Changed perceptions of China in Europe

Vice-President Xi Jinping's visit to Ireland has highlighted the way in which the impact of the international financial crisis has brought about a major change in the perception of China in Europe, with a shift toward greater realism and closer ties.

It is only necessary to go back four years, in the run-up to the Beijing Olympics, to see the difference. At that time, according to a poll in the Irish Times, a campaign for an Olympic boycott, promoted by figures from most Irish political parties, had the support of 43 percent of Ireland’s population – compared to 57 percent favoring participation. In comparison, during Xi Jinping’s visit, every major party and newspaper spoke in favor of closer links with China.

Taking another example, in early 2008, French President Sarkozy threatened not to attend the opening ceremony of the Beijing Olympics, and the mayor of Paris was saying he would hang a banner outside his office attacking China. In contrast, when President Hu Jintao visited France in November 2010, President Sarkozy did him the special honor of meeting him personally at the airport.

Trade between key European countries and China has advanced in the intervening period - Germany now exports more to China than the US. China’s investments in Europe have moved beyond bond purchases to Chinese companies signing major deals – particularly in infrastructure. China’s Three Gorges Corp bought a 21 percent stake in EDP-Energias de Portugal SA for $3.5 billion, and China Investment Corp, China’s sovereign wealth fund, bought a 9 percent stake in the holding company of the UK’s Thames Water. In finance, in January the UK signed an agreement with the Chinese government for London to act as an offshore center for RMB transactions.

What in most European countries has essentially become an all-party welcome for closer economic ties with China contrasts with the political atmosphere in the US. While Vice-President Xi was treated cordially by President Obama’s administration during his US visit, leading Republican presidential candidate Mitt Romney declared he would designate China as a currency manipulator on his first day if elected president.

In contrast to Europe, the US has adopted a position blocking Chinese inward investment. The most famous case was China’s National Offshore Oil Corp being prevented from purchasing Californian oil company Unocal. China’s Huawei, the world’s second-largest telecommunications equipment manufacturer, has effectively been blocked from bidding for US contracts.

Naturally there are still some in Europe holding out against better relations with China. Britain’s Daily Telegraph, for example, carried a headline regarding Vice-President Xi’s visit to the US that “China’s upcoming leader Xi Jinping has been wined, dined... and warned.” But in contrast, the UK’s Guardian newspaper recently carried an editorial headlined, “Chinese economy: headaches to die for,” arguing: “Any appraisal of China's prospects must begin by admitting that the Middle Kingdom is the most astonishing development success story in the world today.” Even a tabloid newspaper, such as the UK’s Daily Mirror, carried a major story emphasizing the positive role of UK trade relations with China. It is clear that the political atmosphere for China’s trade and investment in Europe is currently more favorable, and enjoys far wider support, than in US politics.

This situation is important not only for China but for Europe and the US themselves. Trade growth between both the US and China and between the EU and China is larger than between the US and EU. Comparing the latest available data, for November 2011, with the last quarter of 2007, before the financial crisis, US exports to the EU increased by an annualized $12 billion and EU export to the US increased by an annualized $7 billion. But US exports to China increased by an annualized $49 billion, while EU exports to China increased by an annualized $83 billion. US exports to China therefore grew four times as much as exports to the EU, and EU exports to China grew by almost 12 times as much as exports to the US. This data also shows the EU gained more from increased exports to China than the US - EU exports to China increased by an annualized $34 billion more than US exports to China.

A parallel investment pattern exists. Europe is now the largest destination for Chinese companies’ foreign investment. It also accounted for 34 percent of China’s outward investment in mergers and acquisitions in 2011. In contrast, China’s investment in the US fell from $4.2 billion in 2010 to $3.2 billion last year.

Naturally there will inevitably be downs as well as ups in Europe’s economic relations with China – a current “down” is the row over the EU’s airline tax. But overall the current types of deals being done are well founded because they are mutually beneficial. As The Economist magazine noted: “In welcoming China, Europe is swimming with the tide of history; America is struggling against it.”

The reason that at present the EU is gaining more from trade and investment with China than the US is certainly not due to China’s political bias – China’s government must consider its relations with the US as the world’s most important bilateral one. But, in addition to the different scale of openings being offered them, China’s companies have to evaluate “political risk” just as much as Western ones do. “Political risk” is clearly now lower in Europe.

Good relations between Europe and China are evidently capable of generating great mutual benefits. China is a huge market for technologically advanced and high-value exports from the EU, as Germany’s export success shows, which improves China’s industry, while the EU also gains from China’s continued support for the euro.

The change in the perception of China in Europe is therefore not just a success in China’s diplomacy but has real foundations. As it is strongly in the interests of both sides, it has potential to further advance.

John Ross is Visiting Professor at Antai College of Economics and Management, Shanghai Jiao Tong University. From 2000 to 2008, he was then London Mayor Ken Livingstone's Policy Director of Economic and Business Policy. The views expressed here do not necessarily reflect those of the China Daily website.