Europe looking to 'drive forward' EU-China partnership

Written by Nirj Deva on 30 September 2014 in Feature
Feature

In an Increasingly interdependent world a 'strong, open' China is far better for the EU than a 'weak, unstable one', argues Nirj Deva

China's ascent last year as the largest trading nation in the world, surpassing the US with total trade in goods amounting to €3.21 trillion, arguably marked an inevitably manifest, but hardly revelatory, shift in international markets, from west to east.

Yet, with national growth flattening at 7.7 per cent, and expected to fall to 7.5 per cent over the next two years, the new leadership in Beijing, following the third plenary session of the 18th congress of the Communist party of China central committee, has emphasised that China's future relies on modernising its economy towards the development of a market-driven model.

Traditionally, European companies have complained that China failed to fully implement its obligations following WTO accession, leaving its markets opaque and difficult to access, often marked by a signal lack of transparency or consistency. Liberalising government controlled areas, particularly in key sectors which have to date been heavily protected, such as banking and telecommunications, would significantly improve foreign companies ease of doing business. Despite being the second largest economy in the world, China was ranked 96th in the 2013 World Bank ease of doing business index.

In today's world, interdependence is a matter of increasing reality and, with over €1bn in bilateral trade every day between the EU and China, we have far more to gain from a strong, open China than a weak, unstable one. Yet, despite a growing demand for European, high-end brands from the Chinese upper and middle classes, the EU should remain cautious in any expectations which pin Europe's economic recovery upon China's slowing economy.

"Despite a growing demand for European, high-end brands from the Chinese upper and middle classes, the EU should remain cautious in any expectations which pin Europe's economic recovery upon China's slowing economy"

China's road over the next few years will not be an easy one. Although inflation has remained relatively stable, at 3.2 per cent in 2013, the country faces falling producer prices (the deflation rate for prices in 2013 was an alarming 1.9 per cent) as a result of weakening commodity prices and excess in material industries, and the ominous prospect of a real estate bubble which has seen property prices quintuple in the past decade. Perhaps most alarmingly, China's debt bubble has been allowed to fester during the age of meteoric economic growth; estimates guessing that it is twice the size of the country's growth and growing twice as fast, although its exact size remains rather unclear.

The pervading fear that a stalling economy will result in a fiscal and financial crisis, beset further by associate and unpredictable social ramifications as China slides into a 'middle-income trap' of fast growth followed by prolonged stagnation, may yet prove the impetus needed for China to fulfil the undeniably challenging task of reform, encouraging China to break its state-controlled monopolies and liberalise interest rates.

While the economic crisis has admittedly dulled the European consumer's demand, leading to a striking reduction to the EU's traditional trade deficit with China, 2013 saw three significant trade disputes between the EU and China successfully concluded, measurably securing our future economic and political relationship.

Over the coming eighth legislature, the EU will be looking to drive forward negotiations for the EU-China partnership and cooperation agreement, grounded on political cooperation and trade liberalisation. However, despite Beijing's eagerness to launch a deeper, more comprehensive free trade agreement, quite possibly as some form of dramatic response to the ongoing trans-Pacific partnership and the transatlantic trade and investment partnership negotiations, it might prove wiser in the short-term to consolidate our gains before embracing anything more ambitious.

About the author

Nirj Deva is chair of parliament's EU-China friendship group​

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