotched by Zhu Guangyao, Vice Minister of Finance, who bluntly stated that there would be “no immediate deal,” although “China will keep an open mind about the fund”(Dow Jones, October 28). This was despite reports that President Sarkozy of France had asked personally President Hu Jintao during a phone call on October 27 to contribute to the fund (Yonhap, October 28). China might have talked consistently about its faith in the EU being able to sort its problems out, but, when it came to putting cash on the table, fears of further collapse in Eurobonds proved too great. There was also plenty of unease on the European side about the image of a wealthy group of countries going to a relatively poor one, in per capita terms, and begging for money (Financial Times, November 2).

While the rhetoric of ”a historic opportunity” between the EU and China echoed around the corridors of power in both Europe and China, two other long-term issues also stick out from the whirlwind of the last few weeks. The first is the simple fact that, in the harsh light of day, while both sides talk of ”a comprehensive strategic partnership”—words most recently used by Politburo member Jia Qinglin while in Greece from October 24 to 27—there remained real questions about what lay at its heart. On October 24, EU High Representative for Foreign Affairs Catherine Ashton held meetings on October 24 in Beijing with Defense Minister Liang Guanglie and discussed plans of strengthen military ties. In terms of hard power cooperation, as the Ministry of National Defense spokesperson Yang Yujun had to admit a few days later, the actual joint work was almost laughably slight, boiling down to maritime escorting in the Gulf of Aden in waters near Somalia (Xinhua, October 26).

The main area of genuine Sino-EU interaction was economic, which is where the second issue lies. The uneven bilateral trade links between China and the EU member states that most raised eyebrows. While the EU was in ferment, Chinese ambassador to Germany Wu Hongbo admitted on October 22 that year on year trade between Germany and China had been a colossal 142 billion Euros ($193 billion) in 2010, and stood at 127 billion Euros ($172 billion) for the first nine months of 2011 (Xinhua, October 22). When Jia Qinglin went to Greece, the epicentre of the turmoil, the headline event there was the signing of a bilateral memorandum worth 537 million Euros ($730 million) (Xinhua, October 25). The bottom line was simply that China has been able to enjoy good bilateral trade relations with separate member states rather than with the EU collectively. The real problem however was how the EU as a whole could enjoy the benefits of these across all the 27 members when there was such an uneven spread of investment, trade and finance.

For this reason, it was easy to see why official commentary in China spoke of the full support for the EU integration process, having faith in the Euro and the EU member states’ ability to deal with the debt crisis, but also expressed it was now time to place pressure on the need for institutional and structural reform. After many years of hearing the EU lecture China on the need to implement deep changes; to reform its various political, economic and social systems; and to look at the EU as a successful model of governance and multilateralism; it must have been a sweet moment for Xinhua to state in a lead article that ”cooperation between China and Europe is facing an historic opportunity;” however, ”due to constraints from the structural contradictions of the integration as well as uneven growth of the various member states and the global economic slump, the EU will face challenges” (Xinhua, October 28). In other words, the somewhat brutal message to the EU was, in the future get your house in order before you lecture us.

In this new landscape, what do these two major partners expect from each other? For the Chinese, they want the simple, short-term deliverable of market economy status and commensurate access, and the slightly longer-term one of something that resembles a partnership of equals. They want, in fact, a highly pragmatic relationship where they can focus on deliverables—technology transfer in particular. For the Europeans, it is a more uneasy moment. As a leading newspaper characterized it, to many in Europe the price tag for taking Chinese funds was in some ways a fundamental affront to values and pride (Financial Times, October 28). Will this be an impetus that finally allows the political elite running the key EU states of Germany and France at least get their act together to provide an alternative? The EU wants Chinese investment to create jobs, open Chinese domestic markets for EU products, and a biddable Chinese partnership in security and climate change issues. For the moment, it looks like the Chinese aspiration is way more likely than the EU one. Once more, while the EU might win on bold vision and ideals, it is the Chinese that are more realistic and hardnosed. Some would say that that was always the case—it is just that now it is starkly obvious.