Stars and Dragons: The EU and China - European Union Committee Contents


STARS AND DRAGONS: THE EU AND CHINA

CHAPTER 1: INTRODUCTION

1.  The emergence of the People's Republic of China as a major economic and political power has presented the European Union, and the world, with a new challenge. China's vast landmass, its population of 1.3 billion, its hunger for resources, its distinctive culture and sense of grievance against others have added to the challenge, as has the Chinese historical concept that China is the centre of the world and superior to other nations.

2.  As was shown at the climate change conference in Copenhagen at the end of 2009, the balance of global power is moving eastwards and southwards. Economic development has transformed China's global position with implications for the world's economy, and in particular for that of the United States and the EU, which have reached a level of significant financial and trade interdependence with China. This gives China international influence politically as well as economically.

Understanding China today: the key issues

THE STATE, THE PARTY, DEMOCRACY AND THE RULE OF LAW

3.  China has never known democracy as the West understands it. The Communist Party, in power since 1949, continues to run China at all levels and remains the dominant force. The formation of alternative political movements or parties is forbidden. This is unlikely to change in the near future.

4.  Dr Kerry Brown (Chatham House) told us that there had been talk about democracy but no recent significant moves towards political enfranchisement (QQ 38-39, 67-70). Professor Rana Mitter (Oxford University) commented that the leadership had made clear that "there was not going to be now, or at any point in the future, a Western-style, multi-party democracy in China"[2] (Q 147).

5.  Despite the lack of a party-political democracy, the Chinese do operate a consultative system which enables the State to discover what people are thinking and the people to obtain redress for grievances. This system was explained to us by Yang Dong of the Chinese Peoples' Political Consultative Conference in Guangdong[3] (also Mitter Q 153). Lord Patten of Barnes said that since Tiananmen Square[4], China had emphasised economic growth and reform rather than political development. However, the lives of the people had improved in terms of disposable income, economic and job choices and where they wanted to live. "Peoples' lives … are incomparably better than they were in 1989" (Q 550).

6.  Professor William Callahan (Manchester University) pointed out that there were groups of well-placed intellectuals in China thinking about democracy in the way it was understood in the West. 7,000 to 8,000 people had signed a "Charter 08" document calling on China to reform in terms of liberal, multi-party democracy (Q 153).

7.  Dr Brown commented that the Chinese had developed their legal system since 1979 and people were more willing to use the courts: some good judgments had been made. However, the Party controlled the courts and the media (QQ 57-58). Professor Shaun Breslin (Warwick University) said that trade unions were official agencies but they were representing the problems facing their members and, compared with 10 to 15 years previously, there was greater legal protection for workers (Q 207).

CENTRAL AND PROVINCIAL GOVERNMENT; UNITY AND MINORITIES

8.  China is a diverse country with 31 very different provinces and 56 nationalities, though the 55 national minorities comprise only 8% of the population. Central directives can be interpreted differently at local level and local rivalries and conflicts exist between state industries and the state, and between different provincial governors (Lord Patten of Barnes Q 557, Jochheim Q 432, Moran Q 343, EU Chamber of Commerce Appendix 4, Brown Q 41, Hilton[5] QQ 119, 137, Song[6] Q 483, Breslin Q 200).

9.  For the leadership, and in public opinion, the unity of the country is all-important. Ambassador Chen[7] commented that this was the government's supreme concern, together with the nationalities question (see also Brown Q 74, Callahan Q 154). Tibet and Xinjiang are particularly sensitive issues where dissent is harshly treated (Brown Q 61, Grant[8] Q 87, Hilton Q 133, Mitter Q 154). We discuss Taiwan further in Chapter 5 and Tibet and Xinjiang in Chapter 8.

10.  Isabel Hilton (China Dialogue) thought that, in China's centuries-old search for a modern political form, the dominance of Han culture had become an instrument of state to the detriment of other cultures within the country. Both religion and culture were seen as vehicles for local nationalisms. Long-running discontent in Tibet and Xinjiang was of concern to the government. Both provinces were tightly controlled by the Chinese authorities and there was no prospect of independence for either: they were strategically important, not least in Tibet's case, as a source of water (QQ 97-99, 134-136).

THE REAL "GREAT LEAP FORWARD"

11.  Dr Brown described China as "a GDP growth factory" with an average economic growth rate of some 10% per year since 1978. China had lifted some 300 million people from poverty, created a successful middle class mainly in the coastal areas and been "incredibly successful" in terms of wealth creation. Agricultural efficiency had improved; over 54% of people were still rural. The main area of growth had been exports though this constituted around only 4-5% of the Chinese economy (QQ 37-41, 44, 47). Professor Breslin and Lord Mandelson[9] commented that the state continued to play an extensive role in economic activity (QQ 182, 199, 718).

12.  Professor Robert Ash (School of Oriental and African Studies) told us in March 2009 that the global economic crisis had slowed Chinese growth and exports significantly. Hopes that domestic consumption would become a new driver of growth were unlikely to be fulfilled because of slower per capita income growth, rising unemployment and weakened consumer confidence. The government was attempting to increase non-industrial, infrastructural investment, e.g. in the health sector and other social insurance, in the hope of diverting resources from the remarkably high levels of saving into consumption (Q 180).

13.  Other problems in the economy are an unsustainably high current account surplus; the fixed exchange rate; the need to move up the technological ladder and diversify in manufacturing; the need for a larger service sector; and an unsophisticated banking system struggling to modernise (Bertoldi[10] QQ 428-434).

14.  With the economic take-off, China's outward investment and foreign exchange reserves have increased exponentially and changed China's relationships with the rest of the world, including with the US where China has substantial investment in Treasury bonds and lost considerable amounts in the 2008-09 economic crisis. The motivation for the very sizeable Chinese overseas investments is to secure resources and strategic assets, access markets, and obtain managerial, organisational and technological know-how (Ash Q 193). Dr Brown told us that China was also using its wealth for political purposes: when Costa Rica recognised the People's Republic of China instead of Taiwan in 2008, China bought £120 million of its debt (QQ 41-42).

DOMESTIC PRESSURES AND THE DEMOGRAPHIC TIME-BOMB

15.  China is developing rapidly and some of China's cities are at least as developed as any in the world. There are however severe domestic social and environmental problems. Aggressive population planning targets have reduced absolute population but have produced significant distortions in gender and generation balances, with men outnumbering women, and difficulties supporting the elderly, which will affect Chinese views and policies in the future. The lack of social security in China and the consequent need for self-reliance has created a conservative society where savings are valued over western-style consumption (see Brown QQ 46, 61, Hilton Q 131, Lord Mandelson Q 729).

16.  China's new wealth is unevenly distributed, with considerable contrasts between the rapidly developing eastern seaboard and the poor regions, mainly in the west. This has provided benefits for China as the flow of population from the underdeveloped areas enables its products to be cost-competitive, and its industries to move up the production and technology chains. The transfer of cheap labour is likely to continue for several decades. Ambassador Chen[11] told us that, under modernisation, China would have dual characteristics: it was a major power but in per capita terms it would remain a developing country.

17.  New inequalities have been created and unemployment has recently grown. We were told that, with the world economic recession, 20 million migrant workers had returned home. These problems led to unrest, which has been contained so far by the Communist Party. China also remains a male-dominated society (see Brown QQ 37-41, 45-47, Hilton Q 131, Lillie[12] Q 9, Ash Q 180, Breslin Q 188).

ENVIRONMENTAL PROBLEMS

18.  China's industrialisation and continued use of coal has been accompanied by environmental degradation, air and water pollution, desertification and drought. Dr Brown told us that China was the world's biggest user of energy, except for oil, and was still 70-73% reliant on coal. China was now suffering from drought, particularly in the north east, and desertification north of Beijing. Beijing was without sustainable sources of water, which came largely from neighbouring provinces (QQ 48-50). Isabel Hilton added that the Himalayan glaciers were melting, affecting 40% of the world's population, as they were the source of all the rivers in Asia, including the Chinese Yangtze and Yellow rivers[13] (Q 137). Lord Patten of Barnes[14] pointed out that, with glacier melt, water stress would grow as an important issue for China and India which they should discuss, perhaps with US and European encouragement (Q 562).

19.  Isabel Hilton commented that the Chinese model of internal development ("you get rich first and you clean up later") was not sustainable. Official policy was sustainable development but a number of problems remained including the absence of an effective legal state and a free press (Q 137). EU-China cooperation on climate change is dealt with in Chapter 7.

The EU's institutional arrangements with China

20.  The EU's formal relationship with the Peoples' Republic of China began in 1975 with the establishment of diplomatic relations, followed in 1978 by a trade agreement. It is currently governed by the 1985 Trade and Cooperation Agreement[15], under which the EEC and China granted each other most-favoured nation status. The objectives are chiefly trade-related: promoting trade, increasing economic cooperation and encouraging investment.

21.  In 1994 and 2002 the Agreement was supplemented by exchanges of letters establishing a broader political dialogue[16]. The institutional architecture is now extensive, with annual summits and other high-level meetings held alternately in China and Europe. Apart from regular political, trade and economic meetings, there are 56 sectoral dialogues and agreements on a wide range of matters of common interest. A full list of EU-China arrangements is in Appendix 7.

The EU's policy towards China

22.  In October 2006 the EU Commission published a communication "EU-China: Closer Partners, Growing Responsibilities" in which it set out the EU's aspirations for the relationship[17]. In 2007, negotiations began on a Partnership and Cooperation Agreement (PCA) to replace the 1985 Agreement.

23.  A High Level Economic and Trade Dialogue Mechanism (HLM) was launched in April 2008 to enhance cooperation on trade and economic issues, with the participation of eight Commissioners and 10 Chinese Ministers. According to the Commission's website, the main objectives of EU policy towards China are to[18]:

  • extend dialogue with China, both bilaterally and on the world stage, working together on global challenges such as climate change;
  • support China's transition to an open society based upon the rule of law and respect for human rights;
  • encourage the integration of China into the world economy and trading system, and support economic and social reforms; and
  • raise the EU's profile in China, to aid mutual understanding.

UK policy towards China

24.  The UK Government recently set out its policy on China in a framework document[19], the first about a specific country. This recognises that China's "impact on UK interests is already critical, and it is growing" in a wide range of areas such as trade and investment, sustainable development and reducing conflict. The UK's response is based on three pillars: getting the best for the UK from China's growth; fostering China's emergence as a responsible global player; and promoting sustainable development, modernisation and internal reform in China, including respect for human rights. The Government's strategy also sets out the tools at the UK's disposal, such as regular interaction with Chinese counterparts and a growing network of diplomatic posts. The EU—"the most effective multiplier for the UK's objectives"—and cooperation with partners within the EU both have a prominent place in the strategy. The United States and key players in the region are also seen as important partners for engaging China.

This report

25.  We took evidence from experts in the UK and travelled to Brussels and China to hear from both sides. A picture emerged of different perceptions and attitudes and this is explored in Chapters 2 and 3. China's international responsibilities for security and stability are examined in Chapters 4 and 5, including its attitude to the UN and non-interference, and its role in Asia. Chapter 6 covers trade and investment and Chapter 7 deals with EU-China relations in the area of climate change. Chapter 8 looks at values and human rights. In Chapter 9 we consider European and Chinese approaches to international development, especially in Africa. Chapter 10 is on Hong Kong. Our conclusions and recommendations are listed in Chapter 11.

26.  This Report was prepared by Sub-Committee C (Foreign Affairs, Defence and Development) whose members are listed in Appendix 1. Those from whom we took evidence are listed in Appendix 2. We are grateful to them all. We visited Brussels on 5-6 May 2009 and thank the UK Permanent Representative and his staff for their assistance. On 20-25 July 2009 we visited China and we are especially grateful to the UK Ambassador and the Consuls-General in Guangzhou and Hong Kong and their staffs; the note of our meetings is in Appendix 4. We are also particularly grateful to our Specialist Adviser, Dr David Kerr, of Durham University.

27.  We make this report to the House for debate.


2   Comment by the Chairman of the National Peoples' Congress (Parliament) and member of the Politburo Central Standing Committee in March 2009. Back

3   Appendix 4. Back

4   In 1989 the Chinese state violently suppressed anti-government protests in and around Tiananmen Square. Back

5   CEO, China Dialogue. Back

6   UN University, Bruges, and Renmin University, Beijing. Back

7   Renmin University, Beijing, Appendix 4. Back

8   Charles Grant, Centre for European Reform. Back

9   First Secretary of State, Secretary of State for Business, Innovation and Skills, Lord President of the Council. Back

10   Moreno Bertoldi, Head of Unit, Directorate-General for Economic and Financial Affairs, European Commission, Brussels. Back

11   Renmin University, Beijing, Appendix 4. Back

12   Stephen Lillie, former Head of Far Eastern Group, FCO. Back

13   The fact that it is now admitted that the pace of glacier melt has been exaggerated by some scientists does not lessen the significance of glacier melt as an environmental threat to China. Back

14   Last UK Governor of Hong Kong, 1992-97, EU Commissioner for External Relations 2000-04, Chancellor of Oxford University Back

15   Council Regulation (EEC) No 2616/85 of 16 September 1985. Back

16   See: http://europa.eu/legislation_summaries/external_relations/relations_with_third_countries/asia/r14206_en.htm Back

17   COM(2006) 631 final, Brussels, 24.10.2006. Back

18   Source: European Commission: http://ec.europa.eu/external_relations/china/index_en.htm Back

19   "The UK and China: A framework for engagement". Foreign and Commonwealth Office, 2009, http://ukinchina.fco.gov.uk/en/working-with-china/uk-and-chinaBack


 
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