Raffaello Pantucci

 Can dual track relations converge?

In the last several years, EU-China relations have been turbulent. Most recently, the Chinese government reacted angrily to the awarding of the Nobel Peace Prize to dissident Liu Xiaobo and the broad European support for the choice, with the state press arguing that the decision “was tantamount to overt support for criminal activities in China.” This rage continues to impact Norway, where the Committee is seated, with Norwegian salmon exporters reporting that their fish are being held up by Chinese customs, rendering them inedible. Salmon exports have dropped 70 percent since last year, while discussions about a Norwegian Free Trade Agreement have been put on hold indefinitely.

EU-China Summits have also been marked by tumult in recent years. 2008 was a particularly bad year when, already spooked by events in Tibet and tensions during the Olympics, the Chinese leadership was infuriated by the Dalai Lama’s positive reception during his visit to Europe. When the French and sitting EU President Nicholas Sarkozy made time to meet with the Dalai Lama in December 2008, the Chinese responded by pulling the plug on that year’s summit. While the following year’s gathering was largely uneventful, 2010 proved problematic again when Chinese Premier Wen Jiabao, who was expecting that his country would be granted the long-awaited Market Economy Status (MES) – which confers European recognition that China is a market economy and provides some anti-dumping protections – was instead handed a list of demands, during his Brussels visit. The meeting collapsed and a planned press conference was cancelled.

Trade – the tie that binds?

Nevertheless, strong economic and sociocultural ties exist. China remains reliant on, and has continued to do business with, Norway’s extractive industries in the wake of the Nobel Prize decision. And this relationship with Norway is representative of that found across Europe more generally. Economic relations have moved forward quite well – to the tune of 113.1 billion euros in European exports to China and 281.9 billion euros from China to Europe in 2010. And Wen, Hu Jintao and Li Keqiang’s recent trips to Europe all resulted in promises of significant investment to help bolster faltering European economies.

Social and cultural exchanges are also on the rise. A whopping 210,000 Chinese are studying in Europe, while some 25,000 Europeans study in China. Chinese business schools have expressed a keen desire to learn managerial skills from their European counterparts. Already the China Europe International Business School (CEIBS) in Shanghai is one of the world’s best, and, at a recent conference, a senior foreign ministry official announced that a delegation from the National Party Congress would be dispatched to Europe to learn more about managerial and technical expertise and build further links with their European counterparts.

But such socio-cultural links also show fissures. While China might encourage the development of personal contacts and cultural or educational exchanges, it restricts the volume of foreign films that enter the Chinese market, and European and American shows do not play on Chinese television. And the British Council, the UK’s main instrument for global cultural outreach, is not permitted to teach English in China, depriving it of one of its main sources of income.

China may welcome Europeans and their investment, but they continue to make it difficult for companies that want to bring new technologies into the country. As Juergen Hambrecht, the CEO of German chemical multinational BASF, said, in response to Chinese demands that foreign companies wanting to enter the Chinese market had to hand over technical information: “forced disclosure of know-how in exchange for investment decisions” is something “that doesn’t conform entirely to our expectations.” In addition, companies that work in what China considers ‘strategic sectors’ are only allowed to enter the Chinese market as part of joint ventures. At a recent round-table of European business representatives in Shanghai, a number of participants complained about the bureaucratic obstacles they encountered, for example, when the central government might look favorably on their investments, but a local government would exclude them in favor of local competitors.

But none of this is very surprising. A country naturally looks out for its own interests, and China is merely following that course. That the companies involved tend to be state-owned simply means that the government-business linkages are clearer than in Western scenarios.

Bridging dual track relations

Indeed, China’s financial pressures are significant. While the country has witnessed dramatically high levels of annual growth in recent years, its leaders continue to insist that China remains “a developing country.” And, in some ways, this is of course true. A visit to the wilder regions of Xinjiang will reveal people living in almost medieval conditions – a stark contrast with the dizzying, glamorous heights of Shanghai’s Pudong New District.

Contradictions also exist within EU-China relations. On the one hand, Europe and China remain highly interdependent with significant trade flows in both directions. At the same time, however, deep tensions obviously exist, and security relations are largely absent from the bilateral dialogue. While this may seem to fall far short of a genuine strategic partnership, existing ‘strategic partnerships’ rarely exist without these kinds of serious contradictions. For example, while France and the US fell out dramatically over Iraq in 2003/2004, they nevertheless remained close partners, with their respective national intelligence services continuing to work together out of Paris to counter the threat of international terrorism. This was at a time when the US Congress was speaking of “Freedom Fries,” and French leaders spoke out against the war and United States to rapturous applause at the UN.

The point is that strategic relationships between states are complex bilateral interactions with both positive and negative elements. China and the EU may not have a relationship with the same sort of strategic depth as the transatlantic alliance, or, for example, China’s relationship with Pakistan, but, at the same time, both parties have overwhelming incentives to make it work. In this way, the EU-China strategic partnership is similar to the relationship between the US and China, the key distinction being that the US has a clearer decision-making structure than the EU. This key difference can be found in most of the EU’s bilateral relationships, where a lack of clarity from Brussels, and competing opinions from member states, leaves partners frustrated.

A modus vivendi must be established before the EU and China can become more than just trading partners. Issues like MES and the continuing European arms embargo against China weigh heavily on the relationship and have no clear resolution in sight, while any European effort to speak out on human rights draws a sharp rebuke from China. Europe needs to establish a coherent voice on these issues and figure out what, beyond trade, it wants out of the EU-China relationship. From China’s perspective, the relationship is both frustrating and effective – on the one hand, efforts to get the technology it wants are blocked; on the other, EU member states are always clamoring for Chinese investment, leaving China to pick and choose where and when it wants to engage.

Unfortunately, dramatic changes in EU-China relations are unlikely anytime soon. China will continue to want what Europe cannot give, while Europe’s fractured decision-making will impede any capacity to move things forward. At the same time, both sides will remain crucial trading partners, with China’s recent investments in European debt merely strengthening the link. This may not be a strategic partnership that will be able to re-shape the world anytime soon, but it is one that works and needs to work; for the time being, accepting the limits of current dynamics would be a good start.

Raffaello Pantucci is a China Program Associate at the European Council on Foreign Relations and a Visiting Scholar at the Shanghai Academy of Social Sciences. The research for this article was made possible thanks to the EU STF Program.