China in a new global system

By Hannes Swoboda

The Chinese leadership has enormous tasks and challenges in managing and developing this vast country and in enabling its population to contribute to and benefit from global wealth and welfare. However, no country - even as big as China - can achieve its goals alone.

Connectivity is necessary even if it brings challenges along the way. But, as with the US under leadership of President Trump, partners can quickly become competitors and even adversaries. In fact, the choice of partners - and that does not exclude serious and fair competition - for a big country like China is very limited. Relatively equal partners for China can only be found in the US, Russia and the European Union. Naturally, there are also potential partners among China’s neighbors in Asia, for example Japan. However, in this case history prevents two neighbors from forming alliances and forging partnerships with each other. In addition, present rivalries over the South China Sea further drive them apart.

To promote economic and social progress and reduce poverty in China, the country needs investments, new technologies, markets for its goods, and resources. It also needs to manage the delicate balance between political guidance and democratic aspirations of its people.

A recent McKinsey study China and the World - Inside the dynamics of a changing relationship has come to the conclusion that the relationship between China and the rest of the world appears to be entering a new phase. “China's exposure to the world in trade, technology and capital has fallen in relative terms. Conversely, the world's exposure to China has increased. This reflects the rebalancing of the Chinese economy toward domestic consumption.” The report also notes: "China's technology value chains are highly integrated globally."[1] One should not neglect this integration when looking at China's overall strategic possibilities, especially its connectivity to other regions.

Russia an important ally?

Russia has certain resources, especially in terms of energy, that China is already using. However, the Russian Federation is not a big investor. It has limited availability of sophisticated technologies and a rather stagnating market. In addition, the oligarchic structure of the state is not a good example for China's political reforms. Russia is not really using its resources to carry out thorough modernization and it stands in sharp contrast to China's efforts in many other ways. Out of political reasons Russia has never made use of the “peace dividend” after the break down of the Soviet Union to build up a strong economy. Although militarily and politically, it made some important advancements this does not help to overcome its economic deficiencies. Overall, it lacks the dynamics for a successful transformation of its economy and society.

Certainly, geographic proximity of Russia to China gives a good reason for Beijing to develop sound economic and political relations with Moscow. In addition, policies like that of President Trump are pushing China into a closer relationship with Russia. Nevertheless, as long as the development of the Russian economy is dominated by oil and gas extraction and export, the economic contribution of Russia for the modernization and restructuring of the Chinese economy is very limited. The relationship between Russia and China is an imbalanced one - to the disadvantage of Russia.

Interconnectivity with the US

The US economy has been for many years interlinked with the Chinese one. Resources, technologies, investments and markets created the basis of that connectivity. American investors were interested in the growing Chinese market, while China primarily benefitted from the transfer of technologies. The "pivot to Asia" announced by President Obama and Secretary Clinton underlined and strengthened the interest of the US to keep its influence and engagement in Asia strong. President Trump combined that geo-strategic interests with his domestic political strategy. His way of a pivot to Asia is an instrument to gain reelection as the US President.

The enforcement of this strategy will certainly have a negative effect on China's economic and political aspirations - even if it also could do harm to some US industries and agriculture. Hopefully, compromises can be reached and connectivity even on a lower scale will continue. However, Trump's policies, that have been aptly characterized by political commentator Thomas L. Friedman as "making America and China poor again", can result in a cycle of mutual damages. The chairman of the Chinese branch of global consultancy APCO has formulated a clear advice to the US with regards to its China policy: "The old trade regime was based on the idea that America was a rich country and China a poor country and therefore China was entitled to certain advantages and tolerance of its misbehavior.....We should say to the Chinese: 'You now are our economic equal' Give them that dignity. And tell them we want to restart these negotiations on the basis of total reciprocity. We should both have the same rule of access to each other's economies".[2] As the US - at least Mr. Trump - are not ready to take that approach, Europe should be active and look for a quick implementation of such a strategy.

Of course, the US as a Pacific country has also political and military issues with China. Concerning security and especially maritime competition, China will have to find a way to cooperate with its Asian neighbors. Otherwise these countries will try to strengthen their alliances with the US. While I can understand aspirations of China in the Pacific, its insistence on multilateralism should also be applied to the maritime disputes with its Asian neighbors.

Henry Kissinger in his book On China has argued for a common strategic concept to be adopted by the US and China: "The concept of a Pacific Community - a region to which the United States, China, and other states all belong and in whose peaceful development all participate - could ease both fears on all sides. It would make the United States and China part of a common enterprise.....It would enable other major countries such as Japan, Indonesia, Vietnam, India and Australia to participate in the construction of a system perceived as joint rather than polarized between 'Chinese' and 'American' blocs."[3] Unfortunately,  there is no readiness on either side to go this way, particularly with President Trump’s totally different attitude to "deal making". In this situation, Europe, more specifically the EU, should make use of the intransigent US policy to establish a new relationship with China for itself.

EU and China - a growing potential

The European Union is certainly a weak political partner but at least not a direct security and defense competitor - even if it has an interest in stability and peace in Asia.

In terms of market power, including financial markets, technology, and investment, Europe is a strong partner. Looking at trade relations, a recent report titled EU-China Economic Relations to 2025 - Building a Common Future states: "Bilateral trade in goods grew by an average of 14.4 percent each year between 2001 and 2011 and, although the growth rate declined to 3.6 percent between 2011 and 2016, trade in goods has rebounded since the beginning of 2017.

With the EU recovering well from a protracted financial crisis, and China committed to sustaining annual GDP growth above 6 percent as its economy undertakes further reform and opening, there are significant opportunities for the two sides to further deepen their economic relationship in the future."[4]

In addition, the report underlines: "Growing Chinese consumption, especially of services, has the potential to create new markets for European business, while rising Chinese investment in the EU, in addition to increasing EU employment, also provides Chinese companies with a platform to improve their global competitiveness."[5]

Certainly, the EU has also to offer interesting technologies, although concerning some technologies China is already in a leading position. The Mercator report Evolving Made in China 2025 underlines the progress in the technology field: "China has forged ahead in fields such as next- generation IT (companies like Huawei and ZTE are set to gain global dominance in the roll-out of 5G networks), high speed railways and ultra-high voltage electricity transmission. More than 530 smart manufacturing industrial parks have popped up in China. Many focus on big data (21 percent) and cloud computing (31 percent). Recently, green manufacturing and the creation of an "Industrial Internet" were given special emphasis in policy documents, underpinning President Xi Jinping's vision of creating an "ecological civilization" that thrives on sustainable development."[6]

Private business plays an especially important role: "China's current advances in many technological areas would not have been possible without the flourishing private sector, the origin of most innovative business models particularly in the digital economy."[7] Therefore, China has become a strong partner to Europe thanks to the enormous progress made in developing and modernizing its economy.

The Belt and Road Initiative (BRI) and the 16 +1 cooperation with several EU and Balkan countries underlines China's interest in closer cooperation with Europe. Of course, this initiative has been dominated by Chinese interest to have access to European markets. Unfortunately, the EU did not respond to this activity with its own ideas about infrastructure development matching the BRI.

The authors of the study A 'European Silk Road' published by the Vienna Institute for International Economic Studies (WIIW) argue for a "Big Push" in infrastructure investment in greater Europe: "We propose the construction of an European Silk Road that links the industrial centers in the west with the densely populated, but less developed regions in the east of the continent and thereby provide for more growth and employment in the short, medium and the long term. This initiative should not be viewed as a competition to the Chinese New Silk Road, but as a complimentary project. Besides economic benefits, this would also entail important political advantages, when more cooperation would ensue due to transnational, joint infrastructure measures."[8]

While the EU should be more active in producing policy responses to China’s economic activities in Europe, China too should react to some of the European criticism. In their study, Economic Policy Implications of the Belt and Road Initiative for CESEE and Austria the authors from WIIW wrote: "Key to its [China’s] success will be transparency and communication to the public. Which projects are planned, and which have been implemented so far? How much local employment was generated? How did transport times and costs improve?"[9] China should not forget the importance of public information and the role of the media. Especially transparency is a big issue and China will have to give it much more attention. In fact, China has already reacted and agreed to a mediation settlement system under the guidance of the Singapore Convention.

Conditions for closer cooperation

Sometimes it seems that the EU is afraid of closer cooperation with the huge and not always transparent power in the East. At the same time, an interest in closer cooperation with China under certain conditions has been steadily growing. Firstly, China is no substitute for the US. The EU wants to have good relations with both and that will be even more true for the UK after Brexit. While cooperation with the US under President Trump has not been easy, the long-standing partnership between Europe and America since World War II in political, economic and military fields still holds and will not disappear from the minds of European politicians, managers and militaries. At the same time, Europeans would be happy to have other - additional - alliances. Since Russia is not ready to present itself as a partner and - also vice versa, the EU is reluctant to partner with Russia - China becomes a strong alternative.

Secondly, the EU and its member countries have no interest in having technologies and relevant companies to be transferred to China. China is interested in development of its "own" technologies produced and implemented in its industries and services. Europe has an equal aspiration. That does not exclude cooperation in research and development or joint ventures. However, fairness and transparency are necessary for productive cooperation. In addition, China would have to intensify its activities against the manufacture of fake products.

Thirdly, the construction of infrastructure should be not only in the interest of China's trade but also benefiting the European development. Furthermore, the EU laws concerning tenders and public procurement must be respected. This concerns particularly the Belt and Road Initiative as mentioned above.

Generally, the EU - especially the European Council and the European Commission - views favorably the EU-China cooperation but demands concrete actions from China. In its recent "Joint Communication to the European Parliament, the European Council and the Council, the EU High Representative states: "China can no longer be regarded as a developing country. It is a key global actor and leading technological power. Its increasing presence in the world, including in Europe, should be accomplished by greater responsibility for upholding the rules-based international order, as well as greater reciprocity, non-discrimination and openness of its system. China's publicly stated reform ambitions should translate into policies or actions commensurate with its role and responsibilities."[10]

China, EU and Africa

Taking the above-mentioned conditions into account and accepting them creates a vast potential for close cooperation and mutual support. A special and important field of cooperation are the developing countries especially in the EU's neighbor continent Africa. The EU and its member states are the biggest investors and donors in Africa. More recently, China's engagement has become very strong too. China specifically invests in the extension and modernization of the African infrastructure. It is also extremely active in the extractive industries. African countries certainly benefit from Chinese activities, but some did not take care of the rising debts due to these investments and their financing. Often Chinese financing conditions do not take into account financial possibilities of the partner countries in Africa. For too long Chinese activities were dominated by China’s own short-term interest and did not respect the long term interest of their partners. In the mining industry, often social and environmental consequences of massive mining activities have been neglected, although this is typical not for Chinese investors only.

Another problematic effect of Chinese activities is the import of cheap Chinese products into African countries that undermines existing or potential local production. Certainly, some African leaders and chief state administrators benefit from the competition between Chinese, US and EU investors. Corruption often plays an important role and the winner is that one, who pays more to politicians and civil servants.

In many respects a closer and more thoughtful cooperation, especially with the EU and international organizations, could bring an added value to the countries receiving foreign investment and would create a positive social and environmental impact of these investments. Both the EU and China should pay more attention to the economic, social and environmental consequences of their policies. For example, both should act to protect the valuable fish stocks of African countries. Illegal fishing often destroys small fishermen jobs and basic income. Irresponsible activities of China in this respect have been well documented.[11]

Democracy and Human rights

Still several political issues divide the EU and China. The EU is not working on regime change - neither in China itself nor in other countries. But the EU defends human rights, including democratic rights as they are stipulated in International Conventions. In this respect, actions in Tibet and in the Muslim Western Provinces of China are seen very critically. The same is true concerning recent extradition laws for Hong Kong citizens. Also, the strong and extended use of face recognition in public in connection with social consequences for the citizens is seen critically.

Of course, it is not easy to manage a country like China with its enormous population. One has also to recognize the economic and social success of the "Chinese - East Asian - development model", which "is characterized by industrial policies that target strategic sectors, and a strong government that effectively aligns business interests (state-owned as well as private) with national targets. Using this template, China hopes to successfully overcome the middle-income trap and reduce its reliance on foreign technology."[12]

The EU, on the other hand, beliefs that democracy and a mix of public and private initiatives enhance economic and social progress, adding to a country’s long-term stability. This belief often shapes the West’s approach towards China, making it seem, perhaps, somewhat naïve. Many fear that there is a growing gap between economic progress and civil liberties.

The EU does not follow the simple "democratization" attitude that the Bush administration tried to implant in the wider Middle East. However, the EU tries to raise again and again human rights issues with all countries when they see a problematic attitude by the government. China's leadership has a different conception of the country’s domestic development and underlines the principle of noninterference into domestic affairs by other countries. Contrary to that attitude, the EU regards the neglect of human rights as one reason for forced migration, especially from Africa.

Of course, one has to recognize that China is not confronted with immigration pressure from Africa like Europe. Religiously motivated terrorism from Africa or the Middle East do not pose a threat to China either. On the other hand, measures against its own Muslim population in the West of the country are often seen in Europe as violating basic human rights. For the moment, there is no room for cooperation on these political issues.

Coming back to the EU - China cooperation concerning Africa, one should not deny or forget these differences in political and human rights attitudes. But these different approaches should not prevent common strategies for the economic and political stability in many African countries. The young generation in Africa could be part of a wider labour market both in the EU and China. Both need some rejuvenation in their societies and especially its labour force. Of course, this integration has to be managed in a decent way and step by step. Neither Europe nor China are ready to march into such an experiment without preparation.

Sustainable development

An important field of cooperation is the transformation of our economies into the direction of sustainability. China emits an enormous amount of CO2. But over the course of history it used much less resources, compared for example to the Europeans, - even if today it is a prime polluter and use of scarce resources. The recent McKinsey report on China and the World says: "China has been the world's largest source of carbon emissions since 2006, and today accounts for 28 percent of annual global emissions (although a much lower share of the accumulated stock of greenhouse-gas emissions). The country has been investing heavily in renewable energy.... In addition to being motivated by its commitment as a signatory to the Paris agreement to reduce its carbon intensity by 40 to 45 percent from 2005 to 2020 - milestone achieved by the end of 2017 - China is seeking to reduce its carbon intensity because of domestic issues including pollution."[13]

Despite China’s global environmental commitments, one has the feeling that concerning its external investments China is not very eager to choose and use sustainable extraction and production techniques.  For example, construction of coal-fired power stations in foreign countries is not a contribution to a policy of sustainability. It would be necessary for China to develop an overall sustainable policy for all its domestic and global activities.

Europe is now at a later stage of its economic and social development, partially thanks to the fact that it has used a big amount of this Earth’s resources already in the past. Now it is eager to reduce CO2 emissions and the use of scarce resources. Their common commitment to the Paris agreement should make possible China-EU cooperation on environment issues and saving scarce resources. Neither the US under the leadership of President Trump, nor Russia under the leadership of President Putin are very eager to be in the forefront of climate politics.

This gives the EU and China, even though they are at different stages of economic development, an important task of leading the world into a difficult but necessary transformation process. New technologies that both countries possess will help to master this transformation. But such transformation will not happen without a thorough discussion of present and expected lifestyles. Consumption patterns of the past and present cannot be related and prolonged. The cheapest goods, services and production processes are not always the best for our environment. Living standards have to be measured and achieved differently than by economic growth. Again, that is easier for Europe than for China, but it is equally necessary for both.

Conclusions

The world's regions and major states are going through different stages of development and have different ideologies and philosophies to promote their own future. It is one world they influence but they do it through very different approaches. In choosing alliances, countries and regions have to take into account the specific stages of development, different histories and ideologies of their potential partners.

For Europe, the United States remains the most important ally. The EU and the US have common security interests and are at similar stages of economic development. Concerning digital technologies and research and development, the US have a leading position. The EU could not really catch up with America as it had intended to after the Lisbon Strategy of 2000. At the time, the aim was to make Europe "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion". Europe obviously failed to achieve that goal.

However, in its aspirations for sustainable development, Europe has been global frontrunner. European youth is actively looking for a ways to reorganize economy and society in a more sustainable manner. Nevertheless, it will be a long struggle to overcome traditional patterns of development and to implement a path of sustainability. The Trump administration, on the contrary, denies the necessity of a thorough environmentally conscious transformation process and is engaged in economic and trade wars against China, but to a certain extent also against the EU. This approach has surely weakened the alliance between the EU and the US.

Russia has certainly gained a strong political leverage due to President Putin's actions abroad - especially in Russia’s neighborhood and in Syria. But it has not used the strong income flow from its gas and oil sales for transforming and modernizing the economy. The decrease of its population is another sign of the lack of the necessary dynamism. There is a big discrepancy between the political force and the economic wellbeing. While the majority of Russia’s population has so far accepted stagnating, if not decreasing, standard of living in the country, it is pertinent to ask how long it will still put up with such situation? All these factors weaken an otherwise globally influential alliance between Russia and China. And this despite Trump‘s negative attitude towards China that pushes the two countries closer to each other.

China certainly is the big winner of the past economic development. With strong public engagement and important steps undertaken to open its market, China could achieve  rising living standards, although there is still an important job to do in terms of combating poverty. Overall, the combination of party control and private business could until now guarantee stability. But many restrictive policies, especially towards minorities, as well as against civil movements, coupled with increased supervision of its citizens in general, are a proof of the delicate political situation. Therefore, the question looms, whether in order to fully reap the benefits of economic and technological progress, China would need to secure more individual freedom for its citizens. On the environmental issues, China has improved its track record at home (not least due to citizen protests) and now invests heavily in sustainable energy. Unfortunately, it has been much less concerned about problematic environmental impact of its investments in third countries.

The retreat of President Trump into a selfish, short sighted and nationalistic policy should invite countries and regions which are interested in open economies and multilateralism to think about new alliances. The EU and China have in many respects similar interests and could develop common strategies.

Principally every country and region has the right - under fair conditions - to develop its economy and bring welfare to its people. All countries should be only restricted in their own freedom of choice by the respect for the rights of other people to live a self-determined life in a peaceful and environmentally safe world. Therefore, countries and their respective governments should combine their self-interest with taking into account and respecting the interests of other people.

One important field for common strategies of EU and China in this respect could be developed in and for Africa. True, this continent is predominantly in a very fragile situation. It faces many challenges, ranging from poverty to lack of an industrial basis and neocolonial activities concerning in mineral and maritime industries. The continent is also confronted with a steep increase in its population, with many young people looking for jobs. At the same time, Africa - exactly because of its young generation - is also characterized by new dynamism and many new ideas - sometimes leapfrogging stages of development of the "elder" countries.

Both the EU and China have special interests in Africa. Irrespective of different attitudes towards democracy and political stability, both could work together to support African development which is in the interests of EU and China alike. Of course, they have to respect primarily the interests of the African states and their citizens. China does not have a legacy of being a colonial master, but it has at present some problems due to the neglect of the debt issue arising out of credits given for infrastructure investments. Europe is often still criticized because of its colonial past and has issues of fairness in trade but also concerning demand for the return of stolen art from Africa.

China and Europe will have to show more respect for African cultures. They could help to realize what Achille Mbembe calls the „Africa, laboratory of the future world”. With its nature and wild life, with its young and dynamic youth, with ample land for vast agricultural production this continent could become a model of sustainable development. Neither the old “Eurocentrism” nor a new “Chinacentrism” can be justified when dealing with Africa. A new approach for a tripartite alliance to look for global solutions would be necessary.

In many respects both have not done enough to combat corruption and for helping African population to benefit from foreign investments. But looking forward and promoting Africa's development from agriculture and sustainable fishing to investing into new digital economies and services could result in especially productive tripartite cooperation between China, EU and African countries. In a multi-polar world such cooperation could be one of the positive alliances and give hope for a better future.


[1] China and the World, Inside the dynamics of a changing relationship. McKinsey, July 2018, introduction

[2] Thomas L. Friedman, ‘How Trump and Xi Can Make America and China Poor Again’. New York Times International, 8.8.2019

[3] Henry Kissinger, On China, Allen Lane, 2011, p 528

[4] EU-China Economic Relations to 2025, Building a Common Future, September 2017, p VI

[5] Ibid.

[6] Evolving Made in China 2025, Mercator Institute for China Study, Nr.8, July 2019, p9

[7] Ibid. p. 11

[8] A "European Silk Road, WIIW, Research Report 430, August 2018

[9] Economic Policy Implications of the Belt and Road Initiative for CESEE and Austria, WIIIW, Policy Notes and Reports 23, June 2018

[10] EU - China Economic Relations to 2025, p1

[11] Environmental Justice Foundation, report, June 2019

[12] Evolving Made in China, p9

[13] China and the World, p4