If the European Union continues to underestimate its bilateral economic and power relationship with China, it risks not being able to improve its position, says DW's Frank Sieren.
The train is a symbol of the EU's self-esteem and unrealistic expectations. The EU tried to enter the Chinese market with two train systems, made by a French and a German manufacturer. But Beijing played off the two until China had managed to develop its own high-speed trains and only needed the EU as suppliers.
Now, finally, after three years of tough negotiations, the German giant Siemens Mobility and its erstwhile rival Alstom of France have merged. Siemens head Joe Kaeser said that "the European idea" was being implemented. One could say, 10 years too late. Chinese giant CRRC is now twice as big as Alstom and Siemens together. The CRRC trains are already running between Shanghai and Beijing, with 350 trains on the rails. China's high-speed rail network is the most connected in the world and Chinese train exports are on the rise.
EU continues to underestimate China
Of course, one could, say: better late than never. But that's all. This merger is symptomatic of the Sino-European relationship. The EU underestimates China or perhaps it actually overestimates it and cannot strike the right tone to deal with it.
This is reflected in a recent survey published by the EU Chamber of Commerce in China which found that 54 percent of its members felt at a disadvantage with regard to their Chinese competition, while some 56 percent admitted to wanting to invest more in China but under better conditions.
Decrease in investments but not in profits
Last year, China's investment in the EU rose by about 77 percent to some $40 billion (34 billion euros) while EU investments in China fell by 23 percent to $8 billion. This does not mean that EU businesses are pulling out of China. The investments of the past continue to bring plenty of profit. These statistics refer to new investment.
Since China opened up in 1979, only once has German investment in China been lower than Chinese investment in Germany and that was in the first year. It will take some time before China will have invested as much in Germany and in the EU overall as Germany or the EU have invested in China. Not to speak of the profits made at the time. So the EU should not open its mouth as widely as it does if it wants to remain credible and reinforce its position.
Threats to restrict market accessible
The EU Chamber of Commerce said the current lack of reciprocity in market access is becoming politically unsustainable, and the bloc is worried that if this is not quickly changed, there will be a backlash against economic globalization. If Beijing is provoked in such a way it could be tempted to test who has the better position.
The Chinese government knows that there is another way of interpreting the poll: Almost every second European company in China does not feel at a disadvantage with regard to its Chinese rivals. One might have expected a worse situation in China because European companies abroad are always at a certain disadvantage. This goes for German companies in France and vice versa. So, there is something to be lost in China for sure.
Striking the right tone does not mean saying yes to everything. There are situations when China is very unfair towards EU companies. But it means that the EU has to come up with a more sophisticated strategy. It would make more sense to admit that the general situation is not that bad after all, so as to concentrate on the aspects where there is room for improvement.
Different situation depending on sector
In certain sectors, such as the pharmaceuticals industry, the situation has actually improved while finance and communications, as well as the semiconductors segment remain no-go zones for European companies in China. The EU Chamber of Commerce in China has rightly prophesied that new rules will make business almost impossible for importers in the food industry. From October 1, Beijing is requiring all imported food to have an official certificate for "harmlessness." This is nigh on impossible, however, because there are no organizations in the exporting countries that can issue guarantees of China's AQSIQ quality control system. So, it is simply a game. China recently banned imports of soft cheeses such as Camembert and Brie, a sign of the different interpretations of the word "harmless." The Chinese authorities do not trust the live bacteria that are needed to manufacture these cheeses.
Instead of swinging their clubs, there should be sector-specific work groups for solving these problems. When EU Commission head Jean-Claude Juncker - as he recently did - calls for closer monitoring of European firms by Chinese state corporations in future he knows that it displeases both the European business community as well as other EU member states.
Japan as a model?
One good means of upping pressure without making any threats is the JEFTA, a free trade agreement between the EU and China's rival Japan that is due to come into force in 2019. Japan and the EU make up a third of the world's economy together. The agreement was negotiated over four years to abolish customs and other trade restrictions and to create the biggest free trade zone in the world. The EU expects a 180 percent increase of processed food to Japan which will amount to an income of about 10 billion euros. These exports would include the soft cheeses that China recently rejected.
It is important not to forget one thing however: Japan's market comprises 126 million people and is already very developed. China's market is far from saturated and the population is 10 times as big. Beijing, therefore, can strike a different tone from Tokyo. The EU with its 350 million people still has a good levering position and can request equality in negotiations.
Frank Sieren has lived in Beijing for over 20 years.