The World Does Not Shake China Go back »

2007-11-29 | All chapters

The World Does Not Shake China
Economist, 29th November 2007

On trade or the exchange rate “LET China sleep, for when she wakes the world will shake.” So, purportedly, said Napoleon some 200 years ago. In Beijing this week European leaders have been telling their Chinese counterparts that such unease is at risk of spreading. Once content to let the Americans do the worrying, the EU is joining in.

In the build-up to an annual China-EU summit in Beijing on November 28th, European officials raised hackles by complaining about Chinese trade practices and exchange-rate policy in the kind of direct language that China had thought an annoying American trait. The European Commission's president, José Manuel Barroso, told Communist Party officials that the emergence of China risked being seen by Europeans “as a threat”. Mr Barroso gave warning of “protectionist pressures which would be very difficult to contain” if nothing were done to curb the EU's huge trade deficit with China.

Peter Mandelson, the EU's trade commissioner, was similarly blunt on China's rampant abuse of intellectual-property rights. “The problems continue to get worse, and the world—particularly China—is changing too fast to wait longer,” he said in Beijing. It was hard, he said, to see how much longer Europe's patience would last. He also took a swipe at China for suggesting that European concerns about the safety of Chinese products were being used to excuse protectionism. Wu Yi, a deputy prime minister, said she was “extremely dissatisfied” with his remarks.

Europe's disquiet is likely to grow. Last year its trade deficit with China reached €131 billion ($164 billion), say EU figures. This year it is expected to grow to €150billion- 160 billion, on a par with America's record deficit with China in 2006 (see chart). That is the more disturbing for Europeans because they are not used to it: for years, their trade deficit was China was modest. The yuan has been appreciating slowly against the dollar in the past couple of years. But it has been declining against the euro. This is making Chinese imports even cheaper for Europeans—good news for consumers and companies making products in China for export to Europe, but bad news for exporters and uncompetitive industries in Europe itself.

China is showing little sign of yielding to European and American complaints about what those countries see as a grossly undervalued yuan. The official line remains that any change should be gradual. Nor is it anxious to take up the grouses of European and American companies about the difficulties of doing business in China. A survey released last week by the European Chamber of Commerce in China showed that many responding companies felt that China was trying to circumvent the marketopening commitments it made to the World Trade Organisation.

Once hopeful that the EU might act as a counterbalance to American power, China's expectations have receded as more pro-American leaders have taken over in Germany and France. The EU may be China's biggest trading partner, but it ranks far lower in China's political calculations. A report from Chatham House, a British thinktank, says China believes Europe lacks strategic vision and suffers from internal discord, impeding its credibility.

It also argues that China has a clear understanding of EU institutions. It is certainly true that China has been exploiting EU divisions to the full. Following an unprecedented meeting in September between Germany's chancellor, Angela Merkel, and Tibet's exiled leader, the Dalai Lama (see article), China has vented its rage by cancelling a number of engagements with Germany, its largest export market in the EU.

By contrast it gave a warm welcome to France's president, Nicolas Sarkozy, who visited China just before the EU summit, conspicuously neglecting to bring his human-rights minister along. Mr Sarkozy oversaw the signing of a deal worth $11.9 billion for the sale of two French nuclear reactors to China and another for the sale of $17 billion-worth of Airbus aircraft.

China takes America more seriously. Its punishment of Germany has been tougher than its response to the first public appearance by an American president with the Dalai Lama in October. But even with the Americans, China let its pique be known. Last month it abruptly blocked a Thanksgiving visit to Hong Kong by the American aircraft carrier Kitty Hawk and her escorting ships, until it was too late for them to change course before the holiday. At least America's Treasury secretary, Hank Paulson, is still due to visit Beijing this month. But like those of Europeans, his concerns about the yuan and trade imbalances will receive a polite brush-off.

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