The long march between Europe and China

A lot has happened in the 30 years since May 1975, even for parts of the world with such long histories as Europe and China.

When the two entered into their first formal cooperation agreement signed in May 1975, Mao Tse Tung was 82 and a year from his death and the country was still reeling from the close of the cultural revolution some five years earlier. The European Community had accepted its first new British, Danish and Irish members in 1972.

The archetypical, British aristocrat, Sir Christopher Soames, Winston Churchills son-in-law, then the European Commissioner for External Relations, journeyed to Peking to sign the accord with China on behalf of the nine Community members.

Since then, Europe and China have become major political and economic forces in a 21st century world nearly unrecognisable from that period before the computer, electronic and political revolutions.

In the course of the last 20 or more years the intensity of economic exchange between the People's Republic of China (henceforth China) and the various European economies has increased dramatically. This development was triggered largely by the economic policy changes introduced by Deng Xiaoping in 1978. Since then, China has freed itself from its former self-imposed isolation and gradually integrated with the world economy.

The result has been a new Chinese model of largely open market economic development with Chinese characteristics of rigid state planning, support and management which has attracted other developing countries, but has resulted in Europe and the US refusing it the status of a true market economy for legal and trade purposes.

During that period, but not in synchronised fashion, Europe and China have both transformed themselves into growing economic giants and are also cautiously venturing into new international political roles. China could not be further away from the drab, impoverished and paranoid Maoist period. It has been transformed in such a way and pace that has been beyond the wildest dreams of even the most optimistic Westerners.

The two are now engaged a broad economic, political, scientific and cultural relationship that they have defined since one of their now-regular Summit meetings last year as a strategic partnership and that they have promised to enlarge accordingly. Part of this has been driven in recent years by a wave of economic development in China accompanied and in part stimulated by trade and investment from Europe.

As a result, they have already become highly important and increasingly dependent on each other in economic and trade terms.

Foreign Minister Li Zhaoxing, addressing an unofficial seminar in Beijing recently, quoted an ancient Greek philosopher who remarked that the European-Asian continent is the largest and most important.

In a fashion not unlike the growing relationships in past decades between Europe and the United States and Japan, the implications of increasing economic contacts inherently implies that there can be more causes for economic friction and even conflict.

It is also not easy, comfortable or productive for the other world or regional powers, or merely ordinary states, to adjust and make way for a new and unprecedented actor on the world stage. Just as the past century witnessed the emergence of the United States, the Soviet Union, Japan as paramount economic or political powers and the eclipse of Great Britain or France, it is now assisting to the entry of China into that pantheon of nations.

In the past two decades the country and society have moved through and away from two historic ideological reference points of Confucianism and Communism and into its own brand of capitalism. Prior to that the country tried all types of recipes, including the Great Leap Forward and the Cultural Revolution, until Deng Xiaopings bold leap into the global marketplace. As one observer remarked in connection with the Fortune Global Forum in Beijing in May, the transformation was almost overnight.

Now China is still a land of contrasts and contradictions, so vast that whatever is said about it, the opposite may also be true. Home to some one-quarter of the human species of this planet, it has become a star economy on the backs of both BMW-driving yuppies and villagers on coolie wages. They may be churning out huge quantities of high-technology products or $5 fake rolex watches.

The scale of the country and its people is so large that it dwarfs most others. To understand the dimension of this phenomenon, it is worth noting that its largest cities, such as Beijing and bustling Shanghai, are larger than most European countries, or indeed many of the planets 190 states.

Its fabled 15th century navigator Zheng He set out exactly 600 years ago to explore the world long before his western counterparts undertook such ventures, the country recently launched a man into space and possesses a vast array of unequalled skills. Young students on Beijing streets desperately grab passing westerners to practice their English to be qualified for a prize job with the Olympic games in that city in 2008. But in most regions away from the coast, it is still a struggling, developing country. Even in the shadow of Beijings glamorous glass shopping malls and hotels, there are those eking out an existence repairing bicycles or cutting hair on the streets. It is one of the few remaining one-party political systems where nevertheless perhaps a billion citizens vote in open elections for their immediate village leaders.

While there are still huge disparities between the urban affluent and the rural poor, as one Chinese executive remarked at the recent Fortune Magazine Forum in Beijing uneven distribution is a lot better than collective poverty.

Hundreds of millions have been lifted from an existence of poverty and some 27 percent of Chinas urban population is estimated to be reasonably affluent or even a middle class of some 230 million. As examples of the impact that can have on the world economy, the Belgian chief executive of the giant French Carrefour food and retail chain, remarked in an international interview at the Forum, 350 million Chinese shop at the companys supermarkets. The leading American brand of whiskey, Chivas Regal, owned by Pernod, is now consumed more in China that in the US. The traffic jams of mostly Volkswagen, Honda, Toyota and other foreign automobiles also attests to that impact.

That still leaves hundreds of millions of desperately poor persons. But the government in Beijing is not ignoring these masses and has promised to also lift them out of their subsistence existence. It has perhaps unrealistic plans to move 400 million from this rural squalor and into urban economies. There are sceptics who wonder where the bricks, pipes, electricity and other necessities will come from for such an undertaking, pointing out there is not enough sand in the country for these bricks.

Already the country is acquiring a global reputation for its appetite for a wide range of needs, from primary commodities to luxury goods.

On the one hand the economy is developing at such a rapid pace that its obvious scourges of corruption, mismanagement or lack of transparency or accountability almost pale into insignificance for the rest of the world economy which continues to pour billions into China.

But on the other hand, this gargantuan appetite threatens the access and supplies of other competitors for such scarce resources.

Energy has been one of the most glaring sectors where the countrys needs have had a global impact.

This remarkable economic surge has also taken its toll on the countrys natural resources and environmental stability. One Chinese friend grew up in western Beijing with a view on mountains that are no longer visible because of the citys sometimes choking haze and sandstorms. To illustrate one example, a European diplomat posted in Beijing recently pointed to serious water shortages that have reached alarming levels. He noted that top Chinese policymakers, starting with former Prime Minister Zhu Rongji who was in office at the time when the mighty Yangtze first began to run dry, have consciously sought to address this and other ecological warning signals. But he added that the leadership and country has so many conflicting interests that sometimes such challenges do not obtain the priority deserved. Nevertheless, authorities even at the provincial level practice the kind of sophisticated environmental auditing and accounting that internalises the costs of environmental degradation in a way that is only a distant goal in most of the West.

While there is no denying that the Chinese economic surge has been unprecedented, some notes of caution abound. A long-time Dutch journalist and analyst residing in Beijing, Willem van Kemenade, notes that although China attracts 10 times more foreign investment than India at the moment, it may have less sustainability in the longer term because it lacks the real economic fabric at the moment. The Chinese firms that make it in the Fortune Top 500 in terms of turnover are all state-owned enterprises. And he adds that there is little real innovation, research or home-grown production capacity since most is brought in by foreign firms.

What the Euro-China relationship will become in the future is largely dependent on the evolution of both Europe and China. Perhaps the major uncertainties in Europe revolve around whether the EU will maintain its cohesion and economic viability or slumps into disunity. For China, much depends on whether it can continue to maintain its economic surge to satisfy its own publics demands, social cohesion and political support, or suffers from stagnation of collapse. Both have considerable at stake in the others success or failure.

Analyst Joshua Cooper Ramo has recently commented Its tempting to think about what destination China might reach in 20 years. Will it be a seething pot of nationalist hate? A rich, super-large Singapore, war-like only in the board room? He contemplates, two such scenarios, as China will blow up or China is a future enemy. He also adds, because no one knows where China is headed, the louder the debate about China becomes, the less sense it makes.

Even in China itself, there are numerous scholars, economists and other experts who obsessively examine and catalogue the list of challenges that could turn the Chinese miracle into a nightmare. Some forecast that its ageing population, like in Europe and Japan, by 2015-2020 will be unable to produce a work force large enough to sustain this economy.

But in the countrys long history, it has already experienced many cycles and reversals of policy. Even when worldly navigator Zheng He had completed exploring the globe in the Ming period of the 15th century, he returned home to find a complete cultural revolution, introspection, xenophobia that forced an end to his voyages, the banning and burning of his charts and books and a Chinese withdrawal of centuries from international interaction.

Will the US, Japan and others seek to or be able to stifle the continued rise of China to the point where it overtakes or challenges their former pre-eminence in the region. And if such a situation arises, in which camp will Europe fall into.

Political and economic rivalries are already boiling between China and the US and Japan, with Europe sometimes uncertainly seeking to find its own way with China or influenced by the US and Japanese prudence. There is a tendency in Europe to engage fully with China rather than regard it as a potential threat. But there exists also a current of opinion that places more stress on its delay in implementing political, social and human rights reforms as well as economic ones.

The most obvious political and security flashpoint revolves around its treatment of Taiwan and its 20 million residents, which Beijing regards as a province or territory similar to Hong Kong or Macao, but the US and Japan have generally supported Taiwan.

When they met to hold a strategic discussion on China and Asia in Luxembourg recently, EU Foreign Ministers had before them a paper that termed Chinas economic growth an unprecedented phenomenon that changes the world economic balance.

But having irritated the US and Japan over its recent momentary inclination to normalise relations with China by lifting its 16-year old embargo on arms sales to China, the EU may have blundered in the other direction by seeming to want to swing into the US-Japan policy orbit before venturing into China policies of its own. The outcome of the talks promised closer internal and external consultation on Asian issues with partners such as the US and Japan, a formula that could upset Chinese sensitivities by making it appear as if the EU were colluding with Washington and Tokyo.

The EU papers foray into political-strategic opinion speculated that China is on the way to becoming a considerable military power, adding usual references to its official and estimated military budget increases. But it added, without providing any substantiating evidence, that many of Chinas developing military capabilities appear to relate to Taiwan contingencies (such as a large amphibious capability) only one of a number of possible conclusions.

On the other hand it noted that China had followed a consistent policy of giving priority to economic and social modernisation and therefore was seeking a calm international environment in order to reach the income levels of an advanced nation by 2050. If it achieves this goal, the paper observed, then China would attain global power status, adding somewhat cryptically that it is uncertain what type of power it would be.

The note stated that EU-China relations have witnessed impressive growth into a strategic relationship in recent years. This means that the EU has a major economic and political stake in assisting Chinas transition to prosperity, freedom and democracy and implies the need for reflection by the EU on what sort of power it would want China to become in the coming 10-15 years. It adds that the two have agreed to start negotiating a new framework agreement to guide their relations, replacing an accord dating to 1985. It also points to areas for development in political areas, such as human rights.

A recent unofficial conference involving senior European leaders such as former French Prime Minister Alain Jupp and former Italian Prime Minister and European Commission President Romano Prodi and Chinese counterparts in Beijing sought to examine and project strategic elements of future EU-China cooperation and dialogue.

This dialogue focused on broad themes that required close attention and cooperation in economic and financial sectors, technology and energy, non-proliferation and terrorism and international governance.