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Why China needs a strong EU

Updated: 2011-06-24 07:52

By Fraser Cameron (China Daily)

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Normally, the visit of Premier Wen Jiabao to Europe would catch the headlines. But as Wen Jiabao starts his visit to Hungary, the United Kingdom and Germany on Friday, all eyes will be focused on Europe's seemingly never-ending euro crisis. European leaders are holding a meeting in Brussels on Thursday and Friday, and the debt crisis is the top item on the agenda.

The immediate crisis facing Greece has been averted, though, with European finance ministers agreeing to a new bailout package this week.

At a media briefing before the premier's visit, Vice-Foreign Minister Fu Ying said that China had tried to help the European Union (EU) overcome its troubles by buying more European debt and encouraging bilateral trade, and that the future of the European economy was "vitally important" for China. China had not reduced its considerable reserve holdings of euros, she said. On the contrary, it has continued to buy the bonds of countries at the center of the crisis such as Greece, Portugal and Spain.

Analysts say Chinese support has been important in stemming the depreciation of the euro. Today, it is just 5 percent below its peak against the US dollar, although many European companies would prefer to have a lower exchange rate. Support for the euro will help China in its twin track policy of increasing the international role of the yuan and allowing a gradual appreciation of its currency.

Wen Jiabao is likely to reiterate China's support for the EU during his three-country tour. The EU is China's biggest export market, and China's future growth prospects are dependent on continuing to have access to the largest single market in the world. Trade between the EU and China reached $566 billion last year, almost 10 percent of the total global trade flow.

Europe accounts for just over 20 percent of global GDP and about one-fifth of the global trade. Europe's leading economic position is also demonstrated by the fact that more than 170 of the World's 500 largest corporations are based in the EU. In addition, the average per capita GDP in the EU is about $32,500 compared to about $4,500 in China.

In the past few months the EU has taken unprecedented steps to put in place new mechanisms to deal with the financial crisis. A massive $850-billion stabilization fund has been established and governments have agreed to allow the EU to monitor their economic and financial policies. These measures should help promote financial stability. At the same time, the EU will have to make further economic and social adjustments to meet the challenge from new emerging powers such as China.

Many EU member states are struggling with low growth rates and severe austerity measures aimed at reducing high levels of national debt and deficits. Unemployment, especially unemployment among the youth, has increased in most EU member states and European companies face fierce competition in almost every sector. The technological gap between EU member states and non-European competitors continues to narrow and European society faces the socio-economic consequences of an ageing and shrinking population.

During his visit to China last month, Herman van Rompuy, president of the European Council, thanked his Chinese hosts for their support and assured them that the future of the euro was not in doubt. He emphasized the importance of preserving an open economic and trade relationship. Several European companies have experienced problems operating in China, he said and urged Chinese leaders to ensure "a level playing field".

China should take on more responsibility for the global economy and be better represented in international financial institutions, he said and asked China to pay more attention to climate change and help the rest of the world to move toward concluding the negotiations in the Doha Round of the World Trade Organization talks.

The EU is trying to develop a common strategy toward China but is handicapped by differing views among its 27 EU member states on issues such as lifting the arms embargo and granting China market economy status.

There have been a number of high-level EU-China meetings in recent weeks, which have sought to tackle some of the most difficult problems. Apart from the visit of Van Rompuy to China, Catherine Ashton, the EU foreign policy chief, met with State Councilor Dai Bingguo in Hungary during the second meeting of the EU-China High-Level Strategic Dialogue. These talks covered international issues such as the situation in North Africa and the Middle East, as well as economic cooperation.

China of course is facing its own internal problems. Chinese leaders are aware of the social and economic problems facing the country and need a stable international environment and open markets for Chinese exports. This is why the European Union, despite all its current problems, will remain one of the most important partners of China in the coming decades.

The author is director of the EU-Asia Centre in Brussels.

(China Daily 06/24/2011 page9)

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