When China Rules the World

For the most part, Europe’s response to the rise of China has been low-key, fragmented and incoherent. This is because the European Union lacks the power and authority to act as an overarching centre in Europe’s relations with nations such as China. As a result, Europe generally speaks with a weak voice and more often than not with many voices. The European Union is not a unitary state with the capacity to think and act either strategically or coherently, but an amalgam and representative of different interests. [1136] Europe’s economic relationship with China has grown enormously over the last decade, with a massive increase in imports of cheap Chinese manufactured goods and a very large rise in European exports to China, mainly of relatively high-tech capital goods, especially from Germany. This has resulted in a growing European trade deficit with China as well as a loss of jobs in those industries that compete directly with Chinese imports. Until recently this has aroused very little political debate, certainly nothing like that in the United States. There are several reasons for this. Europe’s trade deficit with China has been much smaller than the US ’s, although this is now changing. Political attention is centred not so much on Europe ’s deficit but on that of individual countries, and even these have so far attracted relatively little concern. In contrast to the United States, there has been little debate about the exchange rate between the renminbi and the euro, though the appreciation of the euro against the renminbi prior to the global recession led to growing European anxiety and representations to Beijing about the need for a revaluation of their currency. Finally, Europe has been overwhelmingly preoccupied with the effects of the recent enormous enlargement of the EU, not least the large-scale migration of workers from Eastern and Central Europe to Western Europe, [1137] which has had a much greater impact, and certainly been more politically sensitive, than China.

As a consequence, the levels of concern in Europe about the economic repercussions of China ’s rise have been relatively muted; but with increased anxiety about the value of the renminbi and the growing trade deficit, there have been signs that this might change. [1138] The predominant view in most countries has been that China ’s rise has on balance been beneficial because of its negative effect on consumer prices, though in the less developed European countries like Portugal and Greece, together with the new entrants – all of which compete in varying degrees with China – the attitude has been more mixed. [1139] However, the credit crunch and the onset of a depression has kindled a mood of anxiety in many European countries, perhaps especially France and Italy, about the effects of globalization and the impact of China’s rise. [1140] The result has been increased economic tension with China, raising the possibility of limited forms of action, such as anti-dumping duties and anti-subsidy tariffs, against Chinese imports. [1141] While previously China ’s economic rise was seen as largely benign, and for the most part beneficial, the mood has become less sanguine amid growing concern about its possible consequences for Europe. A further factor fuelling this anxiety is the fear of investments by Chinese multinationals and by the Chinese Investment Corporation in key European industries.

In the longer run, as Chinese companies progressively move up the technological ladder and develop brands which compete head-on with those from Europe, the number of losers could escalate considerably and fuel a demand for protection against ‘unfair’ competition from China, perhaps culminating in Europe steadily raising protectionist barriers against China, a move which would have profound political repercussions. [1142] At this stage, however, it is premature to predict what the likely political effects of China ’s growing competitive challenge to Europe might be in the future.