1. VYSOKÁ ŠKOLA EKONOMICKÁ V PRAZE<br />Fakulta mezinárodních vztahů<br />Economic and political relations between EU and China<br />2010/2011Mojmír Hloža<br />Introduction to the relations between EU and China<br />Seminar paper is devoted to the relations between European Union and the People’s Republic of China. The main goal is to briefly summarize current conditions and contemporary problems in relations of these two economic superpowers.<br />Introductory chapter outlines historical evolution and basic framework, where they are taking place. Second chapter is devoted to trade relations, which have crucial influence both on diplomatic and political relations. Third chapter is concerned with one of the most important issue in a relation of these blocks – European arms embargo on China. Final part sums up current economic and political situation and suggests next prospective development of European policy towards China.<br />Relations between the EU and Chine were established in 1975 and now the EU is the biggest trade partner of China. Basic framework for bilateral relations is EEC - China Trade and Economic Cooperation Agreement from 1985. Since 2007 the talks on updating the legislative frame are under way, the main aim is to agree on a new deal - European Partnership and Cooperation Agreement with China. This kind of treaty uses the EU with non-members and they cover mainly the issues of elimination of trade barriers but also political, social, cultural and security links. At present there are more than 50 sectoral cooperation between EU and China.<br />After the end of cold war, Chine did not find the relations with EU as important as the relations with USA, Japan and rest of Asian countries. The interest grew, when the economic relations started to increase. Despite the arms embargo imposed after the suppress of Tiananmen Square Protests of 1989, the relations were easing. Europe’s interest started to increase dramatically in 90s, trade between EU and China grew much faster than the GDP of China and in ten years from 1985 to 1994 tripled.<br />However, political and security cooperation didn’t achieve such progress. EU promoted widening of NATO and intervention in Kosovo, which was seen as a growing influence of USA in eyes of China. Despite of that, until 2001 China moderated its anti-USA attitude hoping that Europe will lift the embargo. The pressure on EU from USA were stronger anyway. This is the reason why Chine consider EU to be weak, divided and dependant on USA. Furthermore, EU shares similar concerns in matters of authoritative system of government in China and a threat against Taiwan. However, the economic cooperation continued, either in form of bilateral summits or within ASEM meetings, although there have been several disputes even in economic area related mainly to protectionist measures against China.<br />French and Russia were the first countries which made an effort to tie strategic partnership with China. The relations cooled down after China cancelled the annual summit with EU in November 2008. This was a reaction on Sarkozy’s meeting with Dalailama. In December 2009 sentenced China British citizens to 50 years in prison because of drug smuggling. At last year’s Climate Conference in Copenhagen China surprised EU by its scornful attitude towards European efforts to ensure reasonable commitments to lower the emission.<br />Trade relations EU – China<br />China represents 11 % of international trade on goods. It is the first major economy which bounced effectively after the crisis and in first half of 2010 grew at such high pace which it experienced before the crisis.<br />Following numeral data are taken from the website of the European Commission, 2009. EU is the largest trade partner of China, Chine is the second largest partner of EU.<br />-42545186055Table 1: Main import and export partners of EU (2009)<br />Source: Europa: Gateway to the European Union<br />The biggest share on imports to the EU has Chine and it is also the biggest importers in manufacturing industry. Methodology of the EU differs 7 subcategories in this industry – in the brackets there is stated, on which position is Chine among importers to the EU: iron and steel (2.), chemicals (3.), other semi-manufactures (1.), machinery and transport equipment (1.), textiles (1.), clothing (1.), other manufactures (1.). In these categories the EU is always at most at 6. place as an importer to China (excluding textile – 11.). 30 % of imported machinery and transport equipment, 31 % of imported textile and 45 % of imported clothes to EU are made in China. On the other hand, to China heads 10,5 % of total exports of machinery and transport equipment, 5 % of textile and 2 % of clothes. 58 % of European exports to China consist of machinery and transport vehicle, 47,5 % of all exports from China to EU are of category machinery and transport vehicle.<br />Table 2: Main import and export partners of China (2009)<br />-7620635Source: Europa: Gateway to the European Union <br />In 2009 the deficit of balance of trade of EU with China reached 133 bil. Euro, which represents 1,1 % GDP of the EU and 3,8 % of GDP of China.<br />-4445201930Grapf 1 and 2: Balance of trade China – world and China - EU<br />Sourcej: Europa: Gateway to the European Union <br />More than a half of total Chinese exports are being produced in foreign invested enterprises. Main role plays companies from Japan, Taiwan, Hong-Kong and South Korea. The position of European companies is restricted, however majority of final consumer goods is transported to EU.<br />Deficit of balance of trade is highest in a trade with office and telecommunication equipment, textile, iron and steel. This deficit reflects the huge shift within Asian economies to China. In spite of the fact, that the amount of imports from China is rising, it is largely because at the expense of Japan and emerging markets, while the share on imports from Asia stays stable for the last 10 years.<br />Intellectual property rights remain a big problem – almost 54 % of all confiscated goods on the border of the EU in 2008 were from China. Trade measures of the EU against such cases are strict but much less political than in other major economies. On 31st of July there were 52 anti-dumping measures against Chinese imports but these measures cover only 1 % of total imports from China. Trade in service is much less developed and reached only 31 bil. Euro of total trade exchange.<br />In 2003 China joined the European navigation project Galileo and planned to invest 230 mil. Euro. However in 2006 the country stepped back and started to work on its own satellite navigation Beidou. Companies in Galileo consortium planned to profit from selling the satellite signal and navigation devices also in Chine. Withdrawal of China and creation of its own system implies big problems for already controversial European navigation system.<br />An example of success economic cooperation exceeding ordinary frame of trade flows is a deal of 2006 on supply of 150 airplanes Airbus A320. At present the Airbus and China are discussing another contract at the amount of 150-200 planes for 16 bil. USD.<br />There are several economic disputes between EU and China. Chine tries to gain the status of market economy in order to take full advantage of membership in WTO, mainly bigger resistance against anti-dumping measures. USA and EU don’t want to assing Chine this status, but there are more than 80 countries in the world which already did, for example Australia and New Zealand. Main reasons of not assigning are suspicion about manipulation of currency, violation the intellectual property rights and dumping prices.<br />Chinese media pay high attention to this issue. In October 2010 Chinese prime minister Wen Jiabao made an effort to persuade the European leaders to get status of market economy from EU together with lift the emgargo on arms. Trade with arms is one of the major disputes in relations between EU and China.<br />European Union's Arms Embargo on China<br />In 1989 imposed EU on China arms embargo as a reaction to suppressing Tiananmen Square Protests. Recently, however, some countries have started to think about reassessing the attitude.<br />USA which also imposed arms embargo on China are afraid that the cancellation would lead to shift of technology. That would rapidly increase the ability of Chinese army. USA declared that in case of Taiwan invasion by Chine they will protect the Taiwan, therefore they fear that they might face European arms if such case arises. Japan is similarly against the cancellation. It Doesn’t want to change the balance of power in South East Asia.<br />In 2005 China approved a law where it stated explicit conditions to begin the war against Taiwan. As a reaction, British Secretary of State for Foreign and Commonwealth Affairs said that the process of lifting the embargo is becoming “more difficult” because of lack of progress in human rights and a law against Taiwan. Former French president Jacques Chirac was against the embargo, he considered it to be outdated, not reflecting current geopolitical reality. In 2005 Angela Merkel expressed her disagreement with lifting the embargo while Gerhard Schröder agreed. Scandinavian countries were against, Malta would approve the cancellation. European parliament act homogenously against the cancellation, at least until Peking is not selling the weapons to countries like Zimbabwe or Sudan. These countries are being accused by western countries of committing or supporting violent acts against civilians. Britain assumes, that the cancellation would have only small significance because at present the export of majority of security technology is prohibited by the EU legislation. On the other hand, Britain is not intended to upset Japan or USA by supporting of lifting the embargo.<br />Spain has significantly enter this discussion when as a presidential country of EU suggested cancelling the embargo as a way how to improve relations with Beijing. “We are all aware of the new role which China is assuming in the world,” said Spanish foreign minister. Chinese hopes for lifting the embargo grew after US president Barack Obama asked Congress for permission to sell six transport aircrafts Lockheed C-130 to combat oil spills.<br />China imposes significant pressure upon European countries to support the cancellation of embargo arguing that EU includes Chine to one group of countries next to Congo, North Korea, Iran or Zimbabwe. China insists on cancellation of embargo and label it as confusing, equaling political discrimination. Its cancellation would by perceived also symbolically – it would be an expression that EU takes Chine as an equal partner. For now, China buys weapons from Russia and it was in touch also with Israel (but under US pressure, Israel backed down on selling China advanced surveillance planes).<br />Conclusion<br />Economic relations between EU and China are developing very dynamically, between 2004 and 2008 the imports from China to EU were growing 16,5 % annual rate. In 2009 there was a 13% fall, while European exports to China grew by 4 %. In spite of that, China stays the biggest source of imported manufactured product to EU. At the same time it is the fastest growing export market for EU. However, high deficit reflects serious problems in accessibility to Chinese market.<br />By an example of an attitude of single European countries towards arms embargo it is easy to see the heterogeneity of policies to China. China perceives this internal lack of uniformity and uses it to fuel its economic growth. Charles Grant, director of London Centre for European Reforms holds an opinion that Europeans need to agree on unified opinion towards China so Peking won’t be able to play the game divide and rule. EU should also leave the fictive concept of “strategic partnership”, which can’t be meaningful when there is so many different attitudes. Much more effective would be to focus on limited number of issues which are likely to be agreed by both EU and China. <br />François Godement of European Council no Foreign Relations says, that Spanish attempt to revise the embargo is meaningless, because there was no talk about concession towards China. There are expectations of Chinese goodwill of unspecified nature, but for now Chine is refusing to offer anything for exchange persistently. Europeans have lied to themselves for a long time that Chine will perceive them as equal partners while Peking continues to test the weakness and division of European block. The embargo should be cancelled only after the EU thoroughly examines the Chinese perceiving and policy.<br />List of sources used<br />ASEM InfoBoard [online]. ASEM Summits Overview. Available from WWW: <http://www.aseminfoboard.org/page.phtml?code=Summits><br />BBC News [online]. China joins EU's satellite network. 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