Chinese Foray into European Economy

The United States has traditionally been China’s biggest trading partner. The two largest economies in the world have a humungous trade relationship that would put national GDP’s to shame. For several years this relationship has been valued and cherished by both United States and China. However, recent events have forced China to make Europe the centerpiece of its export plans. The United States still leads Europe by a large margin when it comes to volume of trade with China. However, given Beijing’s relentless efforts, this situation may not sustain for very long.

Chinese Inroads into Europe

China has made massive inroads into European business both on the trading as well as the investing front. China now owns half of iconic brands like Pirelli from Italy, Fraser from England and Volvo from Sweden! That’s information that should have made headlines! However, somehow Chinese businesses have managed to escape the prying media eyes as the have increased their investment several folds.

On the trading front as well, the progress has been remarkable. Chinese exports to the European Union have multiplied in value close to 11 times since 1995. At the same time, they have also increased their imports a whopping 8 times. Overall, China is exporting more to Europe than the other way round. A massive trade deficit has already been created, and the situation is somewhat akin to the US-China relations. The Chinese premier once jokingly mentioned that every third container that arrives in Germany comes from China. Angela Merkel also stated that Germany is responsible for over half of European Union’s exports to China!

China and Germany are the two largest manufacturers and exports of the world. Their trade union is nothing less than formidable and therefore likely to dislodge America as the dominant economic force in the world.

Why Europe ?

There could be several reasons for the Chinese foray into Europe. Some of them are as follows:

  • Europe is a part of the same contiguous landmark as China i.e. Eurasia. This land mass is home to 5 billion people i.e. over 75% of the world’s population. If properly developed, this could be the largest market the world has ever seen. China wants to use its geographical advantage to become the dominant power in the region.

  • Politically, United States has been mentioning China as an adversary. The Chinese are aware that the United States population is looking at alternatives. The narratives spelled out by both Trump and Hillary seem to be anti-China to varying degrees. The Chinese therefore know that it is only a matter of time before the trade relation is disrupted and it would, therefore, be a prudent decision to diversify.

  • Also, United States economy is seen as increasingly volatile, even inching towards bankruptcy. China is forced to buy treasury bills to keep the United States afloat. This is because if the United States goes bust, so do Chinese businesses! To stop this money drain and forced bailouts, China could have decided to expand into Europe in a big way.

  • Lastly, the European Union is staring at an imminent crisis. With the entire world, except China in a state of economic collapse, EU would need China to bail them out. This is the reason they are also very enthusiastic about creating this very cozy relationship with China. Like United States, they are also running out of people who are willing to buy their debt at fair market value.

Political Motives

Of late, Chinese and Americans have had a lot of standoffs. This is particularly true in the case of South Sea where China stakes its territorial claims. China does not want to have to choose between economics or sovereignty. They want to be a business powerhouse but do not want to bow down to American imperialism. The quick moves into the American economy would not have gone unnoticed in Washington. China has relayed its message loud and clear; sovereignty will not be compromised.

The Silk Route

China also has the advantage of an ancient route that connected it with the Europe. The route is spread over a contiguous landmass giving China several logistical advantages. China is so adamant on reviving this ancient route that it has offered to build infrastructure in other countries at their own cost. The infrastructure would include high-speed roads and railways. China is confident that it will recover its investment and make a handsome profit by selling massive incremental quantities of goods via the silk route.

To sum it up, the past may have been all about Sino-American trade but the future is likely to be based on Sino-European relationships which are at least equally important if not more. Washington too has started propping up Chinese competitors like India and has made them a centerpiece of their economic strategy. The warfare to capture the biggest share of the global political economy has just begun, and it is about to get a lot interesting!

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