Ruan Zongze has a very simple explanation as to why he is so bullish on trade relations between China and Europe. “China needs Europe’s state-of-the-art technology. Europe needs China’s massive market.” That, at the least, is what Zongze, considered a progressive-minded Chinese foreign policy expert, told Xinhua news agency shortly before Prime Minister Li Keqiang of China left for meetings this week in Berlin and Brussels.
There has been some truth to both sides of his statement in the past, but it doesn’t really apply any longer seeing as Chinese companies are buying the coveted technology from sources all over the globe and are busy extending their own know-how at home. At the same time, the Chinese market is losing its appeal to European companies since Beijing is still refusing foreign companies full access to its markets. Indeed, European Union countries severely curtailed investments in China over the past year.
But this strategy only strengthens Chinese companies, whose innovative talents are helping them quickly catch up with the international competition. This is the result of a study conducted by the European Union’s Chamber of Commerce in Beijing, in which European companies were surveyed about trade relations with China. According to this survey, 17% are of the opinion that their Chinese rivals are already innovative leaders in their respective fields. Nearly 60% of those interviewed said that they expect China to be able to close the innovation gap by 2020. The newly elected president of the Chamber of Commerce, Mats Harborn, called these results a “wakeup call for all of Europe.”
Foreign companies have long been lamenting the difficulties in gaining access to the Chinese market as well as the unfair treatment they received from the second largest economy in the world. And Beijing repeatedly promised reforms. But little has changed.
In the latest study, conducted with the aid of consultancy agency Roland Berger, nearly half of the participants said that the overall Chinese economic environment has deteriorated even more over the past few years. Only 4% of the participants saw signs of an opening up of the Chinese market.
Still, the foreign companies profit from the huge investment in infrastructure and living space that Beijing has made to boost the economy. But these enormous investment sums also carry an enormous risk. China’s public debt has been rising steadily for the last eight years. According to the EU Chamber of Commerce, the national debt has increased to 260% to 300% of the national GDP.
China’s economy is projected to grow by 6.5% this year. In 2016 the rate was at 6.7%. That may be high in European terms, but is the lowest growth rate for China in 25 years — and the Chinese government needs high economic growth to combat poverty and prevent social unrest.
A “golden age” for propped-up Chinese state-owned companies.
But the most recent signals of a reform of the Chinese market sent by the Chinese government seem to have come to nothing, according to the respondents of the study. President Xi Jinping’s much-lauded declarations at the World Economic Forum in Davos in January that Beijing would be a leader in pushing free trade has not led to any noticeable changes.
Some 40% of the participants in the study stated that instead of more liberalization, the EU-based companies are witnessing a “golden age” for propped-up Chinese state-owned companies.
In addition, nearly 50% of small and medium companies stated that they feel that online censoring and the intensification of cyber-security fears are affecting them even more negatively than before. A new law that came into force on June 1 allows China’s authorities to investigate encryption technologies as well as data storage of high tech projects. Beijing has, so far, not reacted to the concerns of dozens of international chambers of commerce and trade associations regarding this law.
The EU Chamber of Commerce criticisms coincided with Li’s trip to Europe this week. The Prime Minister wanted to encourage new initiatives to promote trade and economic exchange while in Berlin, seeing as China became Germany’s biggest partner in trade in 2016, with a trade volume of 170 billion euros. He, at the same time, seeks to disperse skepticism within Germany as well as Europe as a whole that Beijing has prompted with its “New Silk Road” initiative to expand Asia-to-Europe trade.
Still, China is benefiting in Europe from the ire that the protectionist policies of U.S. President Donald Trump have prompted. China’s repeated declarations as the defender of free global trade can at least be partly justified by Chinese companies’ investment abroad. More than 35 billion euros of Chinese funds have been sunk into purchases of or investments in European companies in 2016, an increase of 77% to the previous year. Still, European investment in China, the largest partner in trade of the EU, fell by 23% to 8 billion euros. To find a way to achieve more balance to this ratio, people will have to get creative in Brussels, Berlin and Beijing.
By Johnny Erling