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Who Do You Call If You Want to Divide Europe?
Ian Bremmer and Willis Sparks

HOME > WORLD

 

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Many of both the established and emerging powers represented at the G20 summit in Seoul want China to revalue its currency. The U.S., Indian and Brazilian governments, anxious to promote their own exports and protect local jobs, have said so publicly. EU leaders have added calls for change of their own, and the Obama administration wants to partner with EU policymakers to maximize the pressure.

China, not surprisingly, wants to prevent that from happening, and it has a strategy to avoid it. To underline the problem that Europe never speaks with a single voice, Henry Kissinger once asked, "Who do I call if I want to call Europe?" For China's leaders, the question is, "Who do we call if we want to divide Europe?"

Officials in some European capitals are increasingly critical of Beijing on the value of its currency and a variety of other political and economic issues. To blunt that criticism and to win new friends, China's premier and some of its largest companies recently went shopping in the birthplaces of Western civilization: Athens and Rome.

During an October visit to cash-strapped Greece, Chinese Premier Wen Jiabao pledged that China would buy more Greek debt. Then came news that the China Development Bank -- known for financing big deals in Africa and Latin America -- would finance a solar-power project in southern Italy. Chinese companies have moved into Italy's broadband sector, as Huawei expands ties with Vodafone Italia, and China's ZTE partners with Italy's Tiscali. Chinese automakers Taihe and Chery are looking to set up a plant in Italy. In both Italy and Greece, shipping giant China Cosco Holdings is investing in maritime transport. These companies are hurting, and China is riding to the rescue. In fact, Chinese investment in Europe increased four-fold (from a very low base) between the beginning of 2008 and the end of 2009.

Ironically, it's the global economic slowdown that stokes criticism of China's currency policy in some capitals and feeds demand for Chinese cash in others. In recent years, EU policymakers have heeded Beijing's warnings that a spike in the value of the yuan would force huge numbers of Chinese factory workers from their jobs -- with aftershocks in countries that rely on China for affordable products. Tough economic times in Europe and the political pressures that come with government belt-tightening leave some EU officials less patient with that argument. But crisis in the hardest-hit European countries creates demand for Chinese financing and investment.

This strategy makes good sense for China. Increasing its holdings of European debt and buying a bigger stake in important economic sectors helps exacerbate divisions of opinion on China within the EU and wins Beijing new commercial allies who can help ease pressure in Brussels for a change in currency policy and other issues. China also hopes to win "market economy" status in Europe, making it much more difficult for the EU to slap tariffs on Chinese exports or to charge Chinese companies with dumping. China would also like to reverse a trend toward more outspoken European criticism of China's human rights record, exemplified most recently by the decision in Oslo to award the Nobel Peace Prize to Chinese dissident Liu Xiaobo.

China's economic impact remains a mixed blessing for Europe. Its investments have boosted the French, German and Italian high-tech, automotive and luxury goods industries, while Chinese exports have taken a heavy toll on manufacturers of consumer electronics, textiles and auto parts in Southern and Eastern Europe. But Beijing calculates, probably wisely, that the more integrated China is into the European economy, the less likely that Europe will have the unity of purpose to join Washington in any bid to isolate China politically.

This is part of a larger story. We've seen this trend toward politically motivated Chinese investment in the developing world for years. But economic hardship has added new urgency to both Europe's demands for a revalued Chinese currency and the need for cash-strapped European governments to do more business with Beijing.

Then there's the longer-term story. The Chinese leadership got a scare in early 2009 when a market meltdown in Europe, America, and Japan sharply cut demand for Chinese exports and temporarily pushed some 23 million Chinese factory workers out of their jobs. That shock to Beijing's system restarted work on plans shelved during the financial crisis to shift the country's growth model away from overreliance on exports toward one based more heavily on domestic consumption. China can't rely forever on the West to buy its products and will have to grow a Chinese middle class that can take up the slack.

This transition is the public-policy equivalent of pulling a sharp right turn with an aircraft carrier. It's a very long-term project. But all of China's trade partners -- both established and emerging powers -- know that access to what is expected to become the largest middle class in history could be the key to Western prosperity for the next several decades. Beijing will set the rules for that competition.

In other words, for the past several years Beijing has used its growing economic might for political gain in the developing world. It's now applying much the same strategy in the West.

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(C) 2010 Ian Bremmer and Willis Sparks

 

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