June 25, 2011

Mr Wen goes to Europe

June 24, 2011 10:23:23 PM
Ashok Malik

China has built a business relationship with Germany while exploiting the fears and anxieties of smaller EU states envious of the German economy.

Berlin: As Premier Wen Jiabao begins a week’s visit to Europe and travels to Britain, Hungary and Germany, it is difficult to escape the feeling of Chinese triumphalism. As Europe struggles with its economic woes, it finds itself dependent more than ever on Chinese largesse and markets. China has now invested $750 billion (a fourth of its foreign exchange reserves) in bonds of individual European nations. Some of the smaller southern countries — such as beleaguered Spain, Portugal and Greece — are being kept afloat by Chinese money.

Even in Germany, Europe’s most robust economy, engagement with China is non-negotiable. Germany’s exports to China —largely machine tools and automobiles — have been galloping in the past year, in some sectors growing at 30 per cent rates. Without the Chinese market, Germany’s export-driven model would not work. China is already the fifth largest export market for Germany. In about five years it is expected to be number one

There are similar implications for other European Union countries. China is the EU’s fastest growing export market. In Italy — where small and medium enterprises often supply components to German machinery manufacturers — Chinese demand is more important than direct-trade statistics suggest. In France, the surge in wine prices — 20 per cent up in 2011 as compared to an anyway bullish 2010 — is being attributed to Chinese demand.

For Germany especially, this makes China a compelling partner. No wonder Mr Wen’s visit, with a heavy-duty delegation of 15 Ministers is being treated with the sort of deference once reserved for only the American President.

Germany is Europe’s economic hegemon. It is responsible for 27 per cent of EU exports. However, 45 per cent of EU trade with China originates in Germany. As one Berlin-based economist put it, till even the late 1990s for every $100 worth of goods Germany imported (from the rest of the world), China and India imported $40. Today the figure stands at $160. Much of the incremental growth in demand has been Chinese. This makes Asia’s emerging powerhouses critical to German industry.

While the India story is for the future, the China story is unfolding here and now. As an official in the German Foreign Office said, “All these years there have been two pillars of German foreign policy: EU unity and integration; and the trans-Atlantic relationship. Now we have to add an Asian pillar.” The Asian pillar is China and the Beijing-to-Berlin (B2B if you prefer) equation is already noticeable.

In the Group of 20, China and Germany are invariably on the same side. Both have huge current account surpluses, both export more than they import, both have found themselves facing American criticism about not consuming enough and going slow on “rebalancing”.

Yet the German (or EU) and Chinese relationship is not a settled one. It is in a state of flux with Beijing constantly testing the old European powers to see how much they will bend. A German analyst was blunt: “Till even five years ago, when a Chinese delegation came here, it began by saying ‘We have come to learn from our German friends’. Today they don’t say that. After the financial crisis, they say the EU has to learn from the Chinese economic miracle, and claim they are saving capitalism.”

The Chinese see benefits of European markets and in specific domains European technology.

They also have a certain admiration for Germany. In some senses, the German state is a successor to the Prussian Army organisational model — which also influenced modern management theory, and was the template for business corporations when they began to be set up in the 19th century.

An emphasis on technocratic efficiency, on discipline, rigour and process, appeals to the Chinese leadership. In contrast, it lays little store on abstract thinking. In the run-up to the 2008 Beijing Olympics, China sent an astounding 156 delegations to Germany to study how the 2006 soccer World Cup was being put together.

Even so, the Communist Government is resorting to a selective reading of the German narrative. Intellectual freedom and civil liberties — the so-called ‘values’ issues — are essential to the EU’s self-image and world view. China is bored by such talk, even dismissive of it. As it happens, the intensity of its irritation has grown in proportion to its economic clout. For Europe this has come as a rude shock.

In the early 2000s, the EU began a strange and perhaps unrealistic romance with China. It was termed the policy of “unconditional engagement”, a sort of European Gujral doctrine. Believing it understood Chinese civilisational sensitivities better than did the grasping Americans, the EU leadership took it upon itself to coach China and chaperone it as it acquired a global role. Beijing played along.

Five years ago, plans began to be drawn up for a massive ‘Art of the Enlightenment’ exposition in the Chinese capital, as part of an effort to introduce the local people to the high thinking Europe felt was essential to great power status. In April 2011, as the exhibition awaited inauguration, China suddenly refused a visa to a leading German Sinologist who had worked on the preparations and was part of the German Foreign Minister’s delegation. The Sinologist had spoken against imprisoning of dissidents; Beijing chose to disparage him as “not a friend of the Chinese people”.

China was making a point with the visa refusal. As the EU’s self-appointed role as guidance counsellor ended in fiasco, Europe began to ponder difficulties of dealing with the Asian giant. For a start, economic muscle was being brazenly deployed to divide the EU. In 2007, Germany’s Chancellor Angela Merkel met the Dalai Lama. An angry Beijing snubbed her and immediately played host to a team of French businessmen lead by President Nicolas Sarkozy. The honeymoon lasted till Mr Sarkozy himself met the Tibetan monk a year later.

As a European Council on Foreign Relations policy paper summed up earlier this year, “Unless member states get much better at coordinating their China policy very quickly and learn how to use their leverage (for example China’s need for advanced technology), there is a danger that they will be picked apart.” An illustration would help. China has built a business relationship with Germany. Nevertheless, it simultaneously exploits the concerns of smaller EU countries that are both envious of Germany’s booming economy and anxious about its possible diplomatic consequences.

This shouldn’t surprise. It is exactly the strategy China has adopted for India and South Asia.


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