Silk Road Revival

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 Galileo years, 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.