Silk Road Revival

As China and the US navigate through turbulent trade waters
the EU and China are calmly expanding their relationship

China and Europe are moving closer together, with the synergies between the two
ends of the Eurasian landmass becoming more apparent and China's newfound
confidence as a global player balancing off the European Union's power as a
single trading unit. China
set the tone for the China-EU summit in Beijing
on October 30 with the release of its first-ever European Union Policy Paper in
which it said it expected the EU to become its largest investment and trade
partner within five years. The EU is already the fourth-largest investor in China, and
number one source for imported technology.

During the summit, China
agreed to invest US$230 million in the EU's Galileoyears, but it still
constitutes satellite network, which will end European and Chinese dependence
on the US-owned Global Positioning System, and also signed a memorandum of
understanding granting Approved Destination Status (ADS) to all EU member
states, facilitating Chinese group tourism to the EU.

It is not just potential, it is now. China's
trade with the EU grew 41.5 percent in the first three quarters of 2003
compared with the same period in 2002, according to official Chinese statistics,
a growth rate which far outstripped growth in Chinese trade with Japan (31.7 percent) and the US (29.9
percent).

In absolute terms, China's
trade with the EU during the first nine months of the year totalled US$89
billion, just behind trade with Japan,
which reached US$95.9 billion, and the US with US$90.9 billion.

"It is fair to say," said Chinese Premier Wen Jiabao, "that
Sino-EU relations, as they have developed up until this point, are increasingly
mature and strategic in nature."

The potential for the EU to become China's
biggest trading partner, combined with the often-expressed desire of both
Chinese and European leaders for a multipolar world raises the possibility of a
Sino- European alliance to help balance the global power of the United States.

Not that China and the EU
will try to seriously challenge the US in any way. Both Beijing and Brussels know
that their relations with Washington
are of paramount economic and political importance. The US may have
lost some of its luster in the past two years, but it still constitutes 25
percent of the global economy, and it continues to have a major technological
advantage over the rest of the world.

China's growing stature on
the world stage, and the widespread signs of Euro impatience with the US foreign
policy approach contain the kernel of a possible alternative international
lobby. Trade friction on such issues as steel also often see China and the
EU on the same side.

"Whatever view we take of the future development of the world economy, and
indeed international relations, there are very few models which suggest that
EUChina relations will not be pivotal to the century which we have still only
just begun," said EU chief commissioner Pascal Lamy at the October 30
summit

China's global balancing act

There is much for China and the EU to do together in terms of economic,
political and even military cooperation – some EU members are eager to abolish
the current European arms embargo imposed on China following the events of
1989. Last June, French Defense Minister Michele Alliot- Marie advocated
sharing with Beijing
military technology that was prohibited under the embargo.

China's relationship with
the United States is far
more volatile and sensitive – colored by Taiwan,
a projected US$130 billion trade imbalance in China's
favor for the year and Bush administration pressure on China over the
valuation of the renminbi.

China's aircraft purchases
provide an illustration of the balance it must maintain between the EU and the US. In April
this year, China
signed a deal with Airbus to purchase 30 planes to be distributed among several
regional carriers. At the beginning of November, Washington
was focused on the renminbi and China's
trade surplus with the US.
Not coincidentally, Chinese officials announced at that point that China would purchase 30 Boeing planes during
Wen's US
visit later that month.

Despite the balancing act, there are signs China would in many cases prefer to
favor European technology. A classic example is the telecommunications industry
where China
readily adopted the European GSM standard, but only after one of the most
blistering battles of the WTO entry talks did it adopt the US-developed CDMA
standard.

There are potential long-term benefits for China and the EU in deeper
cooperation. China stands to gain more investment, technology transfer and help
in reforming its banking and insurance industries, while EU manufacturers can
take advantage of low Chinese production costs and catch the growing wave of
imports into China (which is set to become the world's third-largest importer
this year).

Europe, which may be destined one day to be
primarily a quaint tourist destination for Asian tour groups, will also get its
share of the Chinese outbound tourism market.