EUROPEAN COMMISSION PRESS RELEASE: IP/95/731

DOCUMENT DATE: JULY 5, 1995

COMMISSION LAUNCHES NEW POLICY ON CHINA

The European Commission has today put forward its first-ever global policy towards China, covering trade, economic and political relations, human rightsand improved cooperation in a whole range of areas. Europe's relations with China in the past have been piecemeal, responding to individual needs as they arose. Relations, too, were disrupted by the sanctions imposed after theTiananmen Square events, although most of these have now been removed. The aimnow is to place the full breadth of Europe's ties with China within a singlestrategic framework which will be flexible enough to deal withunforeseen events but ambitious enough to take advantage of thecontinued rise in China's importance over the coming years.

Commenting on the Commission's Communication to the Council, Sir LeonBrittan, commissioner for relations with China, said: "China is at a turning point in its relations with the outside world. Its growing economic, political and military strength is giving it a greater role than ever before in world affairs. This is a positive development. I am convinced that it is in Europe's vital interest to steer China into the world economic and political mainstream and away from isolation.

China has already shown sustained commitment to economic reform and to tying itself more closely to the world economic system, but the process is far from complete. Europe must continue to push for China's full participation in the international community, for this will help cement reform within China itself as well as making China a source of stability in Asia and beyond.

Alongside China's bold steps towards the free market, Europe has a stake in seeing that China develops into a stable, democratic society based on respect for human rights and the rule of law.

There has been all too little evidence of a sustained change for the better on these fronts. I believe political reform will become increasingly irresistable as China's economy opens up to the world. Europe must keep up its support for reform not merely through high-minded statements but though practical and effective actions: applying political pressure from the top down and helping China create a civic society, including a fully-fledged legal system, from the bottom up."

WHY DOES EUROPE NEED A NEW POLICY ON CHINA?

The rising power of China speaks for itself. China's economy is now believed to be similar in size to that of Japan in terms of purchasing power parities. Militarily, it is one of the world's biggest arms producers and exporters as well as being a growing strategic power in Asia. Its impact on the environment is huge, by virtue of its population (which increases by 15 million people a year despite its one-child policy), its energy consumption (second only to the USA) and the effect of economic expansion on other resources. It is vital to Europe that China is engaged in world efforts to promote regional security, sustainable development and the development of open markets.

Furthermore, economic power in China is devolving rapidly to the regions, and with it the responsibility for economic and trade policy-making. Europe needs to be abreast of this development in order to promote its own economic interests as well as ensuring that China's international commitments are adhered to throughout the country.

POLITICAL RELATIONS

The EU believes in a policy of constructive engagement to bring China into the international community, and to cooperate with it to resolve regional disputes, notably the demilitarisation of the nuclear industry in North Korea and the territorial differences over the Spratly islands. It intends to boost bilateral dialogue notably by increasing the number of ad hoc meetings at ministerial, official and ambassadorial level. This will enable China and the EU to seek common ground on such issues as the nuclear Non- Proliferation Treaty, disarmament, the non-pro conventional arms trade.

HUMAN RIGHTS

There have been many positive changes in Chinese society since the policy of reform and opening up began. But nevertheless human rights violations continue to be a part of everyday life in China, and the EU has consistently deplored them. Reports of such violations by authorities at every level continue, with severe restrictions on the right of citizens to freedom of assembly, association, expression and religion, as well as due legal process and fair trial. Arrests of pro-democratic Chinese dissidents continue. With more than 50 minority groups in China, notably in the Autonomous Region of Tibet but also elsewhere, the protection of cultural, ethnic, linguistic and religious identity of minorities remains indequate. The EU will continue to press for improvements through a policy based on the following principles:

- That Europe's human rights policy must be effective if it is to be worthy of the name. There is a danger that relying solely on frequent and strident declarations will dilute the message or lead to knee-jerk reactions from the Chinese government.

- That the best way to achieve an improvement is for all EU institutions to follow a policy mix of public pressure, formal private discussion and practical cooperation.

- That such cooperation should involve efforts to build China's legal and judicial system from the bottom up. Up till now, concrete action by the EU to encourage cooperation with individuals in the legal system has been small-scale. The EU should henceforth coordinate with the member states in order to build up real support to develop the rule of law in China.

- That a human rights policy will work best if coordinated successfully at international level, notably through the UN Commission on Human Rights.

- That human rights is important enough to warrant a separate track in our bilateral political dialogue. Such a "specific dialogue" has been set up, with a biannual meeting between the EU troika and the Chinese government. The EU intends this to provide an opportunity for detailed discussion leading to concrete action.

ECONOMIC AND TRADE RELATIONS

The EU believes that economic reform in China is now irreversible. The state now exercises far less control over the economy than before: while over 80% of industrial output was subject to mandatory planning ten years ago, the figure is now only 15%. Price controls now affect less than 10% of retail sales, while public industry's share of total output has fallen from 77% to 44%.

Commission proposes new policy on China (page 2/2)

China's macroeconomic performance since the reforms has been remarkable, too. GNP growth rates reached around 12-13% in the last three years, industrial output has grown by over 20% a year and China's total trade rose from $ 20 billion to $ 237 billion between 1979 and 1994. China's trade balance looks favourable enough and its foreign exchange reserves big enough to cope with a substantial foreign debt, although accelerating inflation casts a shadow over this performance, while disparities between coastal and inland areas are widening rapidly.

China's development has greatly affected its trade relations with the EU. Total two-way trade has increased fourteen-fold since the reforms began, reaching 35 billion ECU in 1994. The EU's has gone from surplus in the 1980s to a deficit of up to 10 billion ECU in the last four years, although this is dwarfed by the US's trade deficit with China. The EU's share of total foreign direct investment in China remains disappointing low compared to its share of other emerging markets. This is combined with a clear perception in China, Europe and elsewhere that EU companies are being less dynamic than their competitors in the Chinese market, and are hence missing opportunities.

The economic challenge for Europe, therefore, is threefold:

1: To help China in its difficult process of transition, notably by launching an economic dialogue on monetary policy.

2: To encourage China into the WTO and other international economic organisations. The EU has taken a leading role in the negotiation, notably by establishing the principle that of the commitments China would make when joining the WTO, most would be implemented on the date of membership, but some could be implemented under multilateral surveillance over a specified period after entry into the WTO. This reflects a sympathetic understanding of the fact that China is rapidly developing, but in important respects has not yet assumed all the characteristics of a fully-fledged market economy. The EU stands by this principle, and urges further political commitment from all partners in order to reach a deal.

For WTO membership to happen, the EU will be urging China to take basic steps that bring it sufficiently into line with internationally agreed rules, notably by: reducing tariffs to a weighted average no more than twice the OECD average; opening up its market in traded services; liberalis improving two-way information, stimulating business-to-business contacts and ensuring that Europe avoids duplication and overlap in its eff dialogue by increasing the frequency of the Economic and Trade Working Group meetings, as well as the sectoral meetings on intellectual property, agriculture and financial services, expanding them to cover new subjects such as consumer goods, transport, technical barriers to trade, and competition policy. It should also deepen contacts with provincial authorities as China's economic decisions devolve to the regions.

BOOSTING COOPERATION

Given the sheer size of China and the limited resources for European cooperation there, the EU should target its cooperation spending carefully, focusing on three priorities:

- Cooperation in areas of critical importance for the Chinese economy

- Cooperation which has a catalytic effect on best practice within China

- Cooperation which bolsters reform

This will entail extra financial resources, but should also involve closer synergy between national and European-level activities. Action should focus on the following areas:

BOLSTERING THE RULE OF LAW.

The EU should channel technical assistance into supporting China's trend towards creating a reformed public management system based on civil society and the rule of law.

HUMAN RESOURCE DEVELOPMENT.

Following the successful launch of the China- Europe Business School in Shanghai, the EU could develop a programme to build ties betwe sector, both in Europe and China. There are several this could be done:

- By creating a "China Experts Group" to act as a forum for the exchange of ideas about China between experts from national administrations and the Commission.

- By creating a co-financing facility for joint projects with the Member States, as well as helping consolidate Europe's presence in China through "Europa Houses" in major provincial cities.

- By setting up an EU Business Council in Beijing, enabling the European business community to articulate its views to the Chinese authorities on policy-making.

- By improving the EU's information strategy in China, not just through the media but through better collaboration with Member States' cultural activities there, and through an expansion of the EU visitors' programme, as well as through encouragement of European studies in China as part of the proposed programme of university cooperation.

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