Impact of Emergence of Global Competitors on EU - Essay Example

? Impact of Emergence of Global Competitors on EU Contents Contents 2 Executive summary 3 Introduction 3 The development of the china-EU relationship 4 The bilateral trade structure 4 The areas of cooperation between EU and China 5 The economic strategy between EU and China 5 The strategic significance 5 EU’s strategic positioning to China 6 China’s strategic positioning to EU 6 The competition between China and EU 7 Bilateral trade imbalance (input & output) 7 Competition for international energy 8 World Trade Organization 8 R&D, innovation and education 14 The future of China and EU 16 Political instability 16 Increasing the complementariness 17 Recommendations 18 Conclusion 18 References 19 Executive summary The European Union needs to restructure its economic policy in order to have an interest driven approach. The Chinese are willing to work with the emerging economies unlike Europe which is keen on majorly working with United States of America. Europe suffers from internal divisions, giving the Chinese a better competitive chance. The poor coordination between the member states of EU benefits Beijing directly. The euro zone does not depend on the European central bank when it comes to the bonds issue. Rather, it is dependent on various governments. The rise of emerging economies like China and India has an implication to the competitiveness of the EU. The union must have internally robust structures and engage the rising economies in a meaningful way in order to remain relevant. Introduction Regional competitiveness is defined as the ability of a locality to generate sustainable environment and attractive conditions to local residents and firms. Europe was perceived as a source of inspiration by the traditional Chinese revolutionaries. The post revolutionary generation has been looking to United States for the same. The economic interaction between China and Europe has been expanding from 2004. In 2011, the European foreign investment in China reached €17 billion. This was an all time high. The European exports to the Chinese economy are increasingly overtaking imports. In 2009 and 2011, the Chinese investments in Europe tripled to reach €7 billion. The growth was experienced in multiple sectors of the European Union economy. The debt crisis has caused the Chinese to turn to European bonds for investment. This paper discusses the emergence of global competitors and threat to the economic competitiveness of EU. The development of the china-EU relationship The bilateral trade structure There is a lack of a comprehensive reorientation in the way China approaches Europe. This attitude began after the fall of communism (Alon 2009). There is a lack of specific knowledge among the small countries in the EU. This means that some countries do not appreciate their role in the EU and EU-Sino relationships (Crossick & Reuter 2007). The weak or non-existent structures in the EU-China relationships have caused Germany and China to enjoy more trade compared to other European countries. Beijing has found it difficult to develop foreign policy towards Europe (Luo 2010). This is because of the parochial misapprehension and a bilateral trade structure that has suffered to from extreme weaknesses in the previous decades. Research shows a lack of mutual comprehension between China and Europe (Crossick & Reuter 2007). The European products are increasingly gaining access to China. China continues to view Europe as a zone for instability. The member states must assent to any agreements between Europe and China. This means that over 20 countries can influence such decisions through committees. This structure has made the bilateral ties slower to implement. The individual states of European Union come together under the policies on international affairs, human rights and liberalization (Wiessala et al 2009). London has been specifically vocal. A third of the budget of the European Union is spent trying to help China achieve the world trade organization standards (Wiessala et al 2009). In addressing the bilateral structure of the two trading blocs, the European Union is using formal dialogues to rectify trade policies, product safety, and macroeconomics and customs cooperation (Luo 2010). Europe believes that China must address the political instability, extreme economic imbalance and market friendly policies for the bilateral relations to thrive. The areas of cooperation between EU and China China and Europe are increasingly cooperating in multiple sectors. Through the PCA (partnership cooperation agreement), the two trading blocs have agreed to increase cooperation through removing foreign ownership and restrictions (Crossick & Reuter 2007). This would lead to protection of private rights. The two blocs are working together to develop mutual groups on sustainability and importance environmental aspects (Jacques 2009). This shall enhance cooperation in health and safety standards. The European Union has been encouraging China to get more involved in the multilateral trade system (Noesselt 2012). This would mean that China becomes involved in the WTO agenda (Alon 2009). The move would enhance the trade on industrial goods. China is supplying quality products into the European market at extremely competitive prices (Noesselt 2012). Given the Chinese role in the international trade, the EU expects the country to accept the responsibilities thereof. The European Union is determined to ensuring that increased multilateral cooperation is actualized through WTO and other trading systems. Some of the European products are gaining access the Chinese market (Crossick & Reuter 2007). However, China has introduced a policy that discourages investment resulting in a massive pullout by multinationals. The economic strategy between EU and China The strategic significance Europe expects that china shall be benign and embrace its norms and standards. This has made EU to appeal to have a conditional relationship with China (Luo 2010). Europe is convinced that China should open its market for the bilateral trade to be actualized and optimized. This has informed part of the European policy towards China. The European Union is encouraging Chinese government to embrace liberalization (Alon 2009.There are pillars that describe aspects of competitiveness and are included in the competitiveness index. These include innovation, basic and efficiency aspects. The European Union is determined to ensure the competitiveness of the region is boosted through innovation and efficiency of the manufacturing sector (Panitchpakdi & Clifford2002). The basic category includes health, institutions, infrastructure, quality education in primary and secondary level and macroeconomic stability (Miller at al 2010). These have been the driving pillar for the European Union economy. In competing with the Chinese economy, the European Union strategists believe that skilled labor force and efficiency in labor market are going place a central role (Noesselt 2012). EU’s strategic positioning to China European Union represents over 19 percent of the Chinese external trade. EU is the largest market for China. This means that European Union is positioned strategically for the Chinese industries (Jacques 2009). China is exporting many technological products to the European market and has tasted the benefits of the bilateral trade. China is benefiting from the European service sector which has expanded six fold in ten years (Crossick & Reuter 2007). This has created thousands of jobs. The Chinese investment in the European Union is rapidly increasing. The Chinese foreign investment is over 3 billion Euros. This has increased the Chinese investment in the European market (Noesselt 2012). The productive capacity of China has increased through technology, capital goods and technology China’s strategic positioning to EU European Union exports to China have been increasing tremendously. This is more pronounced in the educational, financial, construction and distribution (Jacques 2009). The European companies have access to cheap labor. The European Union has gained market share in the Chinese market. This has led to increased employment (Crossick & Reuter 2007). The competitive prices of the Chinese products have kept the European products cheap. This has had a direct impact on the inflation rated in the European market. EU has benefited through increased exports, increased global competitiveness and technological products (Noesselt 2012). The competition between China and EU Bilateral trade imbalance (input & output) Europe exports machinery and vehicles to the Chinese economy. Europe exports chemicals too. China has developed demand for high ended brands from Europe. China is assembling laptops and mobile phones (Noesselt 2012). EU has established a PCA agreement to boost bilateral ties with China. However, the tensions, safety, environmental and political concerns are the major reasons for trade imbalance (Jacques 2009). This has been instigated by both economic and political reasons. The European Union hopes for more increased investment (Wen-jin 2006). The Chinese market offers a significant potential for European goods (Noesselt 2012). The Chinese have enough funds to invent in the European market. Therefore, the situation offers Europe with a tremendous opportunity through the Chinese economic relations (Crossick & Reuter 2007). Europe has been unable to deal with the growing Chinese economic influence because of underdeveloped instruments that are responsive to the present day realities (Jacques 2009). Europe suffers from internal divisions, giving the Chinese a better competitive chance. The poor coordination between the member states of EU benefits Beijing directly (Wen-jin 2006). The euro zone does not depend on the European central bank when it comes to the bonds issue. Rather, it is dependent on various governments. EU must wake up to the reality of the Chinese policies on investment and trade (Noesselt 2012). The Chinese political party (CPP) must facilitate growth in order to retain power (Crossick & Reuter 2007). The party has established access to international markets. The Chinese strategies realize that the European market is one of the largest. Competition for international energy The quest for energy is the cornerstone for the partnership between India and China. Both Asian nations depend on oil markets to meet energy needs (Jacques 2009). China is heavily investing in solar power. The country uses 19 percent of the global energy. For economic competitiveness to be sustainable, China must establish sources of clean energy (Crossick & Reuter 2007). This shall lessen dependence on coal and non-renewable sources. This has sparked a competition for energy with EU. World Trade Organization China accession to world trade organization happened in 2001. China undertook to take bold steps and to introduce reforms that aimed at liberalizing the market. This integration benefited both China and European Union. The European Union has been concerned about the Chinese policies towards foreign companies and non-tariff measures. The EU intends to prevail upon China to reduce government intervention in the local economy. This can lessen the state domination on enterprises, cheap financing and unequal access. EU believes that protection of intellectual property is necessary in China for the bilateral trade to thrive between the two blocs.EU hopes that China shall continue to meet WTO obligations and encourage fair trade. A graph of comparison on Innovate performance between china and EU Fig 1(data from OECD) The graph indicates the levels of innovation in Europe are stagnant while the Chinese system is experiencing rapid growth. In future, the levels in innovation in china are likely to rise above those in Europe. However, the European market challenges the controlling nature of the Chinese administration and the quality of products compared to the European or US market. A graph of EU-China trade in goods statistics Fig 2(data from WTO) In the table above, the data on imports and exports between European market and China has been detailed. The graph indicates the number growing number of exports from 2010 to 2012. The imports from Europe to China have been stagnating. The graph indicates there has been a negative balance of trade between both trading blocs in the last three years. A graph of European foreign direct investment Fig 3(Data from OECD library) The balance of trade between Europe and China is enormous. China has more exports compared to imports. China is growing the capacity of the domestic market. A graph of EU and China dependence on Oil imports in percentage Fig 4(data from Eurostat) According to the table, the level of dependence of oil is expected to be heavy both in Europe and China. In future, the dependence of oil is set to rise. China and EU are competing for raw materials and energy in the developing nations to ensure they secure the resources. China and India are set to require the largest qualities of energy in the world. EU-China trade (Electrical machinery) Fig 5(data from international trade statistics) EU exports to China have been growing rapidly up to the year 2006. The trade surplus in the electrical products has also been rising and is expected to continue. China and EU are expected expand the bilateral ties boost trade in the coming years. Comparison of energy consumption between China and Europe in selected cities The table below gives an estimate of energy consumption between china and Europe through emission of gases. The European Union believes that china needs to be held accountable for emission of harmful gases. Rapid increase in power is a sign of industrial activity. The statistics indicate that China is developing rapidly compared to United States and European Union. However Europe emits more carbon dioxide compared to China. Population(‘000) TPS µgms/m2 Sulphur dioxide µgms/m2 Nitrogen dioxide µgms/m2 Paris 9854 12 14 57 Tianjin 9346 139 82 50 London 7615 23 25 77 Wuhan 6000 88 40 42 Berlin 3320 25 18 25 Chengdu 3480 95 75 74 Fig 6(China export data) The European Union is using improved and effective institutions to address market failures, efficiency and public goods provision (Mahtaney 2007). The basic pillar ensures that innovation leads to reduced cost of transaction within the region. EU is promoting entrepreneurial skills to ensure effective competition with the emerging Asian economies i.e. India and China. The microeconomic stability has a direct impact on the economic climate of the European Union (Miller at al 2010). The stability is attracting the Chinese investors for long-term projects and maintains the competitiveness of the region. The European health pillar of competitiveness determines the quality of human capital. EU believes that quality healthcare leads to longer working life (Panitchpakdi & Clifford2002). The market size of Europe is divided into regions that operate as a single market. This facilitates free movement of goods and capital within the region (Noesselt 2012). However, the access differs in terms of cost. The regions hope to use the political freedom to encourage more trade and cooperation and reduce the influence the Chinese economic influence. The European Union is improving competitiveness through enhancing efficiency (Mahtaney 2007). The European Union has established structures that promote higher education, lifelong training and learning (Noesselt 2012). Training has a positive impact on market size and labor market efficiency with are part of the pillars for measuring competitiveness. A table indicating the relationship between GDP (& purchasing power) and economic development stage Development stage GDP percentage(PPP) High >=100 Medium =75 Fig 7 The European Union regional competitive index shows that the economy includes innovation, technological readiness and sophisticated businesses. The European Union is segmented into different economic regions. These regions include: high, medium, and intermediate development stage (Pecht 2007). The competitiveness takes into consideration of the purchasing power parity. The high development stage occurs in EU regions whose percentage gross domestic product is greater or equal 100 percent. The medium stage indicates a GDP less than 75 percent. The intermediate stage of development refers to the GDP greater than 75 but less than 100 percent. R&D, innovation and education According to most of the 12 indicators, EU stands a better change of leading innovation than China. The EU lead is declining as the Chinese performance in innovation continues to grow (Phuskele 2008). Developed economies like EU heavily depend on innovation. The competitive edge of the region is maintained through production of new technologies (Wang 2010). Innovation is facilitated by a robust education system (Pecht 2007). Europe creates a conducive environment for innovation by ensuring political and macroeconomic stability. European Union has invested in knowledge workers, R&D expenditure and employment in technological sectors. There has to exist a productive relationship between firms, institutional environment and users of innovation. The level of technological diffusion is determined by innovative capability (Wang 2010). Innovative and technological companies tend to relocate to places with cheap labor and resource availability (Pecht 2007). However, the EU appears to have extended a lead in the R&D expenditure. A comparison of European Union innovation performance against China Fig 8.0(data from Eurostat) Fig 8.1(data from Eurostat) Fig (8, 8.1) The two figures above indicate the levels of innovation in China are extremely low compared to Europe. However, the innovation index for China has been steadily increasingly from 2006. There is a likelihood China shall overtake the EU’s innovation index. Fig 8.1 indicates that the levels of innovation in Europe are higher than China’s. However, while the levels of innovation are rising in China, they are falling in Europe. The future of China and EU Political instability The process of resolving the debt crisis in Europe shall play a considerable role in future interaction between EU and China. The Chinese are increasing viewing Europe as a crisis zone, which is affecting investment. Some of the European nations perceive the Chinese administration as lacking in political legitimacy (Phuskele 2008). The European Union expects the CCP to allow introduction pluralism and public participation (Snyder 2010). The Europe considers the move would make it easier for the European investors to operate in China (Qingjiang 2012). The political intentions of the ruling political party in China affect the direction of the economy and international relations. The political instability touches on human rights issues (Snyder 2010). According to EU, the human rights situation in China is in shambles. The European Union is split on the way to approach the Chinese internal politics and human rights violations (Snyder 2010). Germany and France have already given up on publicly criticizing the Chinese approach to human rights. Europe perceives the CCP are self-serving and inconsistent. Increasing the complementariness Both the Chinese and EU have indicated a desire to cooperate notwithstanding the challenges that exists between them. In 2012, during the Sino-EU summit, both parties undertook to intensify regional cooperation in urbanization, energy and finance (Qingjiang 2012). In future, both parties are likely to work towards improving trade balance in environment and economic matters. The recent move by the EU to raise trade remedy initiatives against China is likely to attract a response from China (Snyder 2010). This could hurt the progress made between the trading blocs (Phuskele 2008). According to China, complementarities are going to strengthen business with Europe. Chinese companies have manufactured high quality and low priced products (Wang 2010). In future, Europe and China must uphold cooperation to facilitate the growth of their industries (Snyder 2010). The current economic situation in the world offers a unique opportunity for cooperation between both parties. The basis of cooperation must be durability and stability to enhance business ties and minimize rivalry (Qingjiang 2012). This is likely to reinvigorate both economies by boosting confidence in the market. Trade relations are likely to remain the cornerstone of the China-EU relations (Snyder 2010). Recommendations The EU is expected to form structures that encourage trade with the Chinese government. This might require the EU to change the attitude of conductional partnership with China. China is not willing to relinquish power in the process of economic expansion (Panitchpakdi & Clifford2002). China has to contend with the growing power of the European Union. Chances are that as the economic power grows, it will need to increasingly get political concessions to enable or maintain political cooperation. Both trading blocs need to appreciate the potential of the bilateral ties. The EU needs to develop internal mechanisms that are flexible and responsive to the needs of major trading blocs and markets like China. Europe seems to have a disjointed approach to Chinese relations. Europe has been taking steps to increase the cohesiveness of the member states, especially with matters that relate to China (Wang 2010). The European crisis is perceived to have contributed to the weakened European structure and uncoordinated European policy. This might require the union to use more diplomacy and less criticism. The Chinese-EU engagement must address climatic change policies, sources of renewable energy and how to control greenhouse gases. Conclusion It is important for the EU to develop a policy that engages developing economies. The Chinese interest in Africa has redefined trade (Pecht 2007). Chinese companies are mining and processing raw materials at the expense of Europe. The stability of world economy is going to play an important role in the Sino-EU economic relations. Pressure from EU and United States should cause the Chinese government to act upon fiscal and structural international policies responsibly. References Alon, I. 2009. 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