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【China Watch】Zhou Xiaoming: Seeing true picture will aid prosperity

Tuesday,Jun 19, 2018

Zhou Xiaoming, a senior fellow of  center for China and Globalization(CCG)

An ancient story known to every Chinese child tells of an official who, having not seen his friend for some time, enquires as to the reason why. His friend says he has been seriously ill since they last drank together. While drinking, he says, he had raised his cup and seen a snake inside. Although disgusted, he emptied the contents of the cup out of friendship. The story has modern relevance. These days, the “snake in the cup” phenomenon is plaguing economic relations between China and the European Union.

As Chinese investment in the EU surges, the bloc is taking a 180-degree turn from its welcoming aptitude during the sovereign debt crisis. Supported by France, Germany and Italy, the European Commission is pushing through more stringent screening of Chinese investment. Besides protecting “strategic sectors”, the EU seeks to win trade reciprocity from the Asian country. It has complained that China is not as open as the bloc in trade and investment. In addition, Chinese investment is accused of being used as a tool to divide and rule the continent by playing European governments against one another. Citing as an example the Greek refusal to endorse a proposed EU common position condemning China’s human rights record at the UN, some analysts warn that some European governments will become proxies for Chinese interests.

Sure, China needs to open wider to the outside world, and that is exactly what the Chinese government is doing. Opening-up is regarded by Chinese leaders as critical to transforming the country into a prosperous nation. However, what outsiders see in China is an economy being opened in a measured and step-by-step manner, rather than at one go. This graduate approach has frustrated foreign companies and governments, the EU included. But it has a useful purpose. Take financial services as an example. While China is stepping up efforts to liberate the sector, its leaders want to make sure that the mechanism is in place to prevent systemic risk before throwing the door wide open. They are concerned that overly ambitious measures without due precautions may cause financial instability in the country, with huge negative global impact. Therefore, a bit more patience is not only needed, but also beneficial both for the country and the world.

For some European politicians, reciprocity has become a catchword when it comes to trade relations with China. In the real world, however, reciprocity is pretty tricky to define, let alone have a consensus on. What is considered fair or reciprocal by one party may be seen otherwise by another. Just last month, a friend came to seek my advice on exporting traditional Chinese medicine preparation to the EU. When I told her that thanks to the EU directive on traditional medicine, TCM preparation is effectively kept off the market — with the number of TCM clinics in the UK reduced to fewer than 100, down from over 1,000 a decade ago — she was incredulous. She just could not understand that while pharmaceuticals worth tens of billions of dollars made by European companies have easy access to China, TCM preparation, which makes an enormous contribution to the health of over 1.3 billion Chinese, is barred by the EU simply because it does not meet the standards the bloc has set for Western medicine.

The instance brings back memories of my visit to a local manufacturer of sophisticated instruments in Northern Ireland when I worked in the United Kingdom several years ago. The CEO was dismayed that he was deterred from exporting his “dual use purpose goods” to China despite big demand in the country for fear of being jailed for violating EU rules, legacy of the embargo against China that the EU imposed over two decades ago. Incidentally, however, China has no such sanctions against the EU.

Chinese investment in the EU, though fast-growing, remains relatively modest. Chinese companies are far from buying up Europe’s critical assets, as some analysts claim. According to the latest statistics from the German central bank, Chinese investments by 2015 accounted for a mere 0.4 percent of Germany’s inward investment stock, dwarfed by those from the United States and the UK, who represented 8.6 percent and 10.4 percent respectively. In France, Chinese investment fairs no better. It accounted for 0.3 percent of its inward investment stock by the end of 2015, compared with the US’ 10.8 percent and the UK’s 10.9 percent. The jump in Chinese investment over the past two years, big as it is, is hardly capable of altering the picture. However, the bigger players in the EU investment scene are not considered as “a serious challenge”, and consequently they are not seen as measuring up to the main target of the EU initiative to tighten its investment screening rules. One could suspect that the EU’s different approaches to investments from China and those from other countries are based on ideological lines.

The size of the Chinese investment in Eastern European countries is even smaller than in the bloc’s major economies. Their more welcoming attitude toward Chinese investment may well reflect their better appreciation of the benefits that such investment brings, given the difference in their national circumstances compared with Western neighbors. It would take a considerable amount of imagination to assert that the Chinese investment is so influential as to have a decisive role in the important decisions made by these countries. To attribute the disaccord among EU members to the influence of Chinese investment risks questioning the wisdom, if not the intelligence, of the political leaders and, indeed, the peoples of these countries.

Moreover, is it natural to have different points of view in a democratic society?

My experience with Chinese acquisitions of UK companies is very positive. Chinese takeovers create jobs, and develop local research and development capacity. One of my favorite stories is London EV Co, which I visited twice during my stint as China’s top trade official in the UK. I witnessed how Chinese investment changed the fortunes of the maker of London’s iconic black cabs. When Manganese Bronze went into administration in 2013, China’s Geely came to its rescue. The company, recently renamed London EV Co, is now making electrical taxis for the UK and other markets. Additionally, with an injection of $500 million in capital investment from its parent company, it has built a new plant to make 5,000 ultralow emissions commercial vehicles a year by 2019. It has also created over 800 new jobs.

London EV Co is not an isolated case. Another Chinese acquisition concerns MG Rover, the once bankrupt car manufacturer in Birmingham. With investment of over $150 million from SAIC, a Shanghai-based automaker, the company — now called MG Motors — has resumed production and established a technical center. It employs over 200 engineers, many of whom lost their jobs when MG Rover was closed. British Prime Minister Theresa May must have had these and many other Chinese acquisitions in mind when she invited China to invest more in the UK during her state visit to the country in January.

The story I told at the beginning of this article has a happy ending. The official invites his ailing friend home. Sitting in the same spot he did the last time, the man again catches sight of the snake in his cup. But soon it was discovered that the image was actually a reflection of a reptile painting on an arrow on the dining room wall. With his suspicion cleared, his illness instantly disappears. Hopefully, the EU’s misconception of Chinese investment will soon dissipate when people come around to see its true picture. This way, China and the EU can work together to promote economic globalization, and — equally important —build a prosperous future for their peoples.

From China Watch,2018-6-14

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