Hu in Europe: Active Diplomacy Amid Trade Friction

President Hu Jintao’s state visits to the UK, Germany and Spain this month demonstrate the continuing importance attached by China to its relations with Europe. This year marks the 30th anniversary of the establishment of official relations between the EU and China—a reason for some celebration—but it is also a year that has seen some difficulties in the relationship. Despite the increasing depth of ties with the EU and its member states, there are several areas in the past year where Beijing has suffered disappointments, most notably on the EU embargo on arms sales to China and textile trade. Other issues such as the refusal of the EU to grant China Market Economy Status and the use of anti-dumping actions against Chinese exports are frequently cited by Chinese officials as problem areas.

The difficulties do not appear to have diminished the desire of China to cultivate its ties with Europe. Following the visit of Hu, Premier Wen Jiabao will be making a similar tour to France, Portugal, the Czech Republic and Slovakia in December. The visits demonstrate China’s willingness not only to cultivate the key players in Europe, but also the lesser nations.

The UK and Germany are two of China’s most important economic partners in Europe. Germany is the largest European trade partner of China, and the UK is the largest European investor in China. From the perspective of relations with Europe, China attaches importance to Germany, traditionally regarded as being with France the engine of the project to advance European integration. The UK, despite its often skeptical attitude to Europe, is today seen as having increasing influence as the Franco-German motor increasingly fails to drive either the European economy or the project of integration. The upcoming Wen Jiabao visit will cover another key EU state, France, two new members, and also complete coverage of the Iberian peninsula.

The Chinese government’s belief that international relations should be multipolar is frequently stated, and the EU is an important element in that view since it is at least potentially one of the few entities that can play a role on the world stage with the same weight as the US. To that end, even if it has no influence over the outcome, as Hu himself said in a speech in London during his visit, China supports the goal of European integration [1].

While China attaches importance to the EU, it cannot afford to neglect the individual member states. If Brussels is the main interlocutor on important areas, especially trade, what happens in the national capitals cannot be ignored, since it is often there that important decisions on EU policy are ultimately made. At the same time, relations with the member states are important in their own right.

The potential complexities were brought to the fore just prior to the departure of Hu Jintao for London, when Foreign Minister Li Zhaoxing forcefully put the position of China on lifting of the arms embargo in an interview with journalists in Beijing (China Daily, November 5). The remarks, widely reported in Western media, appeared to set the scene for difficult exchanges during Hu’s travels in Europe.

In reality, contentious EU-China issues were largely sidelined. Since Hu was on bilateral visits to the individual countries, it was possible for his hosts to insist that they were not the appropriate forum for discussion of EU matters. Subjects discussed with Prime Minister Tony Blair in London signaled a broad set of concerns for the UK, including global security, the environment and climate change, and the meeting between Merkel and Hu reportedly focused on energy and the environment. The visit to Spain resulted in an agreement to establish a ‘strategic partnership’ between the two countries similar to that which was agreed between the UK and China in 2004, and which involves a commitment to increase dialogue on issues such a terrorism, non-proliferation and UN reform and to expand economic ties and exchanges in culture, tourism and education.

Although the visits may have been bilateral, the larger context could not be completely ignored, and in speeches during his tour, Hu avoided confrontational demands. In London and Berlin he preferred to focus on the theme of China’s peaceful development and the need for international cooperation across a broad range of issues. Hu’s keynote speech in London offered a benign vision of China’s role in the world, emphasized the need to increase mutual understanding and trust, and that China had chosen the path of peaceful development [2].

The response from his hosts was mixed. Although certainly willing to embrace the idea of closer cooperation with China across a broad range of fields, the degree of willingness to commit to resolving EU-China differences to the liking of Beijing was less clear. Xinhua (November 10) quoted Tony Blair somewhat diplomatically saying that the EU attaches importance to its relations with China, and will make further efforts to address issues of concern to China.

The arms embargo proved more controversial in Germany, although not necessarily because Hu was more pressing in his demands there, but rather as a result of differences between the incoming chancellor Angela Merkel and the departing Gerhard Schroeder over China policy and relations with the U.S. Schroeder insisted publicly during Hu’s visit that Europe should end the embargo, and that France and Germany together should work toward a “sensible solution.” In almost complete contradiction to this position, the foreign affairs spokesman of the Christian Democratic Union (CDU), Merkel’s party, stated that lifting the embargo was not on the agenda of the new government, and that an improvement in the human rights situation and a relaxation of the Taiwan issue were preconditions for its removal (Deutsche Welle, November 11).

In a statement that might provide greater comfort to China than the negative stance on the arms embargo announced by the CDU in Berlin, the Spanish Prime Minister Jose Luis Rodriguez Zapatero said broadly that Spain would continue to actively press the EU to solve issues of concern to China at an early date.

Trade is the area that currently causes most day-to-day friction with China. The textile dispute was an extreme case, but trade is often contentious. On the Chinese side, the frequent use of anti-dumping actions by the EU and Market Economy Status for China are often cited as problems; Europeans are concerned with market access and intellectual property protection.

Although the EU runs a substantial trade deficit with China, unlike in the U.S., this in itself is rarely a contentious issue. The surge of textile imports this year as a result of the ending of the Multi Fibre Arrangement (MFA) may have put trade with China on the political agenda in a way that had not happened before in some countries, but that does not necessarily translate directly into the deficit becoming a matter of contention.

While the EU may have a trade deficit with China, the political reaction to this deficit varies enormously across Europe. On this trip, Hu was visiting countries where trade with China is less contentious than in some others, most notably France. According to EU figures, the UK trade deficit with China was €17 billion on total bilateral trade of €24 billion in 2004 (Eurostat). In fact, the UK consistently runs one of the largest trade deficits in the EU with China. Although the UK government and business community would certainly like to a correction, this has never acquired a political dimension. The stance of the UK government is generally anti-protectionist, and the strategy of the British government in correcting the imbalance was indicated by the contracts signed during Hu’s visit. Perhaps most significantly in view of the strength of the UK in financial services, was an agreement to allow Lloyd’s of London access to the Chinese insurance market.

Germany also consistently runs a trade deficit with China, but in proportion to the total of bilateral trade, it is relatively small: in 2004 the deficit was €7.5 billion on total trade volume of €49.5 billion. Germany is a successful trading nation for whom China is a major market, so a small deficit is unlikely to become a matter of political significance. Spain also runs a deficit with China, but its total bilateral trade was a mere €8.5 billion in 2004. (Figures from Eurostat).

Thus, Hu Jintao’s hosts were unlikely to be those most eager in Europe to make trade problems into a major issue. Even in Brussels, trade relations, while certainly full of irritants, are regarded positively. Just prior to Hu’s arrival in Europe, Minister of Commerce Bo Xilai was visiting Brussels, where both he and EU Trade Commissioner Peter Mandelson were insisting the EU-China trade relations were on a positive trend, despite the recent difficulties over textiles. Wen Jiabao’s visit to France in December may a more sensitive one, given the openly protectionist views across the political spectrum in that country and vocal French concerns about Chinese textile imports.

For political and economic reasons, Europe will continue to be a key target for China’s active diplomacy, but the visits of Hu and Wen indicate that China is working to deepen ties without necessarily pushing for quick resolution of some of the issues it claims are important. By focusing on ties with individual member states, China may serve itself well in the future, but the frequent contradictions in European policy and national interests of member states mean that it unlikely Beijing will achieve all its aims in the near term.

Notes

1. Hu Jintao, Guildhall speech, November 9, 2005.

2. Ibid.