09th
May 2015

40 years after: the road ahead for EU-China relations

On May 6, 1975, forty years ago, in the wake of the thaw in relations between Washington DC and Beijing, and without much fanfare, Brussels and China established diplomatic relations. It was certainly a different period in history. The European Community was in its infancy, China was a poor country, in the midst of a power struggle for the succession to Mao Zedong who, already very sick, died the following year.

Today, the relations between Europe and China are among the world’s most important, having taken on such a strategic importance that they are the object of close scrutiny – and sometimes apprehension – by the United States. Just think of Washington’s disapproval when four important EU countries – Germany, France, Great Britain and Italy – joined as founding partners the Asian Infrastructure Investment Bank (AIIB), the multilateral bank promoted by Beijing.

Source: www.rtcc.org

Source: www.rtcc.org

The turning point between Brussels and Beijing goes back to 2003 and the signing of a strategic partnership: the various parties reached an agreement on the joint development of Galileo, the European satellite navigation system and alternative to the American GPS, and the foundations were laid for improved relations in the field of security and the defence industry. Germany and France took the lead, but Italy and Spain were with them, and they proposed to begin discussions to lift the embargo on arms sales to China.

While the European Union was enlarged to include Central-Eastern European countries, Brussels became the most important trading partner of Beijing, while China climbed to second place as the most important trading partner of the EU, just behind the United States. The Europeans were, however, unable to agree on the embargo issue, and the European Council in June 2005 decided to postpone indefinitely the solution, leaving the Beijing leaders with a bitter taste in their mouth.

Even the euro played an important role in the relationships between China and Europe. In 2003 the European Central Bank and the Chinese one signed an agreement that led Beijing to diversify their basket of reserves, increasing in a gradual but constant manner in the coming years their exposure to the common European currency, while reducing their exposure towards the dollar.

China supported the euro during the sovereign debt crisis to accelerate the shift against the dollar when, in August 2011, Standard & Poor’s downgraded the sovereign rating of the United States: the growth in the share of reserves held in the common European currency went from approximately 26% in 2011 to approximately one third at the beginning of 2015. What’s more, two years ago, for the first time, the European Central bank signed an historic contract with the People’s Bank of China that opened a swap line in renminbi between these two areas of the world to facilitate investments in both directions, despite the non-convertibility of the Chinese currency.

China is investing heavily in European companies to acquire know-how and technology that is necessary to modernize Chinese industry. At the end of 2014, it made purchases through SAFE (State Administration of Foreign Exchange, ed.’s note), the administrative agency governing foreign exchange market activities, for about $ 54 billion in listed companies on European stock markets, ranking fifth for the size of the investment, just behind Japan.

The 40th anniversary of Europe-China relations coincides with an important note on the strategic agenda of cooperation between the European Union and China valid until 2020, signed in Beijing in November 2013: the possible closure of European Union-China bilateral negotiations on investments. A turning point that could open the way, as expressly requested by Xi Jinping during his first visit in Europe and to the European institutions last year, to a free-trade agreement that would introduce a new dynamic in the Sino-European relations. It would create an equally significant Euro-Asiatic axis, both economically and commercially, to the Atlantic and Pacific one.

An earlier version of this article was published in Italy24