EU vote will elevate Sino-EU cooperation

Members of the public take part in a kiss chain at a stay in, pro EU Referendum event in Parliament Square, Central London, Britain, 19 June 2016. Britons will vote to stay or leave the European Union on 23 June.[Photo/IC]

On June 23rd, the UK’s EU referendum will achieve finality. No matter whether the UK votes to leave or not, the referendum itself has exposed the public mood of Euroscepticism. It has been increasingly hard for a declining EU to keep its member states together. At the same time, difficulties breed opportunities. The EU referendum will further promote Sino-EU cooperation.

First of all, the euro-zone economy has recovered at an unsatisfactorily slow pace since the 2008 financial crisis. According to statistics released by the Eurostat, in the euro-zone, the GDP per capita at market price has only increased 3.7 percent in the past 8 years, while in the past 7 years, it has increased 13 percent in the US and 95Percent in China. In addition, the global market shares of the EU’s import and export trade are still blow the pre-crisis level, without a sign of steady growth. The EU used to bank on America to help it get rid of economic dilemmas, but the TTIP impasse disappoints it. In the world economy, the power of the EU is declining.

Second, the severest refugee crisis since World War II has been an unbearable burden for the EU. The latest data from the UNHCR have shown that more than 1.2 million refugees and illegal immigrants have reached Europe. The maximum receptivity of the EU, however, is 72,000. As a result, there must be rounds of negotiations, during which the EU will inevitably make concessions and even sacrifices. After all, the EU is incapable of absorbing so many refugees or dealing with the possibly of triggering problems, such as employment problems, racial conflicts and even social unrest, when the EU itself has been lacking in social vitality.

Third, the international influence of NATO has been reduced in recent years because of the challenges faced by the US-NATO relationship. On the one hand, the US has been unsatisfied with the low levels of European defense spending. Only four members of NATO meet the minimum contribution threshold of 2% of GDP, while Washington provides 75% of NATO’s budget. US unease has raised concerns about NATO’s viability. On the other hand, US attention is moving away from Europe as emerging powers are shifting the global configuration. For instance, America’s pivot to Asia-Pacific has placed US willingness and capacity to commit to Europe’s security in doubt. NATO’s decline has been unveiled by its embarrassments in handling regional disputes, such as the crises in Ukraine and Libya.

In the face of difficulties, the EU is splitting. It’s increasingly hard to reconcile member states’ different economic and political demands. The UK’s EU referendum is exactly the mirror of the fragmentation. EU countries have gradually realized that no single power, neither the EU nor the US, could bring them out of trouble. With this background, the in-depth cooperation with China will provide new impetuses to the development of the EU.

The European economy has remained mired in the aftermath of the financial crisis. The market is starved of investment capital. Individual European counties, in particular, are openly ‘cash hungry’. In contrast, China is already the world’s largest trading nation and the second largest economy, and likely to emerge in the next few years as the world’s largest net creditor. China’s reserve peaked at about $4 trillion at the end of 2014. In recent years, the commercial outflow of capital from China has been maintained at a high level. It is estimated that the net private capital outflow from China is $676 billion in 2015. In a nutshell, the investment capital from China is so attractive for European countries that they must seize the opportunities to cooperate with China.

European countries are competing for Chinese capital. On the list of the top ten destinations for China’s overseas direct investment, there are the UK, France and Germany. In addition, EU countries, including Austria, Denmark, France, Germany, Italy, Luxembourg, Netherlands, Spain, the UK, Sweden, Finland, Portugal, Poland, and Malta are all founding members of the Asian Infrastructure Investment Bank proposed by China. Also, China is promoting cooperation with Central Europe and Eastern Europe. President Xi Jinping is in Poland now. Three months ago, during his state visit to Czech Republic, Beijing and Prague secured deals worth about €4 billion. China, thus, became Czech Republic’s largest trading partner outside the EU. Apart from Czech Republic and Poland, many Central European and Eastern European countries, including Slovakia, Romania, Bulgaria, Hungary have declared themselves interested in developing stronger economic ties with China. They are eager to do business with China, especially in the field of building infrastructure networks.

In recent years, China’s international investment interests have shifted from Africa, Asia and Latin America to Europe and the US. In 2015, Chinese investment in Europe has been unprecedentedly €20 billion, increased by 44 percent compared with that of 2014. Moreover, the figure is expected to continue to grow in the following years.

China has created new partnerships with EU countries by expanding its power through finance, infrastructure and technology. For instance, China has already been successful in Greece. In the financial crisis, when markets had lost faith in the euro, China offered to buy euro bonds and helped the indebted Greece. This move not only paved the way for Chinese investment in the Greek infrastructure sector, especially in the port of Piraeus, but also enabled China to use Athens as a base to connect Central Europe, the Balkans and the Mediterranean Sea.

Although barriers still exist in the way of Sino-EU cooperation, we should realize that the EU is not a monolithic picture. Due to member states’ different capacities and demands, it’s almost impossible for the EU to satisfy all of them with unitary criterion. Furthermore, as the EU is declining, those differences are increasingly significant, and it is the differences that enable Chinese investment capital to penetrate the European market.

All in all, the UK’s EU referendum has mirrored the current predicaments of the EU. Under this circumstance, in-depth Sino-EU cooperation will be mutually beneficial. More important, it will greatly contribute to maintaining regional peace and stability, and promoting world prosperity and development.

The author is assistant researcher at The Centre for British Studies, Shanghai International Studies University.