European Union grapples with the China syndrome

Much of Siberia’s population, and of others in Russia’s vast Far East region, is seeing a Chinese makeover. The locals are clad in attractive Chinese-made apparel and Chinese street markets have brought a dash of colour and cheap goods that sit incongruously with the supposed dread of proximity to the dragon. Similar stories are spinning out in other Russian cities where Chinese traders are becoming more visible. Tensions are also rising between the world’s former superpower and a rising one.

This extent of China’s reach in its worldwide export offensive should serve as a prologue for the current scenario in Europe where the EU has slowly woken up to China’s marketing onslaught couched in terms that globalisation has only served to provide a respectable veneer to. What we see is no ideological warfare but a keen sense of capitalistic theories working to socialist designs.

A new row about China’s globalising face and its effects on the thriving as well as the struggling economies of EU’s member countries is concentrating the minds of European leaders as never before as they realise the growing threat China now poses to a hitherto complacent Europe in more than one dimension.

It was not very long ago that globalisation threw up mythical figures such as the Polish plumber, branded a public threat to the French people in the run-up to the (subsequently voted down) draft EU constitution, during a previous anti-globalisation debate. There were xenophobic fears of massive hordes from central Europe moving westwards and manufacturing operations lunging in the opposite direction. The debate has now shifted to a different level and a different set of actors.

If China-bashing was a popular sport among Eurocrats in recent times, it has now become a compulsive exercise in warding off demons that now seem uncomfortably close to their shores in a miasma of trading figures. China now wields trade as a decisive weapon of realpolitik in its forays into overseas markets that has already seen the US Congress gnashing its teeth as they pondered several China-centric bills that did not always see the light of day. European legislators are now in a huddle.

That politics is largely about economics is an oft-repeated truism. One of the most striking aspects of EU-China relations is its burgeoning volume of trade that has been galloping at an annual clip of around 20 per cent. Touching a whopping 254 bn euro last year, the balance of trade has been invariably in China’s favour and alarm bells have begun ringing in EU chancelleries about containing this expansion through dialogue rather than confrontation.

European opinion weighs heavily towards China’s culpability with respect to its commitments to the World Trade Organisation (WTO). There have been perennial accusations about state subsidies and a failure to guard against the theft of intellectual property, to say nothing of a report by the EU Chamber of Commerce in China that has noted a fresh threat in the unequal treatment of foreign companies by newly empowered Chinese regulators.

Chinese officials have also been found to seek diversion of EU energies into sheer bureaucratic tangles such as endless arguments over the mechanism of meetings and the composition of delegations. This has resulted in an unsavoury scramble by EU officials to make a beeline for China, dissipating their time and energy needlessly. And this is not helped by the fact that the 27 member states, more often than not, finally decide to undermine agreed positions in order to gain national advantage thereby.

And then there is the problem of the “undervalued” Chinese currency, the yuan, which has lost some 40 per cent of its value against the euro since 2000, making Chinese exports ever cheaper. It has angered President Nicolas Sarkozy enough to warrant his call to eurozone governments to join forces with the European Central Bank (ECB) and back American demands for the Chinese to let their currency (pegged to the dollar) appreciate. Easier said than done.

On the face of it, the brouhaha may seem unwarranted. The EU has evolved into China’s largest trading partner, conferring several advantages to China under systems of specialised preferences. Moreover, China has been working hard towards comprehending EU’s labyrinthine rules and regulations so as to fully exploit the trade potential. It is said that more Chinese diplomats are posted to Brussels incrementally than to other capitals in Europe. And the Chinese seem to have learnt their lessons well.

It barely needs mention that the EU seldom functions as a single bloc, given the fissiparous tendencies within. The Chinese have also seen how easy it is to divide the Europeans on tough political questions such as their arms embargo on China or on anti-dumping issues that erupt periodically. Memories are still fresh about how the EU was compelled to impose an embargo on Chinese textile garments in the wake of huge consignments lying at various European ports pending governmental clearance amid confusion over quota restrictions. A harried trade commissioner Peter Mandelsson had to fly to Beijing to work out a compromise.

EU citizens are also not agreed on whether China is an economic threat or an opportunity. While some countries such as Germany and Sweden capitalise on the opportunities by exporting capital goods, eastern Europe with traditional exports such as shoes and textiles have reason to fear “unrealistic” Chinese prices. Believe it or not, there is this awe of European entrepreneurs for Chinese workers when it comes to setting up operations in China. It has been said admiringly that they “don’t drink, work one day after another, don’t demand much, and are obedient”.

All this will provide talking points for the planned EU-China summit next month where delegates may see a huge row as they discuss the implications of globalisation for EU-China relations and ways to handle the Chinese conundrum. Far from playing Chinese chequers, the EU would do well to send a clear message that it stands stolidly behind the champions of free trade even if seeming politically inexpedient to do so.

M N Hebbar is a Berlin based writer