Predicting the Future of China-EU Relations The Institute of European Studies Faculty of Law and Criminology Brussels Institute of Contemporary China Studies Vrije Universiteit Brussel March 19, 2013 Jiang Shixue
[email protected] Chinese Academy of Social Sciences
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No changes • The objective to deepen reform and opening will not be changed. • Determination to improve the socialist market system with Chinese characteristics will not be changed. • Public ownership dominance will not be changed. 2
No changes • The fundamental principle of China’s foreign policy, i.e., big countries are the key; the neighboring countries are the priority; the developing countries are the foundation; and multilateral diplomacy is the stage, will not be changed, although minor adjustment might take place. • So China’s policy towards the EU will not be changed. 3
Possible change • Deng Xiaoping’s strategy: Keep a low profile and do something. • Given the fact that China’s territorial integrity is under threat, many Chinese netizens suggest that China needs to be more assertive. • Many netizens also say that China’s wish to maintain regional peace and good relations with its neighbors should not be seen as a kind of weakness, and they ask the foreign minister to take more calcium. 4
The new Chinese leaders are by no means strangers to Europeans, and they also know Europe quite well. This is very positive to the development of future’s China-Europe relations.
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Implication for the EU • As China’s economy is increasingly integrated with the world, any changes and movement will exert some kind of impact upon Europe.
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1. Socialist market system matures • As China’s socialist market system matures, competition 1) among the Chinese enterprises, 2) among the foreign enterprises, and 3) between the Chinese and foreign enterprises will become fierce. • European enterprises might feel “the good old days” are gone, and will complain that the Chinese market conditions get worse.
• Effective from December 17, 2012, as many as 49 procedures in the field of foreign exchange regulation will be either canceled or simplified for FDI inflow. • Canceled procedures include approvals for account opening, booking, foreign exchange payment and settlement, and those for cross-border transfers under conventional business. Also, approvals for re-investment of legally acquired funds by foreign investors in China will be canceled.
2. Bigger size of the Chinese economy • Higher position on the world economic stage; • More vocal on reforming the international financial/ monetary systems, etc.; • More opportunities to cooperate with the EU on some issues, but not on every issue. 9
3.Urgency to adjust the growth model • China’s current growth model is not sustainable. • More technology from the EU. • What will happen when “Made in China” meets with “Designed in Europe” and when European technology meets with Chinese market? • Better for trade balance. 10
4. Higher urbanization rate • Probably 60% by 2020 (70% for Europe today) • More European technology will be needed in the areas of energy, construction, environmental protection, transportation, services, urban planning, etc.
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5. The arrival of the Lewis Turning Point • “Cheap Chinese labor makes the world go around. It supplies developed markets with cheap goods which, to some extent, make up for stagnating wages. ”(Economist blog: Jan 31st 2013) 12
• Has the Lewis Turning Point already arrived in China? • The Lewis Turning Point is ending the cheap-labor era for China. • Less labor-intensive exports probably means less competition with Europe, but higher prices for European consumers. 13
How to face the Lewis Turning Point? • Adjust family planning policy? No. • More emphasis on education, innovation, industrial restructuring, cutting domestic migration barriers, etc. 14
6. Higher living standards • Higher living standards will create more demand for European products, from baby milk powder to Bentley,… • Also better for correcting trade imbalance. 15
7. More emphasis on income distribution • Income distribution is expected to get better. • Recently the State Council unveiled 35 measures to reform the country's income distribution mechanisms. • Social tensions can be reduced and domestic demand might be stimulated, reducing China’s dependence on exports as well as increasing more imports. 16
8. More speedy process of internationalizing the RMB • The 18th party congress report: “…gradually promote the RMB's convertibility under capital accounts”. • Better integration with the world economy • More economic influence on the world stage • A bigger say in the process of reforming the international monetary system
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• Possibility of joining hands with the euro to contain dominance of the US dollar.
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9. More Chinese investment in the EU • The 18th party congress report: “Chinese companies should expand overseas presence at a faster pace, enhance their operation in an international environment, and develop a number of world-class multinational corporations. ” • More Chinese investment in the EU • The need to reach a new investment protection treaty 19
• Chinese investors need to undertake more social responsibility, “do as the Europeans do”, obey local laws and regulations, improve corporate image, etc.; • The EU needs to reduce operational difficulties, regulatory approval obstacles and other bureaucracy-related costs. 20
10. Market economy status after 2016 • Is the EU’s anti-dumping a big issue for ChinaEU relations? • EU Commission, “Facts and figures on EUChina trade”: “The EU‘s trade defense instruments cover only around 1% of its total imports from China”. • However, given the huge amount of China-EU trade, even one percentage point means a big sum. 21
How to deal with trade frictions? • For China, it needs to strengthen its competitiveness NOT through cutting prices. • For the EU, it needs to follow the WTO rules more strictly. • Isn’t it a gesture of good-will and friendship if the EU would agree to recognize the market economy status before 2016?
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• It seems unlikely that the EU will grant market economy status (MES) to China before 2116 because “China cannot meet the five criteria.” • Judgment of these criteria can be subjective. • Is granting of MES to China automatic in 2016? • Bernard O’Connor wrote on 27 November 2011: 23
• “There is nothing in the WTO rules, or elsewhere, to provide that China automatically gets market-economy status in 2016. The idea that it will is a misunderstanding shared by many in China, the EU and the US,” • http://www.voxeu.org/article/china-marketeconomy
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• Solar panel dispute • This is the EU’s largest trade defense action. • MOFCOM spokesperson: "China expresses deep regret" about the EU’s decision. • Many people warn that the EU’s action would harm the global clean energy sector. 25
A two-edge knife • The Guardian: The UK could lose billions of pounds and thousands of jobs in the solar industry if the EU imposes tariffs on cheap imported panels from China, a report has claimed. • If a lower duty rate of 20% were put in place, it could still cost the UK £1.6bn and 19,300 jobs, the report by European thinktank Prognos said. 26
The Guardian • Across Europe, up to 242,000 jobs could be lost if 60% duty were imposed on the imported panels, at a cost of more than £27bn over three years, the study for the Alliance for Solar Energy coalition of solar companies estimated. • http://www.guardian.co.uk/environment/2013/feb/19/solarpanel-duty-chinese-imports 27
• After more than 50 years of excessive mining, China's rare earth reserves have kept . • Outdated production processes and techniques in the mining, dressing, smelting and separating of rare earth ores have severely damaged surface vegetation, caused soil erosion, pollution, and acidification, and reduced or even eliminated food crop output. 28
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In conclusions • Most of the changes in the Chinese economy is good for Europe as well as for China-EU relations.
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February 11, 2009, Mexico City • Speaking to the Mexican Chinese at the Chinese embassy, Xi Jinping said, faced with the international financial storm, China can fundamentally solve the problem of feeding its 1.3 billion population. This is a great contribution to the mankind… 32
• But some foreigners, with full bellies and nothing better to do, engage in finger-pointing at us. First, China does not export revolution; second, it does not export famine and poverty; and third, it does not mess around with you. So what else is there to say? 33
Thank you.
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