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“Post-crisis relations between China and EU” Hubert Fromlet Prague 2010

The progress of China

China is rapidly achieving more and more economic no 1 positions in the world.

Changing analytical approach Judgments on China often need interdisciplinary analysis – otherwise the future cannot be captured analytically.

China has its own economic model China has an economic model of its own since the whole transition to a market economy is centrally planned and happening gradually (unlike previous developments in Eastern Europe).

Europe needs better leaders! Europe needs better political and even corporate leaders – and co-operative leaders who believe in Europe and do something to make things better. Mediocracy dominates in EU and has to be reduced !

Look regularly at the course of the Chinese growth model ! If the previously mentioned Chinese model cannot be maintained, long-term developments may be more distorted or chaotic. For this reason, potential new preconditions for the Chinese model should be analyzed very carefully.

China is very concerned about the fiscal crises in a number of European countries! The Chinese are very concerned about the European fiscal crises – and blame Greece openly for this. China also dislikes the lack of European harmony in critical times. Direct Chinese fears are mainly to do with European GDP growth and the euro.

China’s insufficient policy instruments Financial markets do not understand that China has insufficient instruments for appropriate restraining or stimulation of the economy ďƒ  and, consequently, for dealing with the real estate bubble more consistently; restrictive measures taken so far can still not be interpreted as appropriate.

China in the long run • First, catching up with Europe and the U.S. in total GDP in the next decade. • In about two decades time, running away from Europe and the U.S. in total production terms (not GDP per capita).

This development is nicely described by Stephen Cohen and Brad deLong in their new book “The End of Influence”  which tells us that “influence is where the money is” (i.e. in Asia, mainly China and India). But China also has a number of big, big challenges (which are summarized in the paper for this presentation).

Looking at big waves in modern industrial history: China missed almost every good opportunity for major progress since the latter part of the 18th century. Now it’s time to catch up again – after having had the lead in the global economy between 1000 and 1500. The Chinese know about this – and act now with much more self-confidence than in the past. This ongoing change in attitude and expectation should be taken into account by Europeans (and all other foreigners) during future political and commercial negotiations with the Chinese.

China and Europe on a Corporate Level • • •

The Chinese growth model has given Europe an important role in the Chinese opening-up and reform policy since 1979. Chinese companies are now increasing their activities in Europe even more (acquisitions included, which can lead to uncertainty and fear). Many European companies feel that the Chinese market is getting tougher (shrinking profit margins, harder competition with domestic companies, etc.). But many companies remain extremely optimistic: Look at Volkswagen’s enormous ambitions in China to become the dominant producer of electrical cars in China! However, the current big industrial wave gives the Chinese market new dimensions for Europan companies, too – if Europe takes the chance of speedy innovation and commercialization of new products (which assumes a number of structural reforms).

Paul Samuelson was right! Roughly ten years ago, Paul Samuelson explained globalization to me the following way: “Globalization means that there is no room anymore for comfortable ineffectiveness�. These are important words spoken by a great economist - words that can be especially applied to Europe and the U.S. in their future competition with China.

FROMLET.china2010_prague June 1310