Today China cancelled the long-planned EU-China summit because French President Nicolas Sarkozy was planning to meet the Dalai Lama later in the year. Such short-sightedness serves no one.
Though it appears to be shielded from the financial tumult, China will eventually be hurt by the current crisis. China needs 9-10% growth if it is to absorb 24 million new labourers a year. To keep this rate of expansion, China’s economy relies on exports, real property growth and government spending. But US and European consumers can no longer consume at the debt-supported levels they have at the past. When exports market disappear, normal economies rely on domestic consumption. But China has no domestic consumption to speak of. So a slump in exports means factories closing, and people getting laid off. It also means a downturn in real property growth, as new construction is likely to decline.
That leaves public spending as an engine for growth. The Chinese government plays a more significant role in the economy than is the case in the West. But it is unlikely that increased government spending can make-up the difference from the lack of export and real property growth. The result is likely to mean politically dangerous growth rates at 5-6%. So though the current crisis has seen China invited to the international top table – for example the G20 – Beijing still needs to work to keep trade links as open as possible, particularly with the EU.
But Europe needs China too. To paraphrase Lord Mandelson – the only thing more frightening than China’s exponential growth is the possibility of it crashing, or that it isolates itself outside the international trading system. Europe has invested in 29,000 enterprises in China and domestic sales from these run to $24,000 per hour and exports to $5 million per hour. So despite China’s trade surplus vis-à-vis the EU, European companies reap considerable profits from their investments in the Middle Kingdom. Even at 5-6% growth, this will be larger than in any EU countries. Problems with access to Chinese markets, the low level of Chinese consumption and the thorny issue of Intellectual Property Rights need to be addressed if European businesses are not to take a hit at a bad time.
Europe also needs China’s help in staving off a worldwide recession. The U.S and Britain have turned to the Arab Gulf states to secure funds for the International Monetary Fund, China could play a much greater role than it currently does; the Chinese government’s recent $586 billion stimulus package shows that it can spend money if it wants to. In addition, the Chinese Investment Corp, Beijing’s sovereign wealth fund, which manages US$ 200 billion of assets, could be a key investor in the West’s failed banks and companies. No doubt this brings risks, but so does the collapse of many of these banks and companies.
If China is letting its preoccupation with Tibet cloud its foreign policy thinking, the EU’s internal division are undermining Europe’s China policy. Francois Godement, a French China expert, points out that “senior European leaders have scandalously failed to coordinate on the issue of Tibet and the Dalai Lama”, which has probably led Chinese leaders to conclude that the EU can be publicly provoked at no significant political cost. His British colleague, John Fox, urges European leaders “to show China that [they] cannot be divided and bullied and that the current Chinese actions damage both sides’ interests.”
Europe and China need each other and though neither cannot be expected to abandon long-standing interests, the two partners ultimately stand to gain from improved links.
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