03.04.2017 Author: Vladimir Terehov

Will the New “Great Silk Road” Connect Europe and China?

6523234234Two notable events of late March of this year on the European and Asian continents provide a good reason to once again turn to the current state of China-EU relations. The main issue here revolves around the EU Rome Summit that was conducted on the occasion of the 60th anniversary of the signing of the document that became the basis for the establishment of the current 27-member-nation unifying body. Apart from this, the next Boaos Forum of Representatives (mainly but not only) of Asian countries is also of particular importance.

The aforementioned Forum was so named after the venue – a city on the Chinese island of Hainan. Bearing in mind its significance, the format of the work, its goals and the composition of the participants, the Boaos Forum is sometimes called the “Asian Davos”.

Both events dealt with the future fate of globalization, the most representative example (and achievement) of which in recent decades has been the formation and functioning of the EU. Another (formerly leading) “globalizer”, by way of the new US president, recently announced its “withdrawal from the race.”

At the last “European Davos” forum, leader of the People’s Republic of China, Xi Jinping, indicated his intention to take over the now-vacant leading position. Jinping is also accredited with the development of the concept of the revival of the Great Silk Road (GSR), the practical implementation of which can, again, just like 1-2 thousand years ago, link the two remaining “globalizers”. However, Chinese leaders are also talking about the possibility of the further “branching off” from the indicated “road” to other continents, for example, Africa.

In his message of welcome to the participants of the Boao Forum, the Chinese President noted that the motto of this event (“Globalization and Free Trade: Asian Prospects”) reflects the desire of the global community, in general, and of Asian countries, in particular, for the globalization of national economies.

Western experts who were present at the forum unanimously call the current China the most important “stabilizer” of the global economy, and believe that this role will only grow in the coming years.

Europeans should find such a partner very attractive, since relations with it are practically not overburdened by a political component (unlike US-China relations). For the last three years, the volume of bilateral trade (in goods and services) has been around $600 billion, which is almost 10% higher than the volume of the US-China trade.

Although these are impressive figures, one should not overlook the huge amounts of the GDP of both partners. This is precisely why Beijing and Brussels are currently talking about the enormous potential in trade and economic relations that has not yet been tapped into.

In particular, at the most basic level are mutual investments, the accumulated volume of which is calculated by each of the parties as a percentage of its total foreign investments. And since 2013, negotiations have been underway to conclude an agreement with the aim of expanding mutual investment.

It would seem that it is not so much for these two partners to realize the vision and dream of the GSR. However, something about it is making the EU particularly hesitant, and, in general, it is clear why: implementing this dream should result in an exponential increase in the mutual exchange of goods and services. Nevertheless, even at the current level, the Europeans are still plagues by major questions regarding their potential partner.

Firstly, the Europeans are already playing a losing game with the Chinese that is costing them dearly (negative $200 billion in 2016). But even more importantly, this colossal loss is growing from year to year. So why risk aggravating the problem, instead of eliminating its causes? Secondly, the removal of restrictive barriers from the lines of trade between China and the EU (which should inevitably accompany the GSR) is already posing serious problems for the European economy, especially at its current volumes. What will happen when the GSR begins to work?

These two circumstances explain the EU’s strategy of sabotage regarding finding a solution to one of the key tasks for Beijing to obtain the “Market Economy Status” (MES). This task is especially relevant in connection with the announcement of China’s claims to “globality.”

We shall recall that the China’s entrance into the WTO in 2001 (which was the first step towards the country’s integration into the “global” economy) was accompanied by a set condition for the Chinese economy to acquire the MES within the following 15 years, that is, by the end of 2016. With the control period now having passed, one of China’s main trading partners has actually considered its economy as not ready for the MES. What now?

Under these developments, China is turning to the WTO Commission for the resolution of disputes, with a complaint about the EU and the US that are allegedly continuing the practice of (a possible) “surrogate evaluation” of undervaluing Chinese goods that are supplied to foreign markets. On the basis of such “assessments”, special duties and taxes are established to contain Chinese trade flows.

Since China is yet to attain the MES, it is imperative to evaluate the “true” value of its goods following the example of some “third-world countries”.

Along with forwarding formal complaints, Beijing is also conducting a number of outreach programs among Europeans, demonstrating an interest in overcoming the current internal problems of the EU and continuing “the world’s first integration project.” The “EU bureaucrats” are being condemned and general sentiments being affirmed that “without China, Europe has gloomy prospects”.

Certain hopes are being placed on the next annual meeting of the bilateral forum (one of many) that shall be dedicated to the development of economic relations, which heads of state are expected to attend. According to Reuters (which, in turn, refers to some anonymous source from within the EU structures), this event is said to be scheduled for between April and May of this year.

It has been alleged that the agenda shall include “the development of free trade and international cooperation in the face of increasing protectionism by the US”.

However, the state the EU currently finds itself in is unclear, and this can hardly be judged by the anniversary theatrical action in Rome, on the eve of which J. C. Juncker did not rule out the collapse of the Union, if one of its current members follows the same path as Britain.

The author’s view is that there is still no indication that at the upcoming summit, the EU leadership will finally abandon the union’s long-term strategy of “hurrying at a leisurely pace” as far as the key aspects of bilateral relations with China are concerned.

In any case, Angela Merkel’s expressions, when she was presenting the general plan in a March 17 telephone conversation with Xi Jinping this year, did not show such signs.

Considering all these factors, there is hardly any reason to assume that the talks on the prospects of the establishment of links through the GSR between two of the world’s three largest economies and currently the main world “globalizers” shall go beyond a beautiful dream and exciting memories. At least in the near future.

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine New Eastern Outlook.”


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