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When Sisyphus met Icarus: EU-China Economic Relations during the Eurozone Crisis

When Sisyphus met Icarus: EU-China Economic Relations during the Eurozone Crisis

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This policy brief examines how China, the EU, and EU member states work with each other economically.
This policy brief examines how China, the EU, and EU member states work with each other economically.

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Published by: German Marshall Fund of the United States on May 02, 2012
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05/02/2012

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Summary:
The Europe-Chinaeconomic relationship is toobig, and too well developed, tofail, but the protection of pastachievements is currently theonly factor keeping EU-Chinapolicy relations in balance.Cooperation on trade and invest-ment is fraught with misun-derstanding, offended egos,discontent, and anger. Beijing and Brussels seem content towait for China’s new leader-
ship to take ofce before they
attempt to deepen economicand commercial policy coopera-tion, but there is little reason tobelieve that the bilateral relation-ship will radically improve underchanges in the Chinese capital.The EU has tried time and timeagain to pressure China intoopening more of its market toEuropean exports by threatening to cut access to its own marketsif Beijing does not comply. AndChina has repeatedly tried tobypass Brussels in its nego-tiations with Europe, prefer-ring instead to work throughmember states. But a fracturedEU will have negative long-termconsequences for China and itseconomic interests.
Stockholm China Forum
Paper Series
When Sisyphus met Icarus:EU-China Economic Relations during theEurozone Crisis
By Fredrik Erixon
1744 R Street NWWashington, DC 20009T 1 202 683 2650F 1 202 265 1662E info@gmfus.org
April 2012
Introduction
Te Europe-China economic relation-ship is too big, and too well developed,to ail. Bilateral exchange recoveredquickly rom the sharp drop in 2008-09, and bilateral trade, despite theoverall contraction in the eurozone,increased considerably in 2011. Eveni growth in trade and investment wereto slow in 2012, the European Unionand China will, under current ore-casts, post a record high with two-way trade exceeding €500 billion. Te EUis China’s biggest trading partner,and China is the EU’s second biggest.Neither party will allow the relation-ship to be ractured by economic andcommercial policy conicts. It is a signo maturity that current volumes o trade and investment glue the relation-ship together. Tat’s the good news.Te bad news is that the protection o past achievements is currently the only actor keeping EU-China policy rela-tions in balance.
The EU-China Trust Defcit
Te climate o EU-China policy coop-eration has soured considerably in thepast two years. Cooperation on tradeand investment is raught with misun-derstanding, oended egos, discon-tent, and anger. In some quarters,rustration is reaching a boiling point.Te EU-China High Level Economicand rade Dialogue, which ollowedhard on the heels o the U.S.-ChinaStrategic and Economic Dialogue, hasbecome largely dysunctional, bothas a orum or ecient, business-stylenegotiations on selective market-accessissues and as a venue or orming jointstrategic visions or uture bilateraleconomic relations. In some policy areas, e.g. the growing dispute over theEU’s carbon ees or aviation, relationsare not ar rom complete breakdown.Key ocials do not speak to eachother. E-mails and phone calls gounanswered.Tere is generally little energy inEU-China talks, and ew expect muchrom them. While U.S. newspapers ranseries o articles about the Valentine’sDay visit o Xi Jinping, China’s Presi-dent-in-waiting, to the United States,the European media barely botheredto pass comment on the act that, atthe same time, the EU’s top leader-ship – including the President o theEuropean Commission, José ManuelBarroso, and the President o the Euro-pean Council, Herman Van Rompuy – were in Beijing or the EU-China
 
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Paper Series
The EU increasingly embodiesSisyphean traits in its economicand commercial policy posturetowards China.
summit. Obviously, there is an air o excitement whenEuropean leaders such as Chancellor Merkel meet withthe Beijing leadership, but national European leaders donot speak or the EU and cannot engage in most economicmatters o importance.Moreover, despite Premier Wen Jiabao’s recent deense o a Chinese role in the European Financial Stability Facility (EFSF) and the smaller sums that Beijing has contributedquietly, there is little hope that China will play a greaterpaymaster role to eurozone countries with wrecked publicnances. Tis is partially due to the ailure o Europesleaders to build Chinas and others condence as thepleaded or contributions to the EFSF, more popularly known as the “eurozone’s bailout und.” Te morningafer the eurozone leaders had agreed to court investors toleverage the paltry nancial guarantees they had given tothe EFSF, French President Nicolas Sarkozy called ChinesePresident Hu Jintao. Sarkozy was preparing the ground orthe message that the EFSF’s chie executive ocer, KlausRegling, who boarded a ight to Beijing beore the ink haddried on the agreement, would deliver in person the nextday: Europe is nally getting its act together; what hadbeen agreed at the crisis summit in October was what wasneeded to avoid the euro cooperation slipping into chaos;and China now had a unique investment opportunity thatwould earn them a good return while at the same timehelping its key trading partner. And yet, six weeks later,eurozone leaders were in Brussels once again or anothercrisis meeting to address the proound threats to nancialstability in Europe.Tat China rejected these requests, disavowed past promiseso considerable bilateral loans to individual crisis countriesin Europe, and instead aired positive (but guarded) viewson increasing its nancial support to the InternationalMonetary Fund is a sign o China’s rustration with mattersrelated to Europe. Beijing’s core strategy had been to dealdirectly with Europe, preerably through national capitals,allowing it to engage in opaque structures o cooperationand sweeten policy agreements with nancial assistance ortrade-promotion deals. Tat China preers to route money to the eurozone through a multilateral organization, andone it is suspicious about, shows how its condence in theEU has declined and that it is reluctantly being orced intounknown territory or Chinese international economicpolicy.
Individual Limitations: Like Sisyphus and Icarus
Beijing and Brussels seem content to wait or China’s newleadership to take oce beore they attempt to deepeneconomic and commercial policy cooperation, but thereis little reason to believe that the bilateral relationship willradically improve under changes in the Chinese capital.Individuals matter, but the problems in EU-China relationsare rooted in divergent views on state, government, andinternational economic policy that are unlikely to diminishanytime soon. Te economic crises are not the source o thedierences, but they have accentuated the dierences andtensions that were on display beore Europe slipped into itsage o crises.Te EU increasingly embodies Sisyphean traits in itseconomic and commercial policy posture towards China.Like Sisyphus, the mythological Greek king condemnedto repeatedly roll a huge boulder to the top o a steep hillwithout success, the EU has tried time and time again topressure China into opening more o its market to Euro-pean exports by threatening to cut access to its own marketsi Beijing does not comply. Te rhetoric on climate changehas been equally conrontational. But the EU is uncon- vincing when it is tasked to drum up protectionist threats: ithas neither the treaty support nor the necessary policy toolsto carry them through. Te European Commission’s attemptto introduce a European version o the U.S. Committee onForeign Investment in the United States, which screens allincoming investments or national security threats, wasoutside o its mandate.Likewise, the Commissions new initiative to close itsprocurement market or China and other countries outsidethe Government Procurement Agreement will hardly cajolethem into opening up their procurement. Import penetra-tion in Europes public-sector demand is 7.5 percent, andChina is estimated to represent as little as 1 percent o that amount. No doubt it would be benecial or China to
 
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Stockholm China Forum
Paper Series
liberalize its public procurement, but Beijing is unlikely toacquiesce to Brussels’ heavy-handed move or such smallsales.Te broader eort o the Commission to act as arch-mercantilist in Europe goes against the essence o its role,which has always been to nd a compromise betweenopposing camps in the EU membership. China, aware o these limitations, remains dea to the EU’s empty threatsand the demands that accompany them.Te EU, or its part, is also aware o its limitations, butpersists anyway. Sisyphus’ perpetual struggle, said AlbertCamus in the
 Myth of Sisyphus
, has no chance o successbut gives meaning to his lie. It is an absurd meaning, but aslong as he accepts the repetitious struggle, it gives happi-ness “enough to ll a man’s heart.” Many EU politicians andocials are satised with the current approach to China,despite the lack o progress. As Camus ended his essay:“One must imagine Sisyphus happy.”China, on the other hand, is more like Icarus, the Greek mythological gure who ailed in his ambition to y withhis wax-and-eather wings because he got too close to thesun. Having acquired serious market power in the past tenyears, China aunts its ortunes in its relations with theEU (and others) without using it to accomplish anythingconcrete. Beijing’s ambivalence to Europe is the result o what has been a more general strategy o keeping a lowinternational prole, biding its time and avoiding relation-ships with other big economies that could orce it into aposition o using its economic power when it is prooundly uncertain about what it should be using that power or.But inaction is not a policy that bets an economy o China’s size. As with the United States in the 19
th
century,
China, on the other hand, is morelike Icarus...who failed in his
ambition to y with his wax-and-
feather wings because he got tooclose to the sun.
China has grown to become one o the giants o the worldeconomy, but has not yet accepted that its newly acquiredsystemic importance requires a corresponding and atten-dant responsibility to the international system o exchange.China’s oreign economic aspirations still remain anenigma. Does Beijing support the underlying principle o the post-war international economic policy, a gradual butconstant move towards globalization based on a marketeconomy and shared responsibility or a multilateral systemo rules? Or does it want to rewrite this principle?
Diverging Views on Global Political Economy
For many in Europe, the crisis has been a litmus test o China’s loyalty to the existing international economicsystem. Te EU was created by the same post-war trendso economic cooperation that midwied multilateraleconomic institutions, and it has beneted tremendously rom their existence. It has been neither capable nor willingto economically underwrite those institutions, leaving thattask to the United States. Europe has not been guided by thespirit o “visionary generosity” that once inormed UnitedStates’ policy towards global economic policy. Europeancountries were ofen unwilling to accept new trade ormonetary deals that would have an unequal distributiono gains, even i the net outcome was o benet to Europe.Tere has been partial change in Europe in its outlook. Yetthere is a vexing belie in Europe that China has made gainsrom the global economic system disproportionate to itscontributions. For many ocials in Europe, the EU-ChinaHigh Level rade and Economic Dialogue was establishedon the premise that China would start returning on someo those gains. When Beijing has made clear that it is notprepared to dance to that tune, it has only served to irritateEurope urther.China is not innocent in all o this. Its stalled economicreorm agenda and unwillingness to accept a leadership rolecorresponding to its economic size are now major sourceso riction in the global economy. Beijing’s ham-sted diplo-macy towards Brussels has not made them many riends.It has repeatedly tried to bypass Brussels in its negotiationswith Europe, preerring instead to work through memberstates more susceptible to Beijing’s
 faiblesse
or trade-promotion deals and avoidance o hard policy negotiation.It has been ar more serious in the Strategic and EconomicDialogue with the United States, repeatedly agreeing to

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