Introduction: China, the European Union and the developing world: analyzing and comparing a triangular relationship region by region

By the late 15th century, China’s economy had become essentially inward-looking as the Chinese leadership embraced self-centred and isolationist notions in managing their territory. Due to its sheer size, China remained the largest economy in the world until the mid-19th century and the Chinese market exerted significant influence on international trade. Pomeranz has shown how the Chinese demand for silver enabled Europe to gain a dominant position in international trade through its exploitation of American colonies and helped Europe avoid development deadlocks, facilitating the rise of industrialisation (Pomeranz 2000). Nevertheless, contrary to Western European powers, China’s role remained passive: it did not seek to control the international trade system. Between the 16th and the late 19th centuries, through colonisation or gunboat diplomacy and thanks to their institutional innovations, the modern Western European powers created a new world economy in which feudal entities of the non-Western world were forced to participate by opening up to trade and investment driven by Western merchants and companies. In that process, China lost a substantial part of its national sovereignty and did not play an important role in world affairs until 1945. Under the leadership of the Communist Party of China (CPC), China developed a strong centralised state that enabled it to recover its national sovereignty and launch an industrialisation process. Despite many upheavals and some disastrous policies, notably the Great Leap Forward and the WOUTERS (9781783477333) PRINT (M3616).indd 1 14/01/2015 11:35 2 China, the European Union and the developing world Cultural Revolution, in just three decades China modernised its public goods, that is, education, infrastructure, health and security, and developed a skilled labour force and a solid industrial base which were to be the foundations of its remarkable growth from the 1980s until the 2010s. After two decades of relative autarky, the CPC decided to open up the economy to international technology and managerial know-how in order to upgrade its development capacities through foreign direct investment (FDI) and trade. China’s growth was spectacular as it exploited its comparative advantage and the development of its huge domestic market. In terms of output growth, China under Mao performed rather well. Chinese growth rates were above those of countries like Argentina or India but nevertheless below Brazil’s or Thailand’s (Defraigne 2012). Chinese development was essentially autarkic, however. Given the substantial decline of its share of world trade in the 1960s and 1970s and the absence of Chinese outward direct investment, China’s impact on the world economy was negligible. By contrast, the opening of the Chinese economy and its exceptional growth has generated a massive and growing impact on the world economy. Even though China’s growth from the 1980s to the 2000s was driven more by investment than by exports, its industrialisation and transformation into the so-called workshop of the world – driven by outsourcing and FDI from multinational enterprises (MNEs) globalising their production processes – meant that China quickly became a major consumer of commodities and a major exporter of manufactured goods across the globe. The Chinese economy’s performance started to radically transform the trade patterns of the world economy and its accession to the World Trade Organization (WTO) in 2001 further accelerated this phenomenon. The on-going global strategy that seeks to transform China’s national champions into global MNEs and that has been pursued by the Chinese authorities since the late 1990s generated an exponential growth of Chinese outward direct investment in the 2000s. Chinese firms began to open subsidiaries in the developing world and to compete with the incumbent Western firms in fields like energy products, engineering, construction, utilities, telecoms or household appliances. The stock of Chinese FDI remains very limited compared to European or US stocks, but the rise of Chinese FDI flows has been impressive. Like many industrialised countries which support the internationalisation of their national firms, China has used tied aid programmes to facilitate the commercial penetration of its national champions and to obtain public procurement contracts in different regions of the developing world. China’s transformation into an outward-looking economy has required it to play a more active role in global governance and to develop a global WOUTERS (9781783477333) PRINT (M3616).indd 2 14/01/2015 11:35 Introduction 3 diplomacy. China is now part of the main international fora (e.g. G20) and international organisations (e.g. WTO, UN Security Council). In addition, it positions itself as a central international actor in its bilateral relations with the core members of the international community. The low-profile diplomacy advocated by Deng Xiao Ping at the beginning of China’s economic reforms is not an option anymore. The recent stance taken by China on the crisis in Syria and the triple use of its veto right show that China is ready to defend its interests and foreign policy values at a high cost. Nevertheless, China remains what David Shambaugh has rightly labelled a partial power (Shambaugh 2013). The low profile maintained by China in the Doha Development Round at the WTO, contrary to the one taken by Brazil and India for instance, shows that China still adopts a low profile in certain key global governance institutions. China’s rising economic and diplomatic influence might challenge the position of European powers in the developing world, where the European Union (EU) and its Member States often occupy a well-entrenched position at the economic, diplomatic or strategic level. This incumbent position is explained by long historical ties, notably as a result of colonisation but also due to the fact that European firms began the internationalisation of their activities in the late 19th century, some one hundred years before their Chinese counterparts. European MNEs benefit from much longer experience in international management, from a deeper knowledge of local specificities and from long-lasting political and business ties with most developing countries. European powers have also developed a military presence in some parts of the developing world, notably in Africa and the Middle East, while China is only launching the very first step of international expansion of its military capacities. Naturally, European economic and diplomatic influence also varies considerably across the different regions of the developing world due to long-term historical factors or to the level of economic complementarity. Finally, if one has to compare European and Chinese influence in the different regions of the developing world, one must analyse not only commercial penetration but also the historical ties and the geopolitical configuration and rivalries in these regions