Realizing the benefits of China-EU strategic cooperation
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Discussions between China and the European Union (EU) have speeded up during 2011. To take just the most recent events, the second China-EU Strategic Dialogue was held in Hungary on May 12-15. European Council President Van Rompuy visited China a day later and met President Hu Jintao.
It is easy to see why such exchanges have increased. There are potentially strong benefits for both sides. However some in the EU appear to be asking China to ignore a realistic assessment of risk. This cannot work. Mutual benefits must be based on sober estimates.
It is well known that some of the small EU countries have severe debt problems. These are centered on what the financial community has now ungraciously labeled the "PIGS" economies – Portugal, Italy, Greece and Spain. Simultaneously a second group of EU countries, centered on Germany and France, have recovered from the international financial crisis and are growing fast.
Germany's GDP has recovered to its level prior to the international financial crisis and in the first quarter of 2011 was growing at an extremely fast annualized rate of 6.0 percent. France's economy was growing at an annualized 4.0 percent.
Given that the most troubled European economies – Greece, Ireland and Portugal – are small, then if the whole of the EU were growing as fast as Germany and France there would not be any significant economic risks in Europe.
The problem is that there is a third group of large EU economies that are not growing significantly – the UK, Italy and Spain. In the first quarter of 2011, Spain's annualized growth was only 1.2 percent, Italy's was 0.4 percent, and the UK economy has not grown at all in the last half year. It is this "stagnant middle" of the UK, Italy and Spain that is holding down the EU's overall growth rate. The EU's economy in the first quarter of 2011 was still 2.1 percent below its peak output recorded more than three years earlier prior to the financial crisis.
This slow rate of EU recovery interrelates with the realistic assessment of risks the Chinese authorities must make in their relations with the EU. Hu Jintao, at his meeting with Herman Van Rompuy, stressed the importance of trade and investment. On these considerable progress is reflected in the fact that the EU is China's largest trade partner and China is the EU's second largest trade partner.
China's relations with key European economies are even more advanced. For example Germany and China's economies are highly complementary. Germany is one of the world's most important producers of high quality machinery and equipment. This totally fits with China's aim of upgrading its manufacturing industry – a process that will take many years. China overtook the US this year in terms of the value of Germany's exports.
Potential for expanding such trade is even greater. Hu Jintao at his meeting with Herman Van Rompuy stressed that: "The EU should take proactive measures to expand export of high-tech products to China." There are few downside risks in trade and investment carried on by companies.
