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Worldcrunch

Divide, Conquer, Aim East: China Has A Sharp New European Trade Strategy

Article illustrative image Partner logo Polska (Poland) pavilion at the Shanghai Expo

BERLIN - Two of the world’s economic superpowers have spent the past days picking their leaders for the future.

Barack Obama and the Democrats are now ensconced in the U.S. while China’s big political show began with this week's opening of the National Congress of the Communist Party, where over 2,000 delegates will decide on who gets the top leadership slots – and hence the direction their country will follow over the next three years. Vice-President Xi Jinping will be taking over as party leader from Hu Jintao and as president in March 2013, thus becoming China’s most powerful man.

For Europe, the course China embarks on is almost important as the results of the U.S. elections. The Chinese have for a long time been, together with the Americans, the most important trade partners for the 27-member-country European Union.

According to the China Times, the relationship is equally important to the Chinese: 15.6% of its trade is with Europe, which makes the continent its number one economic and technological partner, ahead of the Americans (12.3%).

Xinhua news agency commented that both sides knew that only with "strengthened, mutual political trust and economic cooperation could they put the debt crisis behind them and build on their win-win collaboration.”

No wonder, then, as the China Times reported, that Premier Wen “held out his hand in friendship” as he greeted the President of the European Council, Herman Van Rompuy, at September’s China-EU summit in Brussels.

But China’s leaders aren’t only stretching out their hands to Brussels' leaders in Europe. Earlier this fall, the Chinese Foreign Ministry held a "Europe Conference" in Beijing to celebrate a new network of 16 CEE (Central and Eastern Europe) countries, of which 10 are EU member states.

Among the ambassadors of the CEE states in attendance were those of Albania, Hungary, Poland and Slovenia. EU Ambassador Markus Ederer and the foreign press, on the other hand, were not in attendance when Deputy Foreign Minister Song Tao toasted the founding of the new China-CEE Secretariat in Beijing that Song Tao will head as Secretary General.

Xinhua only reported on the new entity the next day, shortly before midnight so that it came to the attention of as few people as possible. But alarm bells, nonetheless, were ringing in EU circles in Beijing. The news created the impression that China’s policy towards the EU was based on a "divide and conquer" principle, with Chinese leaders apportioning their relations into three separate channels: bilateral with individual countries; summit with Brussels; regional forum with the CEE.

The office of the High Representative of the Union for Foreign Affairs and Security Policy, Catherine Ashton, released a guarded statement that contained indirect warnings to Beijing and the CEE countries not to form an alliance, and to play an open hand.

Subtle dependencies

Meanwhile the Chinese are working on developing direct contacts with Europe’s major cities. "Brussels isn’t budging on two very important issues for China – their desire for recognition as a market economy, and the lifting of the EU arms embargo," says European Council on Foreign Relations China expert Jonas Parello-Plesner.

So the Chinese have been creating subtle dependencies with individual EU countries. "The Chinese are doing what U.S. Secretary of Defense Rumsfeld did ten years ago: dividing the EU into new and old Europe."

After inaugurating the CEE Secretariat, Beijing lost no time in attempting to erase any impression that China was trying to divide Europe. Deputy Foreign Minister Song stressed to the Beijing press that the idea was purely an economic collaboration with CEE countries that could strengthen Beijing’s relations with the EU. “China decidedly and unmistakably supports European integration,” he said. The Secretariat was meant merely to better coordinate that cooperation.

Thus far, China’s trade with all CEE countries has amounted to its total level of trade with Italy. The total sum of Beijing’s investments in the 16 countries amounts to the total sum of its investments in Sweden. It was because the economic ties with Eastern European countries were relatively weak, Song continued, that "both sides had a strong wish for closer collaboration."

In Brussels, however, many believe that the Chinese are up to more than they’re letting on. "Beijing has a strategic concept for Europe, that it also expects its corporations to follow," says Elmar Brok, German member of the European Parliament and the current Chairman of the European Parliament Committee on Foreign Affairs. "They target the weak points to create dependencies."

By way of example, Brok gives Beijing’s engagement in Greece, where Chinese companies have taken control among other things of the harbor of Piraeus, one of the world’s busiest sea hubs. The Chinese were also at the ready to help Hungarian Prime Minister Viktor Orban when his government needed money, but was reluctant to accept it from the EU or the International Monetary Fund. In the summer of 2011, Wen offered to buy Hungarian government bonds and extended a “special credit” fund of 1 billion euros for joint investments.

Wen, who only a day earlier had been cementing ties with German Chancellor Angela Merkel, called the deal with Hungary: "A strategic partnership."

The Chinese leadership's strategy was shown by Premier Wen earlier this year when he went to Poland after visiting the Hannover Fair (a major technology expo) and Volkswagen in Germany. There, in a special summit with the 16 CEE heads of government, he presented a 12-point plan for economic cooperation. For joint projects, China would make billions of funds available. According to the Foreign Ministry, four cooperation agreements with central and eastern European countries have already been signed.

In Brussels, EU representatives remain skeptical about the situation and are keeping an eye out to see if Beijing further institutionalizes its regional cooperation, and tries to leverage its investment by turning the Eastern European countries into a lobby group for its interests.

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