China and Europe are two of the world's most ancient civilisations. They will be two of the most important international actors shaping the 21st century.
Of the world population of 6.7 billion people, China accounts for 1.3 billion and the EU 0.5 billion. With India (1.1 billion) and the United States (0.3 billion) the four entities account for just under half of all mankind.
The EU's single market is the largest economy in the world. China's economy is number threebut has been growing at a rate of some 10% a year. The US economy is second. China's largest trading partner is the EU. China, the United States and the EU together account for 55% of global emissions of carbon dioxide.
The eastern hemisphere is growing faster in terms of economy, population and emissions than the west. As was shown at the Copenhagen climate change conference in 2009, the balance of global power is moving strongly eastwards and southwards.
We are moving rapidly towards a multi-polar world, but with key players. Though it will not compete with the US in hard power, the EU aspires to be one of them. That was part of the rationale for the Lisbon Treaty. Without resolving its relationship with China, the EU cannot achieve its aims.
Our key conclusions and recommendations are as follows.
A strategic relationship
The role which China and the EU can play in shaping 21st century global affairs will be crucial to solving the world's problems.
There needs to be an effective strategic relationship between the EU and China, based on trust and mutual respect. Such a relationship does not currently exist beyond trade matters.
A US-China "G2"?
There is a widely held and rather fatalistic view that a putative US-China "G2" will dominate world affairs in the coming decades. While it is unlikely that a cooperative G2 model will emerge because of major differences of interest and values between the two nations, it is conceivable that China and the United States will concert more closely on world affairs. In terms of cooperative fora the G20 is the more likely formal model for the future.
The EU must play a stronger role in driving forward multilateral solutions to global problems. It should encourage the strengthening of the G20 model of multi-national cooperation. It is clear that if the EU and its Member States are to remain influential at global level they must successfully manage their relationship with a strong and growing China, including through multilateral institutions.
The arms embargo U-turn
The relationship between the EU and China deteriorated strongly in 2003 following the arms embargo debacle. The Chinese perceived the EU decision as driven by the US. The perception that the EU is the weak partner to the US rather than a strong partner to China still affects EU-China relations. The EU must avoid public division and policy reversals in future, which only serve to undermine its credibility.
The EU should never again advance along an important strategic dialogue with China only to fall into disunity or be effectively vetoed by other powers prior to implementation. The EU must fully consult, and ideally agree a common position with, the United States where a US strategic interest is also involved. Then the EU should define a clear process and transparent criteria for lifting the embargo.
A divided EU
The credibility of the EU as a strategic and important partner of China is regularly undermined by the tactical actions of individual large EU Member States. This is true from Tibet and meetings with the Dalai Lama through to bilateral commercial agreements.
We were informed by a number of witnesses that the EU had considerable diplomatic leverage and influence. The EU is China's largest trading partner and overseas market. We see little evidence of this leverage being used effectively, and certainly not outside the trade area.
The EU has to make hard decisions about which areas of its relations with China are best dealt with through a united EU approach. It is clear that disunity and lack of mutual support over issues such as the Dalai Lama weaken the position of both the EU and the Member States involved. The Lisbon Treaty will not be sufficient to enhance EU solidarity. Whilst respecting the division of competences, the EU and its Member States need to decide the key issues on which, in practice, the EU should stand firm on a united approach and then fully implement this.
The EU should use its leverage effectively in areas where it wants changewhether on climate change, international development or human rights. The EU must be determined, unified and consistent in its areas of vital interest.
The EU should also recognise that the main impetus for reform will come from within China itself. The EU will be most persuasive where it can show how China stands to benefit from reform.
China's lines in the sand
Nevertheless, it is clear that there are two key themes that drive all policy in China. These are the Chinese government's lines in the sand.
First, "one China". China will not accept any questioning of its territorial integrity whether over Tibet, Hong Kong or Taiwan. It is the Taiwan issue that presents a threat to regional security. The EU and its Member States have a one-China policy, but they must also, together with the United States, make it clear that a military solution must not be contemplated and would lead to severe repercussions.
Second, China's need for development and economic growth. China is a one-party state with a growing economy and increasing expectations among its 1.3 billion citizens. The Chinese Communist Party depends for its legitimacy on guaranteeing prosperity for its citizens. No other policy area will take precedence over the need to continue growing. All EU policy towards China has to recognise this immovable fact.
Chinamore than Beijing
China is a huge country in which the provincial authorities are powerful and have a significant degree of independence. Yet the Commission has a very limited presence in the country outside Beijing and Hong Kong. This is true even in the major industrial centres where trade and investment issues are of great importance.
The EU representation in China needs to be made more effective, including by giving higher priority to areas outside Beijing. This should be achieved in consultation with Member State embassies and consulates.
Knowledge and experience of China
China is a large and complex nation in all its aspects. The EU lags behind the United States in the depth of its understanding of modern China.
The EU and its Member States, in cooperation with European business and civil society, must plan and fund the training and education of a greater number of specialists on all aspects of China, as well as boost Chinese language training and research on China.
The developing world and natural resources
China is now a major and rapidly growing player in the developing world. China's priority is to secure access to natural resources in order to fuel continued economic growth. It offers investment and trade to Africa, Asia and South America without the governance conditions upon which developed world donors insist.
It is too early to assess China's far-reaching engagement with the developing world. The EU should encourage China to use the influence it has on developing countries to help the achievement of the Millennium Development Goals and build good governance.
But the EU must monitor Chinese natural resource deals with developing countries and remain focused on its own strategic interests.
China is increasingly engaging in global institutions, for example by contributing forces to UN peacekeeping missions, despite perceiving them as heavily western-orientated and having shown considerable reserve in the past. We welcome this increased engagement. China increasingly has an interest in effective global governance.
The EU has a unique role to play in further encouraging China to take on fuller and wider involvement in global governance.
Democracy and human rights
Apart from the single market, the EU's influence largely resides in its values. Three of the most important are democracy, rule of law, and human rights.
China has made important progress on human rights in the last 30 years, primarily through lifting millions of people out of poverty. Progress on civil and political rights is slow despite efforts to introduce democracy at the village level. The Chinese Communist Party still tolerates no opposition to its one-party rule.
The EU should continue to assert its core values in its relationship with China. The EU must act in a consistent manner in conveying those values.
The EU should press on in a practical manner with its successful but lower profile rule of law and civil society projects which are making a real difference on the ground.
The Copenhagen conference illustrated a marginalisation of the EU, even when united; China's leadership of the developing world; and its direct challenge to the United States as an equal.
The EU should be prepared to set an example on carbon emission cuts which is in the interests of the Member States and the world.
The EU must reassess its negotiating strategy prior to the UN meetings in Bonn and Mexico City in order to re-enter the negotiations as a player rather than as a spectator.
Trade and currency imbalances
Two-way trade and investment have benefited both the EU and China. However, the huge trade imbalances between east and west, coupled with Chinese currency undervaluation and massive foreign exchange reserves, have already contributed to the origins of the recent global financial crisis.
The vast trade imbalances between China and the West are not sustainable. As a major global trading bloc, the EU in partnership with the United States must address this issue firmly with China through the G20, in order to resolve it before a major US-China crisis results that will inevitably affect core EU interests.
The EU should fully assert its rights, whether access to markets or intellectual property issues, through World Trade Organisation procedures. There must be equality of access to markets.
During our inquiry we have become aware of the growing assertiveness of China on the international stage. Examples include the Copenhagen conference, the execution of a UK citizen despite strong diplomatic pressures, newly vocal claims over an Indian province, a move back towards greater repression of human rights, and cyber attacks.
The EU has limited time to convince China of the value of a strong and active strategic relationship. It must do so. It can do so. But it must act quickly, consistently, in a united fashion, and with confidence. The Lisbon Treaty, with its new enhanced role for the High Representative supported by an External Action Service, and a permanent President of the European Council, offers the instruments to help to achieve this; but unless the EU raises its game substantially the moment will be lost.