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Event report: China’s Reforms – Implications for the EU

19 March 2015

The reforms discussed at the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC) plus the implications for the EU were the main topics at a panel discussion organised by the EU-Asia Centre on 18 March.

Fraser Cameron, Director of the EU-Asia Centre opened the discussion by stressing how nearly all decisions taken in China today had an impact on the outside world including the EU. It was important, therefore, to analyse trends in China. This was why the Centre had assembled the panel of experts. The first question was what were the main outcomes of the CPPCC and NPC?

Shaun Breslin, Professor of Politics, University of Warwick, said the Party was attempting to tackle the major challenges of economic and social reform as well as corruption. But it was not clear that the Party was ready to take the tough but necessary decisions regarding sensitive issues such as reducing subsidies for SOEs and stamping out misuse of local land sales. This latter issue was causing huge resentment among Chinese citizens and contributed to growing unrest. 

Ren Yan, Brussels correspondent, People's Daily said that we would all have to get used to ‘the new normal’ which meant growth of ‘just 7%’. The Party had to adapt its target to changing conditions. Fundamentally the economy was in good shape as was shown by the UK and other EU countries joining the Asian Infrastructure Investment Bank.

Jo Leinen, Chair of the European Parliament delegation for relations with China highlighted three outcomes. First, the environment is rightly top of the agenda. It will be important to translate words into actions. The disappearance of the documentary ‘Under the Dome’ was puzzling given that the Party had authorised its showing. Second, China was facing a new industrial revolution which would require full use of the Internet. But it seemed China was promoting an Intranet regime with Chinese characteristics. This would not encourage innovation. Third, there was a 10% increase in military expenditure.  Was this really necessary?

Ellis Mathews, Head of Division for China, EEAS, said that Premier Li’s speech showed that the reform efforts were meeting some headwinds. This was understandable as the reform agenda was huge – transition to a sustainable economic model with a higher market element, finance and land reform, plus greater transparency and the rule of law. All these measures would be good for EU businesses in China. There were also some contradictions, e.g. more transparency but greater internet control. The EU could be helpful in exchange of best practice.

Qian Bo, Minister Councillor, Chinese Mission, said that this year’s two sessions emphasised reducing bureaucratic procedures and greater acceptance of the market economy. China’s progress was steady and could not be compared to other countries as it had 1.3bn people, 56 nationalities and was still in a development stage. The fight against corruption was very serious.

The second theme for the panel to discuss was the priorities that the Party should follow.

Shaun Breslin said President Xi’s first visits were to Shenzhen and Yan’an to show his support for economic reform. The priority now should be tackling the reform of local government finance. The central government is trying to turn debts to bonds and are pushing more responsibility to the local government. There has been some progress but more work has to be done. Citizens interact on a daily basis with local government. The reform of land use is important in creating a responsible, listening and strong party.  Without reform the legitimacy of the Party would be called into question.

Ren Yan said the priority should be moving from an export oriented economy to a domestic demand oriented economy. Urbanization and more sustainable development were other priorities.

Jo Leinen stressed the importance of going Green – moving towards environment neutral resources.  He hoped China would play a positive role in COP 15. The Party should also address the growing inequality between rich and poor. These measures would increase the creditability and legitimacy of the party.

Ellis Mathews also pointed to the importance of environmental protection as this was where the Chinese people are likely to judge the performance of the government.

Qian Bo agreed with these priorities but urged a note of caution. There were major differences (with the EU) because of history, culture and political systems. Like EU integration and euro reform, it will take a long time for China to reform.  Inequality was a problem partly because the speed at which China opened up. The government is aware of these issues, and knows the dangers of social unrest.  Moving to a sustainable economic model will be a challenge but one that is essential for future stability. China would honour its climate change commitments but China was still a developing country and needed some breathing space. It has just started to be able to feed its own population and 200m people are still living in poverty. 

The last question for the panel covered prospects for EU-China relations, especially at the 40 years anniversary of the establishment of EU-China diplomatic relations.

Shaun Breslin said that global reordering should be based not on separate poles but on countries coming together on an issue basis. The environment area should be a top area for EU-China cooperation.

Ren Yan said the EU was also facing reform so maybe the EU and China could learn from each other, especially as regards sustainable development. Another area for cooperation is the New Silk Road initiative.

Jo Leinen considered that both sides could work together on internet issues, cyber security, and development programmes in Africa.

Ellis Mathews added that social security was an interesting area for cooperation. There were currently many examples of engagement: the bilateral investment treaty negotiations, the new Silk Road, the rule of law, anti-piracy, etc. The EU was keen that a legal affairs dialogue should start soon.

Qian Bo said China hoped to double ODI in Europe and reach $36 bn this year. The NSR initiative could produce many benefits to both sides. Cooperation was also progressing on urbanization, smart cities, renewable energy, pollution controls and numerous people to people dialogues.

In the discussion period a number of questions were raised. Shaun Breslin said that China’s expansion of ODI should be welcomed. He made a plea for the EU to follow the US in granting 10 year visas. The decision of the UK to join the AIIB was purely economic – as the UK wanted London to be the centre of liberalization of the RMB.   

Ellis Mathews said there was plenty of time till December 2016 to decide whether the market economy status should be granted or not. The Commission welcomed the AIIB to fill the gap of Asian infrastructure investment. Germany and France are also planning to join.  

Qian Bo said that the AIIB would follow international standards. China should be included in all major trade agreements to ensure a win-win outcome. The military increase was natural given China’s situation. Defence expenditure per capita in China was only 1/20 of US, 1/9 UK and 1/5 of Japan.  China was open to discuss human rights on the base of mutual respect and through dialogue. No country is perfect in human rights and it should not be used as a tool for political pressure.

Fraser Cameron concluded the discussion be stressing the importance of greater understanding of developments in China; and the need to ensure that the EU-China were able to demonstrate to the public the fruits of their cooperation.