Europe biggest uncertainty for China’s economy
March 12, 2012 in YOPOD Experts
According to the governor of China’s Central Bank, the unstable economic and financial situation in Europe will be the biggest uncertainty for China’s economy this year. How do you think this will impact EU-China relations?
For more information:
Slow recovery, Europe remain biggest uncertainty (China Daily)
It is great opportunity for me to play this significant role of the first speaker to warn up the discussion on this topic, in spite that I am interested in EU-China relations in general rather than specific issues like this.
It seems true that economic and trade ties have been the cornerstone of EU-China relationship in the past decades. In this sense, the slow recovery, as mentioned by China Daily with regard to the unstable economic and financial situation in Europe, would have negative effects on this bilateral ties, in particular on Chinese companies’ expectations on Euopean market. That is, to put eggs in different baskets may appeals more to them than ever, for example, to examime possibilities of more ways or channels to hit the market outside Europe such as Asia countries. In turn, the Chinese government is expected to attach more importance to the market outside Eueope and Europe economy, in terms of trade, will see the decline of its largest partner’s concern.
On the other hand, Chinese officials have shown their aspiration of investment in Euope, giving a hand to mitigate or ease the debt crisis troubling some EU member states. Although the interactions on these issues are unfolding. we might treat it as a kind of positive signals or gestures of Chinese side to give a boost to the bilateral relationship.
Perhaps we should also put this into perspective – it is not just the unstable financial and economic situation in Europe, but still a slow recovery of the world economy in general. The EU-China relationship will not directly be impaired by a decreasing export demand or lower Chinese growth figures. If there are any cracks in the EU-China relationship, it could be argued they appear more in fields of human rights, currency, military issues etc.
That said however, at present Europe is one big economic and political mess, and I wouldn’t think the uncertainty is making Beijing enthusiastic… Beijing has been having a less determined approach to chip in with the EU bailout. I don’t believe there have been any specific guarantees yet for China’s EU rescue offer?
You can call Europe a big economic and political mess, and you can definitely suggest that the unstable economic and financial situation in Europe would have negative effects on the bilateral relations. However, figures show that EU27 exports to China increased by 21% and imports by 5% in the first ten months of 2011. Trade in goods between the EU and China has increased between January 2010 and January 2011. Imports from China to Europe increased from 231 748 million euro to 243 782 million euro and exports to China raised from 91 956 million euro to 111 615 million euro. Trade in services also increased between 2009 and 2010 and FDI has also increased between 2009 and 2010.
http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113366.pdf
http://europa.eu/rapid/pressReleasesAction.do?reference=STAT/12/23&type=HTML
If we define EU-China bilateral relations mainly in trade figures, then there seems to be no direct negative effect. Nevertheless, for instance, referring again to China’s EU bailout, there’s only been vague hints of help, a message that Europe should work out its own solutions – wouldn’t China’s risk-aversion stance have the ability to impact current relations e.g. diplomatic, to a certain extent? If governor Zhou Xiaochuan publicly declares Europe’s situation as a big uncertainty this year, we might expect some short-term cooling down of ties?
In short, this is an over-exaggeration, and I don’t believe that this remark in itself will have an adverse effect on EU-China relations in general.
Chinese foreign policy formation and -communication has become pluralistic enough (in many ways far too pluralistic, at least according to some) lately so we don’t (no longer) have to regard every Chinese opinion as official, even if it’s communicated by the governor of the central bank and printed by the China Daily (in fact, most of the central bank’s suggestions are usually not greeted with the warmest of welcomes and the deepest understanding by the political leadership). By the way, a government official said that Mr Zhou’s words were misinterpreted — interpret that as you wish:)
Regardless, the underlying issues are of course severe.
As for the bailout re Deirdre, in my opinion, China is sort of trying to do here what it has been doing in other places when it comes to ‘helping’ an other entity (leaving the US aside, but that’s a whole different story), namely, anything but direct loans or any sort of money transfer — at least that’s my impression given the fact that China has been reluctant to commit funds to the bailout, yet Chinese leaders have been actively ‘shopping’ in Europe in the past couple of years and have been talking about helping the EU by boosting Chinese imports.
And in a way they are right, because the EU’s debt crisis deep down is more of a crisis of productivity, competitiveness, demographics, the welfare state, politics, and so on, and throwing wads of cash on it won’t solve anything on the longer run. Of course, neither will these (compared to the depth of the on-going crisis) relatively modest shopping tours, investments and the as-of-yet moderate increase in exports (not to mention that many in Europe aren’t jumping in joy about some of the investments China has been making or is planning to make for various, often unfounded, but sometimes understandable reasons), but we have to remind ourselves that the size of this bailout already borders on what China could realistically afford should it decide to chime in with a meaningful chunk. Greece has already received hundreds of billions, but should it (and let’s hope it won’t) come to Portugal, Ireland, Spain, Italy, we’re talking trillions, potentially many of them, and that’s just completely outside of China’s financial reach (or any other country’s for that matter).
Another important thing to note here is public opinion in China — as recent outbursts in the Chinese blogosphere has shown, the people aren’t exactly enthusiastic that the leaders of the people are planning to give the people’s money to European people enjoying much better living conditions than them, and of course, they are not alone, see Slovakia.
Of course, China could do a lot of other things to ‘help’ the EU, getting actively engaged in reducing global trade imbalances, pacing up the appreciation of the RMB and further promoting domestic consumption springs to mind for instance.* (If I wanted to be controversial I might have added ‘stopping subsidizing its state-owned companies so that they can compete against European firms all over the globe and even in Europe’ to that brief list, but I don’t want to be, so let’s assume you haven’t read this last sentence.) But it won’t, because its development policy – at least in its current state — depends on these practices.
Re Hang, if China wants to turn to new markets, good luck with that (and I’m not being sarcastic or offensive here), but the ugly truth is that the parts of the world which are actually growing (in economic terms) these days are — despite the great rhetorical solidarity between the BRICS and developing countries in general — China’s direct competitors in many respects, or at least are following a very similar development path to China’s. Now the problem with such development policies and ‘state capitalism’ in general is that these are inherently protectionist in nature (see indigenous innovation policy or market access for example), hence countries employing these need other countries maintaining a more liberal international environment — for their own reasons of course. Japan and Germany were lucky enough that the US was basically subsidizing their development for political and security reasons, and in a way China has been benefiting from the same system for the last three decades, but this won’t last for ever, especially under the current circumstances. Let’s also not forget that a huge chunk of Chinese-made products not only gets sold in the EU, but is also based on European innovation and technology, replacing which might prove to be an even harder task on the short run than finding alternatives to the EU’s import market. (I realise that I kind of reinforced Mr Zhou’s argument in this paragraph, although I don’t know what his exact reasoning was.)
If anything, this should be a blessing in disguise for China — do your reforms while you can, because there is a good chance that you won’t enjoy the level of global demand necessary for the sustainment of your current development path in/for a couple of years years (this is hardly a revolutionary idea by the way, many — most of whom are a lot smarter than me — have been saying this for years). Let’s not forget here that China’s rise/development — although indirectly and unintentionally, but — played a rather big role in creating the current global crisis.* I believe that the easiest way to solve the crisis would be to alter many of the Chinese practices which are creating global imbalances, especially given the fact that the very same reforms are pretty much in China’s interest if it wants to sustain its development.
Now I’ve deviated quite a bit from the original topic and sorry for being so long (as the participants of the Chengdu event can attest to, I’m not particularly good in summing up my arguments).
So, to conclude my point, in short, we would all be better off if everyone started to solve their own mess instead of ‘bashing’, ‘lecturing’ or ‘helping’ the other, but before that, we need to come to terms with the nature of the mess we’re dealing with in the first place.
*I have to admit that blaming China for the world economy’s imbalances might be a tad bit ironic in light of the fact that the ‘West’ has created the greatest imbalances to begin with, and within the EU the introduction of the euro in a broader sense and Germany in a narrower one created some of the imbalances which contributed a lot to the current crisis. But the fact remains that to maintain a ‘harmonious world’ and achieve ‘scientific development’, these issues need to be addressed on both sides of the spectrum.