Nation will play 'huge' part in lifting European fortunes

China Daily USA - Mar 5, 2013

Analysis by Li Xiang in Paris and Cecily Liu from China Daily on the prospects for the China-EU relationship that includes the comments of Nicolas de Pedro, Research Fellow at CIDOB.

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China has become "hugely important" for Europe to escape its current economic downturn, according to European experts, who are urging the government to continue with policies that will help ensure growth, and strengthen two-way investment.

The European Union recently forecast a worsening economic picture with core member states such as France expected to grow by just 0.1 percent, and Germany by 0.5 percent in 2013.

Britain also had its much-coveted triple-A credit rating downgraded by rating agency Moody's on concerns over its negative economic outlook.

The disappointing outlooks have prompted many analysts to call for reinforced collective effort at boosting direct inward investment, particularly from China, to help dig the region out of its deepening recession.

"It is very clear that Europe will only escape from another downturn if it can benefit more from external demand.

"This is where China becomes hugely important, and where it is imperative to rebalance our bilateral commercial relations," said Jonathan Holslag, a research fellow of Brussels Institute of Contemporary China Studies.

The two sessions of China's top legislature and advisory body held this week and next are being widely watched in Europe as they will not only elect the country's head of State, the premier and members of the cabinet, but also set the tone for China's economic policies for at least the next five years.

Duncan Freeman, research fellow of the Brussels institute, said that long-term sustainable growth in China is essential for the economic recovery of Europe.

"The events in the Italian election show that the fundamental debate between austerity and growth has not been resolved in Europe, and it will take a long time for strong growth to return," he said.

China has managed to sustain strong growth, and the new government can be expected to continue policies to support this, which will benefit the EU, he added, noting that the key question will be how far the government is willing to go to address reform to ensure that growth is sustainable.

Nicolas de Pedro, research fellow of the Barcelona Center for International Affairs, said the new government in Beijing could probably use its leverage to encourage European leaders to relax austerity policies and implement measures to promote growth.

Some analysts also point to still vastly untapped potential in the investment relations between China and Europe.

"Investments can be the real game-changer," said Gauri Khandekar, a researcher at Agora Asia-Europe at FRIDE, a European think tank based in Madrid, Spain.

Khandekar noted that China accounts for just 2 to 3 percent of overall European investments abroad, whereas Chinese investments in Europe are less than 6 percent of the country's total outbound direct investment globally.

"Investments must be prioritized in the EU-China relationship and can be the best way to stimulate recovery on the European side, creating jobs and an appetite for growth," she said.

Although foreign direct investment in China continues to slip - by 7.3 percent year-on-year in January - more European investment can still be expected as a result of the desire to satisfy China's growing middle class demand, and a strategic decision by many European companies to reduce reliance on the local consumers with declining purchasing power, according to Nicola Casarini, a research fellow at the EU Institute for Security Studies.

"Europe's economic downturn has encouraged European businesses to invest in China where growth prospects are stronger," he said, adding that it is particularly true for "some peripheral members of the eurozone" such as Italy, Spain, Portugal, Greece as they struggle with declining competitiveness and ongoing austerity measures.

By Li Xiang in Paris and Cecily Liu in London (China Daily)

Liu Jia in Brussels contributed to this story.

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