Dr. Sideek Seyad on China-EU Relations and the European Debt Crisis

(Dr. Sideek Seyad, LLB., LLM., LLD. is Associate Professor of EU Law, Faculty of Law,University of Stockholm. )

Q:  How would you comment on the China-EU relations at present?

A:  Since establishing diplomatic relations between China and the EU in 1975, the relations between the parties had been moving in a more positive direction. The establishment of diplomatic relations created different political and diplomatic channels to resolve any conflicts by way of dialogue. 

Despite this positive environment there had been some tensions and frictions between the parties such as the imposition of arms embargo in 1989 by the EU. But I think the positive relationship outweighs such negative developments. The best example was the textile dispute about a decade ago which was amicably settled and in more recent times the parties swiftly reached an amicable settlement with the solar energy dispute.     

I would say that the relations between EU and China became even closer following the global financial crisis and the euro crisis. These crises may be described as a blessing in disguise for both parties despite the tremendous negative impact it had on the financial market. Both parties were affected by these crises to varying degrees.  During the height of these crises, there had been regular political dialogue between the parties at different forums to resolve them. Apart from the regular annual summit meetings between the parties, top level political meetings also takes place at multilateral level such as the G-20. The G-20 brings the political hierarchy including EU and China to find common solutions to the financial crisis.  And the invaluable contribution by China to solve or minimize the euro crisis by buying some of the bad debts from certain indebted euro zone countries is an indication of the closeness of the relations between the parties.               

Q:  What are the major problems of the bilateral relations?

A: I do not see any major problems which could derail the healthy relationship built over a long period of time between the parties. The relationship has developed and matured to the extent that the parties set aside the differences such as the long standing arms embargo issue and commit themselves to forge closer economic, financial and cultural ties. The best example is the recent solar energy dispute where the EU threatened to impose heavy duty and drag the matter to the WTO but through matured diplomacy the dispute was resolved amicably. As far as trade matters is concerned, there is always space for dispute not just between EU and China but between leading trading nations such as USA, Russia, Brazil, India, Japan, etc. EU for example has more trade dispute with US than with China but that does not derail the trans-Atlantic relationship.

Of course one of the issues that affect the harmonious relations between EU and China is in the field of human rights. There are several reasons for the tension in the human rights front. The foundation of EU is based on the respect for fundamental rights, rule of law, rights of minorities, etc. which are preconditions for any European country to seek membership in the EU. The EU expects the same values to be followed, respected and upheld by all its trading partners, not least its biggest trading partner, China. The EU headed by its High Representative of the Common Foreign and Security Policy insists on at least having a dialogue twice a year on human rights issues and China wish to limit to once a year. Another related friction is that China wants to first and foremost strengthen and develop a system building and policy to further strengthen and protect human rights more on a general level whereas the EU wishes to raise issues on individual cases of alleged violations of human rights.

Another area of friction between the parties is in the field of intellectual property rights. The EU insists that China should strictly enforce the rules already in place to forbid Chinese companies from copying patented European goods. The legal framework for the Chinese intellectual property rights and prosecution procedures appears to be rather complex and is slowing down the pace and volume of infringement proceedings under intellectual property rights legal regime.

Q:  What is your understanding of the comprehensive strategic partnership between China and the EU?

A:  The signing of the Strategic Partnership in 2003 was an important milestone in the trade relations between China and the EU. Since then this partnership has been widening and deepening in several fronts. It contributed enormously to further improve the framework for bilateral trade and investment relations. The partnership now extends from pure trade to even critical and contentious areas such as foreign and security policy. The agreement has forged both parties to act as equal partners and use the annual summits and dialogues as a forum to interact regularly in a constructive manner in all areas of common interest. There are regular dialogues in many sectorial areas ranging from education, health to environment, consumer issues, etc. Even the European Parliament has regular meetings and consultations with its Chinese counterpart, which are by-products of this partnership.

Q:  Now let's turn to the European debt crisis.  Can you please name three causes of the crisis?

A: There are several factors that contributed to the fiscal crisis but let me highlight three of them. To begin with, the foundation of the economic and monetary union (EMU) is weak. It was built by lack of respect for the entrenched rules on EMU, such as some member states submitting apparently clean and perfect statistics by means of creative accounting to secure admission to EMU.

The second reason is also due to lack of respect for the agreed rules especially Stability and Growth Pact. The pact was adopted to ensure that member states once joining the EMU will conduct their fiscal policy in a responsible manner so as not to harm the stability of the new born currency, the euro. The consistent breaches by various member states of the Pact without producing any legal consequences created an environment of lawlessness within the EMU. This set the pace for countries like Greece and Portugal to freely breach the pact, which aims to control and enforce fiscal discipline among the member states. The result was excessive borrowing by these countries beyond their means to pay back the loans and ultimately contributed to tarnish the image and reputation of the euro.

The third factor was what I refer to the 'unholy trinity' created by EU law. The Lisbon Treaty introduces a no-default rule where it declares member states shall avoid excessive government deficits. The Lisbon Treaty goes further and strictly prohibits the EU to bail-out a member state from a fiscal crisis declaring that the Union shall not be liable for commitments of central governments, regional, local authorities or public undertakings of any member states. Adding to this contradiction is the no-exit rule from the EMU which means no member state can neither voluntary depart nor be expelled from the EMU. 

The EU has adopted several reform measures to prevent these three factors raising its head again to destabilize the euro zone. China could also learn from the mistakes of EU and take remedial measures in fiscal discipline. According to China’s National Bureau of Statistics, a county government in Yunnan province have faked economic data. These are some of the fiscal manipulations some member states of EU resorted to, which ultimately contributed to the serious fiscal crisis of the whole Union and beyond. There are allegations that the Yunnan authorities have coerced local companies to inflate the value of their output to boost economic figures, just as Greece did to secure premature admission to EMU. The aim of producing such fake reports is reportedly to ensure a county government enjoy favourable policies such as securing bank loans. Greece was able to secure unlimited loans from the financial market, thanks to producing such fake figures and securing admission as a creditworthy member of the euro zone.
 
The issue of fake data pose a serious problem for policy makers in Beijing as they try to stimulate a fresh wave of economic expansion. For example in 2012 China came with Euro 435 billion stimulus package to revive and accelerate the pace of economic growth in the country. It is encouraging to note that the current Prime Minister of China, before he assumed this office, had questioned the reliability of Chinese gross domestic product (GDP). He had openly declared that authorities should look not just at the GDP figures but also three direct indicators of economic activity, which according to him are cargo volume on railways, electricity consumption and bank loans, respectively. 

The recent wave of action taken by the Chinese authorities fits with the overall push by the new leadership to crack down on fraud and corruption. There is no doubt this should increase confidence in the Chinese economy, just as what the EU is trying to do with its new legal and fiscal arsenals to deal with its fiscal problems and problem of crisis of confidence.  

Q:  The second quarter's growth rate for the EU and the euro-zone was positive, the first time in 18 months.  Does that mean the debt crisis is now over?

A: It is no doubt a positive development where the euro zone had emerged from recession in the second quarter of 2013 with growth of 0.3% recorded between April and June. The figures are positive if one look at the euro zone as a whole. However if you closely analyse the figures, it masks the mixed economic fortunes among the member states of the euro zone. During the relevant period, Germany and France saw stronger growth of 0.7% and 0.5% respectively whereas there was a drop in output in Spain, Italy and Netherlands. Again on a positive note, Portugal which is among the smallest and the weakest euro zone economies, which had to be bailed out from its fiscal crisis, showed the fastest growth rate at 1.1% during the relevant period.
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If we look at the mixed figures, we need to be more cautious about the sustainable and consistent recovery over the months and years ahead.

I think there is a long way to go before we could confidently declare that the euro crisis is over.  There are still substantial obstacles to overcome as the growth figures remain low.  There are a number of member states facing high unemployment rates and with it the ever increasing risk for social explosion. There are several reform measures adopted and some pending and all of them need to be fully implemented. The economic reform plans, flexible labour market and promotion of competition are some areas subject to extensive reforms. Some of these measures are also politically difficult to implement and in any case will take much time to implement and yield results. So there is still a long way to go but the end of the recession is however an important milestone and could generate more confidence on recovery after 18 long months of economic contraction

Q:  What would have been the result if the EU had not implemented fiscal austerity?
 
A: My simple and short answer is that it would have been the end of the journey for the infant currency, the euro. The result of the collapse of the euro would have been almost obvious. It would have slowed down the EU integration process or may even have laid the foundation for its ultimate disintegration. The global economy and financial market is so much closely integrated to the EU and any serious tension such as its total collapse would have had catastrophic impact on its trading partners.