Forget the Russians. The Chinese are coming, and for some in Europe, like the 3,800 workers at Saab’s Trollhättan plant in Sweden, they cannot come fast enough. Unable to pay its suppliers, or now, it seems, its workers, Saab was thrown a short-term lifeline yesterday by an order for 582 cars for which an unidentified Chinese company will pay upfront. Nor is this an isolated example.
A report to be issued shortly by the European Council on Foreign Relations estimates that China‘s purchase of public debt in Greece, Portugal, Italy and Spain may be of the order of €15bn-€20bn, peanuts in comparison to the $647bn in which China’s holdings in US treasuries have increased in the last three years, but, when coupled to its direct investments, which will grow to $1tn by 2020, significant enough to the distressed periphery of Europe.
China is not shy of using its growing economic clout. A Hong Kong Airlines contract to buy billions of euros’ worth of Airbus aircraft has been put on ice, because the Chinese government is unhappy about EU emissions trading legislation which will force Chinese carriers to pay more for flights landing in Europe. There will be more of the same as two business cultures clash. China’s export of its surplus capital is both unavoidable – because it is diversifying from its US holdings to invest in Japan and Europe – and welcome. But whereas public contracts in Europe are open to China, Chinese public contracts are anything but to European companies. European companies can only get Chinese public sector contracts under stringent conditions.
For this reason, the most significant meeting that prime minister Wen Jiabao will have on his European tour will be today at a joint meeting of the German cabinet. If anyone can speak for Europe and provide leadership on the need for reciprocity in trading relations with China, it is Angela Merkel. The crisis in the eurozone has provided rich short-term opportunities for the Chinese, but it is in the medium and longer terms that European interests in transparency, a level playing field and the rule of law should be brought to bear.
Either the EU gets tough in its demands, by threatening to shut out firms from countries like China that remain closed – barring them from tendering for public contracts in Europe – or it allows China to pick off one country with a tottering economy after another and use companies like Airbus as proxy lobbyists to derail Europe’s emissions standards. It is clear what should happen to establish parity in trading relations in the long term. Making it happen in conditions where member governments are scrambling for cash is a more challenging but just as necessary task.
Wen said that China would not tolerate finger-wagging lectures on human rights and that the UK and China should respect each other as equals. Regular crackdowns on activists and lawyers, in the form of arrests and extrajudicial disappearances – the latest being in response to the Arab spring – are one symptom among many of how bumpy the process of internal reform is. It will get a lot bumpier in next year’s leadership changes, which will usher in a new generation of leaders, the so-called princelings like Xi Jinping, who are sons of the heroes of the Long March.
If, as we are constantly told, China’s annual growth rates are unsustainable and the world’s second-largest economy could yet hit its own Japanese-style brick wall – as an export and property boom collapses in stagnation – China has a clear interest in seeking European high technology and expertise in transforming its economy. An economy that seeks to become green, innovative and sustainable will also have to tap the strength of its own ecologists, lawyers and civil society. Mutual economic dependence is a good place to start, but the dialogue must not end there. China and Europe have a lot to give each other.