Europe and China: partnership, competition and leadership, P Mandelson

Tags: Europe, China, climate change, Tsinghua University, Peter Mandelson, global markets, managing the global economy, European Union, Chinese investment, energy policy
Content: SPEECH/06/658 Peter Mandelson EU Trade Commissioner Europe and China: partnership, competition and leadership Tsinghua University Beijing Beijing, 7 November 2006 at 07h00 CET
In a speech delivered on 7 November 2006 at Tsinghua University in Beijing, EU Trade Commissioner Peter Mandelson argues that a resurgent China must be ready to take up global responsibilities for the preservation of the open trading system, the global management of energy use and climate change and questions of development and collective security. Insisting that Europe has a strong stake in an economically successful China he argues that Europe and the US must join China in a global political partnership that mirrored the increasing multipolarity and interdependence of the global economy. He argues that a necessary part of that partnership would be a frank debate on questions of fundamental rights and fair trade. Mandelson argues: "We are witnessing the creation of a truly multi-polar economic world, and politics is following closely behind...identify any global problem we face and you will find that China is an essential part of the solution, with a role in framing the international agenda and assuming new leadership responsibilities as it does so. It is no longer possible for China to shut out the world or behave as if it were outside the system looking in." For Europe and the US, closer, more constructive engagement with China Mandelson argues that how the European Union and the United States respond to China's rise and to the shift it has provoked in the global geopolitical and economic architecture would be as decisive as China's own choices. He welcomes the signal by US Treasury Secretary Hank Paulson on his recent visit to China that the United States intended to foster a policy of "strategic engagement" with China. He argues that the Member States of Europe needed to strongly back the joint European approach with China in key areas like climate change, energy security and trade set out in the European Commission's recent wide reframing of its China agenda. He argues: "China needs a continental partner in Europe; Europe needs a continental policy on China". For China, a new responsibility and a growing role... ...in the WTO and the open global trading system. Mandelson argues that as a member of the WTO China is guaranteed open and stable access to global markets. But China could do more in return, for example by playing a much more active role in helping to steer the WTO negotiations in the Doha Round. It also needs to fulfil its WTO obligations, open its markets further and commit to trading fairly. Mandelson argued that China is already far ahead of almost all other emerging economies in opening its market to trade. But he argues that as the world's third largest exporter, soon to be its largest exporter, China's "plays in a different league" to the rest of the developing world and was judged by different standards. Mandelson is in China to present to the Chinese his new EU-China trade and investment agenda, published in October 2006. ...in the collective security system. Mandelson welcomes the fact that in its international diplomacy "China has been increasingly rising to the vocation implied by its permanent seat on the UN Security Council", taking the lead as a mediator with an increasingly unstable North Korea and contributing to the UN-mandated peace-keeping force in Lebanon. 2
...in development. Mandelson notes that China's appetite for energy resources and raw materials has provoked a flow of Chinese investment and engagement beyond its continental frontiers, especially in Africa. He argues that "China's presence in Africa should evolve into a wide and responsible contribution to Africa's development challenges." ...in the fight against climate change and the management of global energy resources. Mandelson argues that as country that produces a new coal-fired power station every week, and will be the world's biggest emitter of carbon-dioxide by 2030, China has a central role alongside the EU and the US in addressing the emergency of climate change. A frank debate on human rights and trade Mandelson insists that the frank debate between the EU and China on fundamental rights and market access would continue and was the necessary dialogue that opened the door to wider partnership. He insists that "Europe, as an intelligent critic, will be a strong, constructive ally of reform." He says that Europe would also continue to insist that China continue to meet its WTO obligations, improve access to its markets and protection of Intellectual Property Rights and reduce state intervention that led to unfair conditions of commercial competition. For its part, he says Europe would "take on its own protectionists", remain open to Chinese imports and adjust to the Chinese competitive challenge. "An intelligent understanding of the question of China" Almost exactly eighty six years ago this month, in 1920, before Tsinghua University moved to Changsha and then back here to Beijing, the outstanding British philosopher and political thinker Bertrand Russell gave a lecture here at this university. It was part of his year in China lecturing on China's future development at the end of which he wrote a book about his impressions. He called the book The Problem of China and I searched out a copy while I was preparing for this lecture. Partly because I wanted to see what an educated European and Englishman might have made of China those eight decades ago. Partly because I wondered what advice he had for his fellow Europeans in seeking a partnership with China. It's a very dated book, but some words from the introduction leapt off the page at me. Russell wrote: "China has an ancient civilisation which is now undergoing a very rapid process of change... Chinese problems, even if they affected no one outside China, would be of vast importance, since the Chinese constitute a quarter of the human race. In fact, however, all the world will be vitally affected by the development of Chinese affairs. This makes it important to Europe, almost as much as to Asia, that there should be an intelligent understanding of the questions raised by China, even if, as yet, definitive answers are difficult to give." I think we are now moving towards those definitive answers. Back in 1920 Russell sensed that China was on the verge of integrating into the international system of nation states. He knew that it was looking for a way to balance rapid industrialisation with the preservation of the social and cultural balances in what was then a largely agricultural society. 3
But what strikes me is that these words could nevertheless have been written yesterday. In fact, they almost certainly were written in some variation yesterday in a European or America newspaper or journal. Or spoken by a politician or a policymaker. These questions are on everyone's lips. The course of the twentieth century, and the course of war and political upheaval in China have delayed China's full integration into the international system. But we have now come back to a point where the need for an intelligent understanding of the questions raised by China's growing weight and confidence are once again at the forefront of debate. Today I would like to offer some tentative answers. In a positive way, because I am a "China optimist", not a China fear-monger. This is the spirit and attitude of the European Commission's recently published policy on China which is the basis of my approach. You can sum it up like this: Europe and China are competitors. We are also partners. Together, we share global responsibilities. China comes back to the centre For the rest of the world it is now unarguable that China's temporary move to the periphery of the international system is over. In a nutshell - and this is the core of my remarks - you could identify any global problem we face and you will find that China is an essential part of the solution, with a role in framing the international agenda and assuming new leadership responsibilities as it does so. China's international isolation ended for all intents and purposes in 1978 with the Deng Xaioping reforms and the reasoning that if the Chinese economy could develop the market mechanisms necessary to produce sufficient surplus for export it could spend the income on modernisation at home. That simple economic idea when applied by, and to, the genius of a billion Chinese has become the engine for the single fastest economic transformation the world has ever seen. China's economy has been growing at around 9% a year for two decades and its share of global GDP has risen tenfold. This has powered China's emergence at the heart of the global economy and the international trading system. As China and the other emerging economies catch up with the developed world, we are witnessing the creation of a truly multi-polar economic world, and politics is following closely behind. China is an active geopolitical player not just across Asia but increasingly in Africa and also in Latin America. Its competitive exports are restructuring all our economies and changing the dynamics of global trade. It is impacting on every continent. It is no longer possible for China to shut out the world or behave as if it were outside the system looking in. China's decision to accept a full stake in the existing international trading and collective security system will help decide how effective those systems are or, indeed, whether they continue to exist in their current form. That's why China has no option but to choose effective leadership and shared responsibility in the world. In growing into its global role, China has not rewritten or bent the laws of economics. The same export led growth and heavy capital investment produced the same results three decades ago in South Korea and Taiwan, and they are producing the same results today in Malaysia and Vietnam. But the difference in China is one of sheer scale. 4
China today welds more steel, pours more concrete and burns more coal than any other country in the world. Twenty years ago Europe traded almost nothing with China. Today China is Europe's single biggest source of manufactured goods. By the end of this decade China will be the largest exporter in the world. This economic growth has lifted more people out of poverty more quickly than any economy in history, which is something we should all celebrate. Last year 80 million Chinese people bought a new cellphone, and China has more broadband subscribers than any other market in the world outside the United States. Which means that all of you will live lives your grandparents could not even dream of. China's policy makers and leaders have recognised that this rapid economic change is creating huge social and environmental challenges. Economic inequality and regional disparities will be a growing source of social pressure, as will the projected tide of internal migration to China's growing cities, which is projected to reach 300 million people by the middle of this century. But the challenges are not only domestic. The rest of us are not idle spectators in this process, because it will have profound implications for our lives, our economies and our shared environment. It is right that Chinese policy makers combine confidence and pride in China's growth with a sober sense of the immense social and environmental challenges that lie ahead. China is a supertanker, but it is steering through narrow straits. And those straits are peopled by those living on and around this and every other continent. China's future; everyone's future So, my essential point today is that Europe and the rest of the world have a huge investment in working with China as it sets its course. How the European Union and the United States, in particular, respond to China's rise and to the shift it has provoked in the global geopolitical and economic architecture will be as decisive as China's own choices. And I say European Union advisedly because challenges like energy security, the environment and migration are subjects where only collective European action can be effective - not just that of individual European nations. Here the European Commission has to give leadership. China needs a continental partner in Europe; Europe needs a continental policy on China. And both of us need the active engagement of the United States. For this reason it is immensely significant that the US has moved to foster greater strategic engagement with China, a move cemented during the US Treasury Secretary Hank Paulson's recent visit here. One very fundamental reason for this shift is clear. China is now the largest foreign owner of US government and corporate debt after Japan. The economic interlocking is deepening every year. China operates both as a manufacturing finishing shop for Asian and foreign companies and as a sizeable export market for European and US capital. China's growth is dependent on Chinese and foreign-owned companies in China exporting to the huge markets of the United States and Europe. This is why those who think that in trade it is easy to or even possible ­ let alone desirable ­ to target one particular country's goods are living increasingly behind the times. 5
But - and this is the point I want to underline - our interdependence is also ultimately a political one. We have a joint stake in managing the global economy and maintaining a stable and equitable world. And China is now in a position not only to accept new responsibility in these areas, but also to show strong leadership. I want China to do so. For example, as a member of the WTO China is guaranteed open and stable access to global markets. But China could do more in return, for example by playing a much more active role in helping to steer the WTO negotiations in the Doha Round. In its international diplomacy China has been increasingly rising to the vocation implied by its permanent seat on the UN Security Council. It has taken the lead as a mediator with North Korea. It has also contributed to the UN-mandated peacekeeping force in Lebanon. Last weekend's Sino-African Summit here in Beijing was a reminder that China's appetite for energy resources and raw materials has provoked a flow of Chinese investment and engagement beyond its continental frontiers, especially in Africa. Now China's presence in Africa should evolve into a wide and responsible contribution to Africa's development challenges. I welcome the steps in this direction that China has announced. In every sphere, we are seeing fresh evidence that global challenges do not respect national borders, and nowhere is this more obvious than in respect of the world's energy resources and the related issue of climate change. Europe and the United States have a huge responsibility to set a good example. But a country like China that produces a new coal-fired power station every week, and will be the world's biggest emitter of carbon-dioxide by 2030, is a country with a central role in addressing the emergency of climate change. China is already a net energy importer and its energy needs will continue to grow. China's energy policy will have to reflect our joint responsibility for managing what is both a finite resource and the key element in climate change. The incontrovertible evidence assembled in the UK and published in the report by the international economist, Sir Nicholas Stern on the economics of climate change leave us in little doubt that global warming is an issue for humankind of a political order of magnitude probably greater than any other. But the same logic of responsibility and leadership applies to migration. Or organised crime. Or international terrorism. These are questions on which China has not only major national interests but also clear international responsibilities ­ and a new capacity to act. China, Europe and the United States In this context, I want to develop my belief that on all of these questions China, Europe and the United States should maintain a closer dialogue and have the potential to act more in concert, offering the three poles of a global response. Such a partnership would demand a new order of engagement between us. Two developments should be stressed. The first is, as I have noted, Treasury Secretary Paulson's signalling - indeed from this very podium - of new engagement in US policy towards China which will commit the US administration to taking on powerful antagonistic constituencies in the United States. 6
The second development is the European Union's renewal of its own clear call for partnership with China. I am here in Beijing to present to my Chinese counterparts the new policy documents that the European Union has recently published that set out our future political and trade and investment agenda with China. This includes the launch of negotiations on a new Partnership and Cooperation Agreement between China and the European Union, and a radically updated set of agreements on trade and investment, which I am discussing with Minister Bo Xilai this week. I believe he shares my tough-minded but positive vision of where we need to take this. Because this new EU- China strategy contains the now familiar but demanding messages on human rights and improved market access, it has been seen by many as a hard line. And it is tough where it needs to be, in areas like social and political freedoms, intellectual property rights and fair trade. But it is emphatically a message of partnership and joint responsibility. And from that perspective our often difficult debate on issues like fundamental rights and market access must be seen not as the totality of our relationship, but as the frank dialogue that is needed to allow us both to build a partnership for global challenges but also to help ensure China's own internal stability ­ for the region and for the world's sake. We have backed the `Harmonious Society' concept and ongoing efforts to reform and open up. I believe Europe, as an intelligent critic, will be above all, a constructive ally of reform. Managing our commercial relationship I want, in the concluding section of my remarks, to focus on our commercial relationship not only because this is my own area of responsibility but because, if our trading relationship is not handled properly, it is capable of seriously impeding even jeopardising - the development of our wider relationship. China's rise has exerted serious pressure on many European industries, especially in labour intensive manufacturing. European companies are being forced to adjust, to move up the value chain and invest in their comparative advantages in design and high-tech, high Quality Production. This is a painful adjustment for many and it is generating real political pressures. China is forcing us to compete harder both for our own markets and for export markets. China is the major challenge for almost any exporting European business that still wants to be a business in ten years' time. So, many Europeans see China as a globalisation scare story. But the economic evidence suggests China is actually a globalisation success story for Europe. Why? Because many European companies also invest and produce here. Our importers and retailers buy here. Competitively priced inputs from China have also lowered costs for European processing industries and cheap Chinese goods have lowered costs for European consumers, which has kept a downward pressure on inflation and interest rates. One study in the Netherlands suggested that cheaper Chinese goods save the average European household about 300 every year - and those benefits accrue mainly to poor households in Europe who most value the savings. Most importantly, China is also a growing magnet for our own trade and investment, not least because China's growing numbers of discerning middle class consumers are a key market for the things that Europe produces best. 7
Take my word for it - if you are not already doing so, in ten years time you'll all be drinking European wine and eating French cheese, wearing smart Italian clothes and shoes and driving German cars. And much else besides. But there is also a growing perception in Europe - and I hope Chinese leaders will not ignore this - that China and Europe do not trade on genuinely reciprocal, equal, terms. That China does not always trade fairly. That European companies, goods and investment are too often unfairly blocked from the Chinese market by various non-tariff barriers. When I went to Shenzhen earlier this year I was struck by the fact that for every four containers leaving China for Europe, three were returning empty. And, to be frank, I don't think European entrepreneurialism is the problem. I am the first to accept that China is already far ahead of almost all other emerging economies in opening its market to trade. But China's benchmark is not to be found in the developing world. By 2010 China will be the world's biggest exporter. It plays in a different league. The expectations are higher. Five years after its accession to the WTO, despite a lot of implementation work, China has still not fulfilled some of its commitments and the EU will push to see these met. China can still do more to open its markets and liberalise trade in services and investment. And it will gain from that, as liberalisation translates into higher living standards. We also expect China to compete fairly - to ensure that massive state intervention and distortion of costs and prices does not provide Chinese companies with an unfair trading advantage. Europe has no interest in challenging the exercise of legitimate comparative advantage in labour or production costs. That is tough competition but it is fair competition and we will respect it. But Europe will defend itself against unfair trade ­ just as China does all the time, and just as we are entitled to do under WTO rules. Europe also needs to see tougher action on counterfeiting in China, which is a ball and chain on EU competitiveness and a growing problem for China itself. Last month China overtook Germany to become the world's fifth biggest filer for patents. So increasingly the Chinese government is seeing a joint interest in fighting this illegal activity - but we need to see more enforcement of the law. There are other structural trade barrier issues that Europe will continue to urge China to address. The focus on export-led growth rather than domestic consumer demand, and high levels of precautionary saving by Chinese consumers restrains the important development of a growing consumer economy and acts as a brake and barrier to others' exports to China which would re-balance trade. China's banking system and financial infrastructure is bending under the strain of rapid development and needs urgent reform. This no doubt sounds like another list of foreign complaints and demands. But our recent trade and investment strategy makes it clear that there are responsibilities on both sides. Europe for its part must commit to helping China assume full market economy status and offering open and fair access to China's exports, and it must adjust to the tough Chinese competitive challenge. We have to take on our own protectionists, because we cannot demand openness from China from behind barriers of our own. 8
Conclusion: Europe and China In other words, the challenge for Europe and China lies in balancing partnership with competition. A frank debate on values with a clear understanding that we make up between us a quarter of humanity, and that we share a fragile and threatened planet. Our current political contact, and the infrastructure of our bilateral political relationship, is not yet strong enough, or intensive enough, in my view, to bear the weight and challenges of this partnership. This needs to change. I've always suspected that part of Europe's problem in dealing with China begins with incomprehension. We studied Confucianism. We modelled our civil services on the mandarins of Chinese government. We imported your porcelain and then we imported the tea to drink from it. But the understanding of China in Europe is still too often as two-dimensional as the lacquered images of China on a porcelain tea cup. That will also have to change. This university was founded to prepare students to travel and study abroad. In the twenty first century - which will be your century - it must take up that vocation. And Europe needs to send its own in return. The flow of knowledge and experience, and the building of trust between China and Europe is the foundation of effective partnership. Like most Europeans I can barely grasp what it must be like to be living in a society that is changing so fast, in such fundamental ways. Europe's own industrial revolution is not only outside of living memory, but it happened in slow, slow motion in comparison to what you are living through. What is absolutely fundamental - and Bertrand Russell was at least right about this in 1920 and it is even more true now - is that the whole world will be affected by Chinese affairs. However we frame the questions raised by China's dramatic rise, the one thing we know for sure is that all our destinies are intertwined. China and Europe have no choice but to answer those questions together. And we must join urgently with others in doing so. 9

P Mandelson

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