The real problem with China

The object of this year’s Asia-Europe Meeting (ASEM 8) on 4 and 5 October was to reinforce cooperation in the face of the global economic crisis. It was an open secret to everyone that EU leaders would try to persuade China to revalue the yuan. But those efforts came a cropper: from the outset, Chinese prime minister Wen Jiabao forewarned the European negotiators that any attempt to pressure Beijing on that score was doomed to fail. Meanwhile, more and more experts are red-flagging the imbalance in bilateral relations, epitomised by the EU’s €130 billion trade deficit with China.

"For several years the Union used a policy of attraction, imposing no conditions whatsoever on Beijing, and now it faces a real fiasco: Chinese investors are having a field day in Europe, while plenty of Europeans are being driven right out of China,” bemoans François Godement, an expert from the European Council on Foreign Relations, in Gazeta Wyborcza.

Lately, Chinese businesses have indeed been moving into Europe through the back door. When Greece was up to its neck in debt, they are the ones who handed it a lifeline, bolstered by a promise from Beijing to make huge investments in infrastructure (particularly overhauling Greek railways). It was China that bought up the Greek merchandise port of Piraeus for over €3 billion. And over in Serbia, a candidate for EU accession, the Chinese are going to build a bridge over the Danube.

What is to be done? The Union can follow the United States’ example and increase existing tariffs – or impose new ones – on Chinese products. It can also keep pressing Beijing to revalue its currency.

But the fight is futile, says US political scientist Fareed Zakaria. Even a 20% appreciation of the yuan won’t make US or European companies more competitive or take cheap goods from Asia off the shelves in our shops. At best, Chinese T-shirts will be supplanted by substitutes made in Vietnam or Bangladesh.

Zakaria focuses on another – and far more serious – problem: China is becoming increasingly competitive in the domains of education and the knowledge-based economy. Over the past ten years, China has tripled its spending on education, doubling the number of its universities and quintupling the number of its students.

If we lend any credence to Nobel prize-winner Robert Fogel’s contention that an employee with a university degree is three times as productive as one who never got beyond elementary school, it isn’t hard to imagine that our current economic problems with China are but a prelude to the real battle we will be facing in a few years’ time.

Maciej Zglinicki