Abstract
China’s trading relationship with the EU and Western economies has evolved dramatically since Deng Xiaoping initiated reforms in China more than 30 years ago, from a situation in which almost nothing was traded to the establishment of a major trading relationship with the EU as well as the US. It is now the EU’s first source of imports and its fastest growing export market, and is widely predicted to become soon the EU’s first trading partner altogether. The WTO accession was seen as historic and the result of strong political will in China and its key trading partners. It did generate expectations that China would follow a path of further reforms and progress towards a rules based economy firmly anchored in the multilateral system. Against this background, to understand better the foundations and the evolution of the economic relationship between China and the EU, including some of the difficulties and misunderstandings that have emerged over the past years, we first examine the rationale for China’s economic objectives and the contradictions in the EU and China’s attitudes and policies towards each other. We then review China’s economic policies, especially those that have a major influence on the business climate in China, and pause on the possible emergence of a ‘rule of law with Chinese characteristics’, before offering thoughts on convergence and conflicts between Western and Chinese interests.
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Notes
- 1.
At that time the EU had 15 Member States.
- 2.
Sauvant/Davies, What will an appreciation of China’s currency do to inward and outward FDI?, Issues in International Investment, Vale Columbia Centre on Sustainable International Investment, January 2011.
- 3.
Chen/Peng, “The Potential of the Renminbi as an International Currency”, China Economic Issues, November 2007; Speech by Martin Wheatley, Chief Executive Officer of the Securities and Futures Commission at the Fourth Annual Conference of the Hong Kong Investment Funds Association, October 2010, available at: http://www.sfc.hk/sfc/doc/EN/speeches/speeches/10/Martin_20101004.pdf.
- 4.
Emmot, Rivals – How the power struggle between China, India and Japan will shape our next decade, 2008–2009.
- 5.
For recent examples, see Chinese Vice-Premier Li Keqiang’s speech in Davos emphasising that China’s development is peaceful and that peace is “the essence of China’s 5,000-year culture and the ideal constantly pursued by the Chinese nation” or Li Keqiang’s editorial “The world should not fear a growing China”, Financial Times, 10th January, 2011.
- 6.
Millenium Goals Development Report 2010, http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%20-low%20res%2020100615%20-.pdf.
- 7.
Glaser, Ensuring that China Rises Peacefully, Clingendael Asia Forum Publication, December 2010.
- 8.
See for instance Pei, outlining the far more sceptical and distrustful prisms the West applies to China because of its authoritarian regime, “What China needs to learn”, The Diplomat, 1st October, 2010, and “Why the West should not demonise China”, Financial Times, 25th November, 2010.
- 9.
The debate is clearly reminiscent of that about Japan until the 1980s. As to China today, only 22% of European businesses feel that the enforcement of IPR laws and regulations is adequate, and 48% consider local protectionism to be one of the key risks for their business in China (European Chamber Business Confidence Survey, EU Chamber of Commerce in China in partnership with Roland Berger, 2010). A number of policies and legislation aimed at maximising disclosure of technical developments by foreigners inside China contribute to these perceptions, for instance: joint venture requirements in a number of industrial and high tech sectors; local content requirements, which were in place for the wind-turbine sector notably (70% domestic content); requirements to file payments first in China to increase the number of locally owned IPRs; regulation on Commercial Encryption that requires disclosure of source codes for certain IT products, etc.
- 10.
The issue of intellectual property rights (IPRs) protection and its enforcement is dealt with in greater detail in section V.
- 11.
The OECD in a report on China’s IP environment noted that “national pride often gives legitimacy to behaviours that are at the border of IP laws”, OECD report TAD/TC/WP(2010)12/ANN/FINAL.
The transfer of patents or patent applications to foreigners requires registration and approval before being valid, both by the State Intellectual Property Office (SIPO) and the Ministries of Science and Technology (MOST) and of Commerce (MofCOM) (Art 10 Patent Law). Foreigners are encouraged to file first in China (Art. 20 Patent Law) and need approval if they want to file first abroad; approval requires full disclosure of their invention to SIPO and related ministries for each industry.
- 12.
MofCOM, China-EU Economic and Trade Cooperation is Increasingly Enhanced, 10th May, 2010. see http://english.mofcom.gov.cn/article/newsrelease/significantnews/201005/20100506910123.html.
- 13.
Such concerns can be found in a number of recent articles and opinion pieces touching upon Chinese investments in Europe. See for instance comments relayed by Vice President Tajani in the article “Europa fürchtet Technikklau aus China”, Handelsblatt, 27th December, 2010 or “Les emplettes européennes de la Chine”, L’Expansion, December 2010, as well as the article co-signed by Ministers from Poland, Germany, Spain, Portugal, Italy and France in Le Monde and Il Sole 24 Ore, “L’Europe doit défendre ses intérêts tout en restant fidèle à son ouverture au monde”, Le Monde, 9th February, 2011.
- 14.
Chen/Ravallion, “The developing world is poorer than we thought, but no less successful in the fight against poverty”, World Bank, August 2008.
- 15.
Chandy/Gertz, Poverty in Numbers: The Changing State of Global Poverty from 2005 to 2015, The Brookings Institution, January 2011.
- 16.
IMF World Economic Outlook database, October 2010 update. China was ranked 93 out of 181 countries in terms of GDP per capita at purchasing power parity. Other sources such as World Bank and CIA World Fact Book have different rankings, for instance the CIA Worldfactbook ranks China 127 out of 229 countries in February 2010, see www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html.
- 17.
GDP variation at constant prices, IMF World Economic Outlook database, visited in February 2010. Looking at quarter-to-quarter growth rates however, the economy slowed almost to a halt at the end of 2008 and the beginning of 2009 and rebounded sharply after. See Naughton, “The Turning Point: First Steps toward a Post-Crisis Economy”, China Leadership Monitor, N°31.
- 18.
See for instance (1) Chinese President Hu Jintao at Summer Davos 2010: “At a time of negative economic growth for major developed countries, the fast economic stabilization and rapid economic growth of China and other major developing countries greatly boosted international confidence in overcoming the financial crisis and provided a strong impetus to the world economic growth”, http://www.china-embassy.org/eng/zt/768675/xw/t752077.htm; (2) Premier Wen Jiabao’s pledge to support the Euro and buy Greek bonds on his October 2010 European visit. “China’s Premier, Wen Jiabao, pledges support to the Euro”, http://www.guardian.co.uk/world/2010/oct/04/china-wen-jiabao-euro. Similar support to the Euro and promises to buy Spanish bonds were made by Vice Premier Li Keqiang during his January 2011 trip to Spain; (3) Vice Premier Wang Qishan at the 3rd EU-China High Level Economic and Trade Dialogue also said his nation had taken “concrete action” to help the European Union with its debt problems, http://www.bloomberg.com/news/2010-12-21/euro-rises-as-china-s-wang-pledges-to-help-eu-with-debt-crisis-yen-gains.html.
- 19.
€128 m was set aside for the Multiannual Indicative Programme (MIP) for 2007–2010. In the MIP for 2011–2013, the amount is €45 m, with more emphasis on the poorer provinces in Middle and Western China and a focus on two areas: 1) support to reforms in areas covered by sectoral dialogues; 2) assistance related to environment, energy, and climate change.
- 20.
Examples include statements made by Premier Wen Jiabao on the occasion of European Commission’s President Barroso visit to Beijing in April 2010 as well as his speech at the October 2010 EU-China Business Summit. “I do not want to read the prepared speech, I want to talk about the issues that are of interest to European business leaders (..) and remove some misunderstandings to work more closely together (…) China offers a broad market for international companies (…) China will press ahead with reforms and opening up. All multinationals registered in China enjoy equal treatment as Chinese national enterprises (…) We will not only protect your intellectual property but also accord you equal national treatment as enjoyed by Chinese enterprises. If there is a problem in this regard you can directly call Premier Wen and I will take my responsibilities to solve your problem”, http://tvnewsroom.consilium.europa.eu/story/index/story_id/15261/media_id/34997.
- 21.
See section V for more details on some of these aspects.
- 22.
Indications of increased focus include: (1) the Health Reform plan issued in January 2009 with plans to spend RMB 850 billion by 2011 to provide universal medical service to the whole population and make health care more accessible and affordable. (2) The 2009 National People Congress Work Report from March 2009, http://www.npc.gov.cn/englishnpc/news/Events/2009-03/14/content_1493265.htm. (3) China Economic Policy Guidelines for 2010 as outlined by the Central Economic Work Conference in December 2009, that stress the need for transforming China’s economic model notably by improving social security, pension, income subsidies to the poor and access to low cost housing as a way to support domestic consumption. (4) The low-cost housing policy that was operationalised in the April 2010 State Council “New 10 Articles” designed to cool off the property market – a remarkable change of policy from stimulating growth in the housing sector. Naughton, “The turning point in housing”, China Leadership Monitor, No. 32.
- 23.
The 12th Five Year Plan adopted by the Chinese National People’s Congress in March 2011 outlines a broad programme of domestic growth and rebalancing, combined with more income distribution and state provision of social and public services. Expanding domestic demand is explicitly referred to as a long term objective and gradual process.
- 24.
In fact, the choice not to deploy massive resources towards this goal before the instruments to ensure their adequate use (health care schemes, medical infrastructure and personnel, pension schemes, etc.) have been set up and received a minimum of testing on the ground may well be a wise one. All the same, this put the issue of re-balancing at best in a medium-term perspective.
- 25.
True, the Chinese government does try to assuage the growing concerns of its foreign partners – primarily the US, but increasingly a number of European countries as well, and therefore the EU – but so far it has employed mostly political statements (including complaining about western restrictions on the export of “high tech products” – code for dual-use technologies – whose removal would miraculously redress the trade imbalance between China and the US or the EU) or deployed “buying missions”, without taking any structural action aimed at facilitating imports.
- 26.
If anything, China’s economy is much more open to the world than Japan was (or arguably still is).
- 27.
The former State Planning Commission and now the “super-ministry” in charge of economic planning and industrial policies.
- 28.
Catalogue for the Guidance of Foreign Investment Industries (amended in 2007), Decree No. 57 of the National Development and Reform Commission and the Ministry of Commerce of the People’s Republic of China.
- 29.
China is not yet a party to the WTO plurilateral Government Procurement Agreement. In its WTO accession protocol China undertook to negotiate its accession to the GPA too: it is now in the process of doing so, but negotiations are taking their time, with few indications of any great level of ambition as to access to procurement contracts that China is prepared to guarantee to its partners.
- 30.
For instance, Pettis, “China Faces a Difficult Economic Transition”, Carnegie Commentary, 25TH August, 2010, or Yu Yongding, President of the China Society of World Economics, “China going forward”, New Europe, special edition, January 2011, and in China Daily, 23rd December, 2010.
- 31.
Press release on the occasion of the release of the European Business, European Chamber Calls for Further Opening up and Fundamental Reforms to Build a Sustainable Economic Recovery in China, China Position Paper 2009/2010, 2nd September, 2009.
- 32.
See for instance “Foreign companies blowing in the wind”, Asia Times, 11th June, 2009; “Foreigners favoured in some deals, says NDRC”, South China Morning Post, 16th June, 2009.
- 33.
Roberts, “China: Closing for Business? Western companies are finding themselves shut out as Beijing promotes homegrown rivals”, Business Week, 25th March, 2010.
- 34.
Wuttke, President, European Chamber of Commerce in China, “China is beginning to frustrate foreign business”, Financial Times, 4th April, 2010.
- 35.
- 36.
Baeder/Zielenzige, “China, the Life Sciences Leader of 2020”, The Monitor Group, 17th November, 2010.
- 37.
Ibid.
- 38.
SIPO Annual Report.
- 39.
Circular 618 by the Ministry of Science and Technology, the National Development and Reform Commission and the Ministry of Finance.
- 40.
Suffice it here to mention the US preference for proprietary standards competing in the market, as compared with the European increasingly sophisticated mechanism of creation of common standards to allow and facilitate competition among products and producers in the single market; or the – related – different attitudes to what constitutes an international standard or an international standardisation body.
- 41.
For instance, resort to supplier’s declaration of conformity rather than mandatory third party certification, or use of Good Manufacturing Practices and Quality Assurance Systems rather than sampling and final product inspection, whenever the risk linked to the manufacturing or use of a product is low enough.
- 42.
A notion that is defined in various ways, roughly encompassing the concept of personal networks of influence.
- 43.
Both international economic governance and domestic governance, that is, the way economic activity is regulated within the country.
- 44.
General Agreement on Tariffs and Trade agreed “provisionally” in 1947, after the US Congress refused to ratify the Havana Charter for the International Trade Organisation, meant to be a sister institution to the IMF and the World Bank. See, WTO, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts, 2007.
- 45.
See for instance, Measures Affecting Imports of Automobile Parts, DS339, for which China appealed the Panel report but ultimately complied with the ruling once this was confirmed by the Appellate Body; Measures Affecting Financial Information Services and Foreign Financial Information Suppliers (Xinhua case), DS372, which was settled with a Memorandum of Understanding without a panel. Grants, Loans and Other Incentives, DS387, which was also resolved through a settlement.
- 46.
Assuming, that is, that China would have an interest in doing so, which is very unlikely, given the built-in bias towards stability in Chinese leaders of any time: even the Communist Revolution won in large part because of the ability of the PLA and the Party to ensure greater stability to the “liberated” areas than the Kuomintang government could, or indeed than what they had experienced for decades.
- 47.
See for instance estimates of China’s public debt holding, “La Chine contrôle plus de 7% de la dette publique totale de la zone euro”, La Tribune, 5th January, 2011.
- 48.
One can think of the example of the “Green Dam” content-control software that was made mandatory for all personal computers sold in China by a notice from May 2009. In August 2009 this was restricted only to schools, internet cafes and other public use computers.
- 49.
Expression used by Lohr, “Who’s Afraid of China Inc.?”, New York Times, 24th July, 2005 http://www.nytimes.com/2005/07/24/business/yourmoney/24oil.html.
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Disclaimer: This article reflects the views of its authors only, and in no way can be taken to represent the position of the European Commission. It attempts to sketch out a view – perhaps a very subjective one – of trade relations between Europe and China and how these are rooted in China’s own economic policies. The article does not attempt to explain the vastly more complex political and strategic relationship between the European Union and China.
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Petriccione, M., Hinderer, A. (2012). China–EU Trade Relations: A View from Brussels. In: Herrmann, C., Terhechte, J. (eds) European Yearbook of International Economic Law 2012. European Yearbook of International Economic Law, vol 3. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-23309-8_1
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