The Euro crisis and the role of China: three approaches
by Mario Telò, Vicepresident IEE-ULB, Member of the Royal Academy of Sciences
The world is witnessing a blatant public display reflecting the shifts in the global balance of influence. The key decisions taken on October 27th 2011 by the European Council, notably strengthening the scope of the European Financial Stability Fund (EFSF); and the “Euro”-centred dialogue at the Cannes G20 meeting, were both largely influenced by the emerging role of the People’s Republic of China. This has not happened without raising a series of issues.
A clumsy Nicolas Sarkozy, for not having hesitated to call President Hu Jintao on that same October 27th 2011 to ask for immediate aid, deserved the ironic epitaph in the Chinese media stating “Europe goes cap in hand”. Further adding to the confusion, K. Regling, the EFSF Chief Executive, was in Beijing only one day later for urgent talks about a possible Chinese contribution to the EFSF. This sudden European “look east policy” raised many doubts and controversies within the Chinese public sphere: on the one hand regarding economic implications, and on the other regarding the consequences for China’s new status, role and image within the multilateral system. This is all the more remarkable considering it is only 10 years after China’s membership of the World Trade Organisation (WTO).
The EU’s crucial decision to more than double the funding of the EFSF (from 440 Billion € to 1000 Billion €) – which will hopefully suffice in dissuading further international speculation regarding the Euro’s future - is expected to be somehow supported by China, seeing it holds 60% of the global reserves - (ie. 3.2 trillion $). However, the Cannes G20 meeting did not bare good news for the EU.
The way in which the EU will secure during the next months and years the needed financial investments, notably from the PRC, has proven more arduous than anticipated. Both the Chinese media and epistemic communities’ understanding of this crucial issue is far from being unanimous. According to the “China Daily” newspaper, it touches upon “China’s role in global governance”, whereas the nationalist newspaper “Global Times” highlights the necessity of “concessions in return for cash”. This issue will affect the next EU-China bilateral summit (which was postponed due to the exceptionally heavy agenda of President H. Van Rompuy). Necessary compromises will need to be sought between the EU’s liberalization agenda and the issues raised by the peaceful, yet increasingly demanding rise of China. How will Beijing cope with these new challenges? A plurality of doubts, debates and perceptions emerge within the Chinese public opinion. It is however possible to identify three main currents.
The first one is characterized by a robust legacy born from: (1) Chinese WTO membership; (2) the booming bilateral trade relation; and (3) China’s support of the EU as a fledging counterweight to US unilateralism under the Bush administration. This honeymoon period is symbolized by the “Strategic partnership” signed in Beijing on October 31st 2003. This large and multiple policy stream is still strong, not only amongst leading policy makers, but also within the broader epistemic communities at the best-ranked Chinese universities. As a result, European Study Centres in China have rapidly developed over the past ten years. The decisions of October 27th 2011 have raised the prospects of both further EU integration and the possibility of a Chinese contribution. Pr. Ding Chun, director of the CES at Fudan University, and member of the Davos global forum, welcomes this as “good news for all”. This undercurrent sees a possible win-win convergence behind the wished rescue of the Eurozone as it is in the common interest. It is understood as a positive step forward, still “totally unexpected but ten years ago” when China first engaged the multilateral governance system.
A second more euro-sceptic strand first crystallized following the 2005 EU constitutional crisis. It was simultaneous to a structural crisis in the global free trade system (i.e. staling of WTO negotiations). In 2007, said strand was further amplified by the emerging EU states debt crisis. Nationalist policy makers and populist media have since echoed a variety of pleas against a new perceived “European black death” reminiscent of the 14th century (Remnin bao, October 31st 2011). Media and micro-bloggers have popularized the slogan “Wenzhou before Ouzhou” (Wenzhou – a Southern Chinese village – before Europe); thus raising the question why China, with its low per-head income, should rescue “wealthier nations that have lived beyond their means”. Especially, since Germany and France are seeking to limit their own exposure. The resulting eastward shift of global power is seen by this strand as an opportunity to set hard bilateral conditions for the Chinese intervention in favour of the EFSF. The main demand is the recognition of China’s “market economy status” making it impossible for Europeans “to impose tariffs on Chinese goods considered unfairly priced” (“Global times” a subsidiary of the official “People’s daily, Renmin bao”). The Chinese Academy for Social Sciences’ (CASS) vice-Director, echoing several ministers, thus favours hard conditionality. If an EU focused approach proves unsuccessful, a return to bilateral state-to-state relations would be the wished alternative.
A third position is on the cusp of emerging within the Chinese debates. It is geared towards more mature bilateral and multilateral relationships between China and the EU. The realistic observation that “China cannot afford to do nothing” has prompted many policy makers and scholars – notably from Beijing University, CFAU, Fudan and others – to underline “China’s interest in stability” (including financial) as the best framework for “China’s peaceful rise”. The EU is China’s biggest trade partner with bilateral trade reaching 395 billion € in 2010 following, a 3,9% annual increase in spite of declining demand.
Chinese commentators have been exploring ways of enhancing the country’s understated status of “emerging economy” to that of a relevant actor in global governance. This entails, on China’s part, a shift from specific to diffuse understandings of reciprocity, wherein diffuse reciprocity implies deeper trust and issue linkages. In a Chinese national television interview President Hu Jin Tao thus questioned “why the Chinese would not accept to place their trust in the Euro-zone”. What that means?
Reporting on President Hu Jin Tao’s speech in Cannes reflects the diversity of Chinese opinions. On the one hand, the “China Daily” emphasized how China rejected calls to further appreciate its currency, seeing that the world leading economies failed to agree on how to support the International Monetary Fund (IMF) in tackling the European debt crisis. On the other hand, Pr. Zhou, a trade expert from Tsingua University gave voice in the “Global times” to mounting criticism of the European welfare state. On the other hand, alternative analysis underline how China strives to support the reform of the global multilateral framework, notably provided by the IMF as it is advanced as the best way to frame the EU rescue.
This debate is very relevant for both China and EU. As China emerges as the lender of last resort, its call for institutional reform of the IMF and the underlying monetary system – would favour a pluralist international reserve currency system providing stable value, rule-based insurance and manageable supply. These changes would evidently also entail enhancing China’s share of voting rights. However, such reforms are framed as a reasonable way to consolidate multilateral trust and help developing economies enhance their voice in global governance structures.
A relevant part of the Chinese leadership is prudently seeking to consolidate a distinctive approach to the rules of the multilateral cooperation game. Some analysts explain China’s caution in light of narrow economic wriggle room due to domestic imperatives. Considering the three strands of the ongoing debate, such narrow economic explanations prove to be insufficient. Paraphrasing a famous political rallying call voiced by candidate Bill Clinton during the 1992 presidential debate, one could characterize the multilateral approach of the current Chinese debates related to its relationship with Europe: “It is the reform of global governance, stupid!”
Which tendency will prevail remains uncertain. In 2012, the already fixed succession of President Hu and the still open-ended succession of Prime Minister Wen Jimbao will be crucial factors in determining which strand will primarily shape China’s policy towards the EU and multilateral cooperation. However, important will also be the Europeans’ will and ability to communicate clearly and successfully network with the relevant epistemic communities in China’s rapidly evolving public sphere.