By Dean Carroll
Despite the worsening diplomatic situations around the world, attention is still mainly focused on the economic crisis in Europe. In the United Kingdom, today’s newspapers are full of reports on British Prime Minister David Cameron’s attempts to get the Chinese to bankroll high-speed rail lines the UK public purse can ill afford.
We know that Chancellor George Osborne is pursuing the most sustained era of public sector cuts Britain has experienced in modern times. Like much of the western world, Britain is relying on China to come to the rescue. Minister after minister tells us that China is building new ports, infrastructure including train links and motorways, and potentially even a new airport in the Thames Estuary.
Meanwhile, in Liverpool and Manchester, large parts of the cities are being regenerated purely on the back of Chinese finance. The same British politicians also tell citizens not to worry about the ethics involved and that, given time, China will slowly improve its record on human rights. Hell, the nation may even embrace some sort of democracy one day – if we do all we can to support the Chinese along the way. Or, in other words, accept the money without question at a time when it is not likely to come from anywhere else.
But, inevitably, this pump-priming by the China Investment Corporation sovereign wealth fund does come with strings attached. Although China lacks transparency as it does not have the best record on allowing foreign companies in or protecting their intellectual property rights when they do make it past the gates – the country is demanding that Europe quickly grants it the highly-desirable status of being a ‘market economy’.
At the same time, the Chinese are manoeuvring western powers into a corner whereby they may have to lift the arms embargo – in exchange for continued financial aid for the ailing European economies. Between 2002 and 2011, gross domestic product in China grew by 9 per cent annually. Meanwhile, in the eurozone the figure was just 2 per cent. The raw numbers tell you all you need to know about where we are headed.
It is clear, though, that the cost of Chinese investment will have undeniable ramifications further down the line. In an interesting policy paper for the European Council on Foreign Relations think-tank a couple of years ago, Professor François Godement highlighted China’s worryingly high €180bn trade surplus with Europe. It is the world’s largest bilateral trade imbalance and destroys the myth that Europe and China can be partners.
The truth – say the most vociferous critics – is that we are now a dependent of a tyrannical regime, which has reshaped the worst elements of communism and capitalism into a new business model that we have no choice but to accept. “Of all the world’s integrated economic regions, Europe is the most open to outside goods, investments and immigration,” wrote Godement. “Europe needs external capital to defeat the vicious cycle between public austerity and economic recession. It also needs a vote of confidence by its largest partners – and, above all, by China.”
Exploring further the idea of just what this dependency on an authoritarian regime might mean for Europeans, Godement said that the true cost of Chinese loans could become “impossibly high” – adding: “China could set even tougher terms and begin extracting implicit or explicit pledges regarding market economy status or human rights policies. Gone is the time when Europe could avoid the appearance of dependence on China.”
Of course, painting China as the evil bogeyman looking to strategically take over Europe through the ‘soft power’ backdoor – by way of ownership of strategic assets, government bonds and infrastructure in important sovereign nations – rather than through its military power, is simplistic.
The situation is far from black and white and the grey areas are still emerging as discussions over a European Union-China free trade agreement begin to crystallise. One thing is for sure though, Europe and others in the west will continue to run up a huge Chinese bar tab in the coming years. It is not yet clear is what form the repayments will take beyond the monetary transactions and just how friendly the barman will be to European nations drunk on Chinese credit. At the moment, it is a debate politicians are scared to initiate. In the future though, if a worse case scenario develops, our children and grandchildren may simply ask us one question. Why?
Dean Carroll is editor of Policy Review