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Print Edition> World
UPDATED: January 17, 2011 NO. 3 JANUARY 20, 2011
Stepping Up
Chinese vice premier's EU visit focuses on strengthening economic ties with the region

As this political argument continues, German manufacturers have proved that the right company, with the right technology, can succeed in China. Carmakers, in particular, have seen staggering increases in their trade with China in the last few months. BMW, Daimler and Mercedes have all seen massive increases in their exports, with an overall three-fold increase in German-manufactured cars to China. Many of these are bought by the new business class, with Mercedes and BMW becoming particularly popular.

In fact, Germany's exports to China increased by 7 percent in 2009, totaling almost $49 billion. Early estimates for the 2010 increase show that the exports may double. What is striking about this enormous figure is that it only accounts for 5 percent of Germany's overall export total. And it makes even less of a difference for China, which managed to import $1.2 trillion that year. Vice Premier Li said it is likely China's overall imports will stand at $1.5 trillion in 2011. In that case, as he wrote in an article in the Financial Times, despite all the complaints about unfair trade imbalances, China will stand as the world's second largest importer. EU exporters are forced to ask themselves why they cannot get a bigger slice of this pie.

Perhaps part of the answer is that European economies need to achieve a better idea of what, exactly, the Chinese want to import. For the UK, there is great excitement about the possibility of a big increase in the need for financial service products as China moves toward a middle-income country by 2020. With an increasing urban middle class, there will be demands for insurance, pensions and other financial products; the UK has pioneered many of these fields. There is also the need to promote the UK's strengths in environmental science and carbon capture technology, since China has expressed great interest in these areas as it implements greener policies and addresses environmental challenges.

Even so, the UK's best growth sector in 2010 was manufacturing, and it is here that it must become competitive with countries like Germany. It saw its exports to China increase by 40 percent in the first half of 2010, but a massive deficit still remains. So when Cameron met Li, during the latter's recent UK visit, the British prime minister needed to clearly convey, once more, the UK's eagerness to do more business with China on the back of the investments that have been made there in the last few decades.

Investment outlook

Another major theme of the visit was the continuing story of increasing Chinese outward direct investment (ODI) in the EU. China remains a relatively small outward investor, but its ODI has increased dramatically in the last few years and it now has a stock of almost $200 billion abroad. But the vast majority of this remains committed to the Hong Kong Special Administrative Region, and to other Asian countries, with a large amount in offshore territories like the British Virgin Islands.

In 2009, the UK overtook Germany as the destination for the largest amount of Chinese ODI, but the competition to welcome Chinese companies is growing fiercer, with hopes that this investment will lead to job creation and to economic stimulation. Writing in a German paper, Li wrote that China was "encouraging robust, creditworthy Chinese companies to invest more abroad." But he went on: "We would be happy if...the conditions for Chinese companies could be improved for investments and business start-ups in Germany."

Chinese state and non-state companies have consistently said they are keen to invest more in Europe, which they regard as reliable and stable, but that they have had a lack of opportunity so far. Some companies have found local laws and regulations confusing, and have been discouraged by what they view as protectionist policies restricting what they can and cannot buy. So far, the largest investment from China in Europe has been the purchase of Volvo by Chinese carmaker Geely in 2010. And at just over $1.6 billion, that was a very small deal.

One of the most important purposes of Vice Premier Li's visit, beyond aiming to strengthen economic ties, was to build more tangible, friendly relations. China's increasing global prominence, both economically and politically, is still something that many in Europe have trouble getting used to. So the agreement to send two giant pandas to the UK, to be cared for at the Edinburgh Zoo, may well prove to be the most visible remnant of the visit, at least for the UK. When Edward Heath became the first British prime minister to visit China in 1974, China gave two pandas to the London Zoo. A similar friendly gesture was made to the United States after Richard Nixon's historic visit in 1972. Clearly, the pandas symbolize how seriously China takes its relations with its EU partners.

Business Deals

China and Britain signed a host of governmental and business deals worth nearly $4.7 billion during Chinese Vice Premier Li Keqiang's four-day visit to Britain.

The 15 deals covered areas such as low-carbon development, wildlife protection, deepwater oil and gas exploration and cooperation in the financial sector.

China's oil giant PetroChina agreed to buy into British firm INEOS' two refineries in France and Scotland, which have a combined production capacity of 200,000 barrels per day. Oil major BP and the China National Offshore Oil Corp. signed an agreement on deepwater exploration in the South China Sea. Other deals foresaw increased sales of Jaguar Land Rover vehicles to China. The British automaker committed to selling 40,000 Jaguar and Land Rover vehicles worth more than 1 billion pounds ($1.6 billion) in China in 2011.

(Sources: Xinhua News Agency and Reuters)

The author is a senior research fellow with Chatham House in Britain

(Viewpoints in this article do not necessarily represent those of Beijing Review)

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