AFTER Chinese New Year’s cel- ebrations died down, the first few weeks of the Year of the Dragon saw a busy schedule of meetings between Chinese and European leaders. On February 2, China welcomed German Chancellor Angela Merkel on her fifth visit in six years. A couple of weeks later, on February 14, President of European Council Herman Van Rompuy and President of the European Commission José Manuel Barroso met with Chinese Premier Wen Jiabao for the 14th ChinaEU leaders’ summit in Beijing. The next day they met with Chinese President Hu Jintao, and four days later Vice President Xi Jinping arrived in Ireland and met with Irish Prime Minister Enda Kenny.
　　These high-level exchanges demonstrate the growing partnership between China and Europe and highlight the significance once again of the strategic handling of China-Europe relations. It is particularly important at a time when the EU is faltering in the wake of an unprecedented debt crisis, the world economy has barely recovered from recession and several countries around the globe are experiencing political upheavals.
　　“Helping europe Is to Help ourselves”
　　As a number of European countries are caught up in a debt crisis that threatens the economic health of the whole continent, the Chinese government has expressed its support for EU endeavors to buoy-up the regional economy and stabilize the Euro. In February meetings with their European counterparts Chinese leaders reiterated China’s will to cooperate with Europe in combating the debt crisis and promised to help alleviate the stress through the continent’s existing mechanisms.
　　This follows China’s affirmative action last July, when China bought 400 million worth of Spanish 10-year government bonds. Mike Amey, a portfolio manager at Pimco, told the Financial Times, “The fact big Asian investors are back in the market is a big vote of confidence for the Euro zone.”
　　Amid vociferous calls in the EU for more Chinese assistance to debt-ridden members there are loud voices expressing misgivings. Some worry that Chinese help will come with conditions, and will essentially be a buyout of Europe. After his meeting with Angela Merkel, Chinese Premier Wen Jiabao responded to these speculations, saying that their conversations on Chinese support and aid to Europe did not touch on controversial issues such as recognizing China as a market economy or lifting the arms embargo on China. Their discussion on this matter instead concerned improvement of the EU’s investment environment, to which he said Chancellor Merkel was responsive. The premier has since declared on several occasions that China has neither the desire nor the ability to buy out Europe.
　　If the repeated declarations by Chinese leaders are not sufficient to dispel apprehension among certain Europeans over China’s intention to help, they can find reassurance in the facts and figures of China-EU trade, which shows itself to be vital to both parties. Bilateral trade hit US $567.21 billion last year, securing the EU as China’s top trading partner for the seventh consecutive year, while China is the EU’s second largest export market. At a time when the continent’s foreign trade as a whole is declining, that with China is showing an upward trend, increasing by 18.3 percent in 2011. Although China is transforming its pattern of growth to lessen its economy’s dependence on exports, international trade remains a major driving force. Europe’s sizeable market is thus critical to China. The two parties are increasingly interdependent in this era of globalization. In the scenario of an economic disaster, or the continued recession of the European economy, and the ensuing dramatic drop in imports, the Chinese economy, already under pressure due to the Western world’s economic ailments, would be unable to avoid the drastic consequences that would bring. Premier Wen Jiabao put it succinctly: “To help Europe is to help ourselves.”
　　


　　Europe Receptive to Chinese support
　　When Greece was swept by debt crisis for the second time, the EU introduced a number of rescue measures, but, crippled by limited financial resources, these failed to lift the country from its plight. At that time, the international community speculated about the possibility of China giving a helping hand, and most observers predicted that China would inject capital to the International Monetary Fund (IMF). The U.S., however, made it clear that they did not support such a situation. U.S. Secretary of the Treasury Timothy Franz Geithner commented that the IMF’s capital reserves were enough to cope with the crisis and that Europeans would not like to see their fate in the hands of those injecting capital to the IMF. Such an attitude comes from the U.S.’s desire for the U.S. dollar to maintain its dominant role in the world economy. The debt crisis the EU is suffering and the shaky status of the Euro will reinforce the U.S. dollar’s dominance, but this would be threatened if China were to offer help in stabilizing the Euro.
　　The attitude of the EU was initially hesitant with regards to China’s aid, but has now shifted to understanding and acceptance. The primary objective of Merkel’s visit to China was to make China honor its commitment on rescuing EU. In late 2011, Nicolas Sarkozy called on his Chinese counterpart for support. In a speech to his countrymen he said, “If China, a country with 60 percent of the world’s foreign currency reserves, decided to invest in the Euro instead of the U.S. dollar, we would have no reason to say no.”
　　Francois Godement, a professor at the Paris Institute of Political Studies, also supports China’s intervention. “Europe must not fall back on the illusion that it can treat its financial issues within a closed zone,” Godement says. “It must become a sovereign international financial partner, moving beyond the passive and incomplete global currency that we have lived with since 2002. This implies seeking a deal with China, the world’s largest holder of foreign currency reserves.”
　　Observers have pointed out that after the European debt crisis, the prospect of China cooperating with EU in investment is promising. The sovereign debt crisis, however, is making the international financial market lose confidence in EU countries. International creditrating organizations have downgraded several European countries and financial institutions. International capital investors have also become doubtful about the stability of the European market. Therefore, attracting foreign capital has become a major concern of many European countries. China’s current investment in Europe is only a tiny proportion of the whole, with the nonfinancial direct investment in the EU only making up 0.2 percent of the total foreign investment in the EU. But this is set to change as the focus of China’s overseas investment shifts from resources to technology and assets, making Europe’s high-tech companies ideal candidates for Chinese investment.
　　


　　European Debt Crisis: A Test of China-EU Relations
　　In this new era, debt-ridden European countries and China are seeing their economies become increasingly complementary, which will lay a solid foundation for the sustainable development of China-EU relations. Barriers to the development of these relations, however, undoubtedly still exist.
　　They include two voices, which when taken together suggest that the strategic importance of China-EU relations is in decline. They can be summarized as“Talk Europe down” and “Trap China with flattery.”
　　The first voice is grounded in Europe’s difficulties with the Euro, depressed economy, and delayed integration. There are even those who believe that the EU is on the brink of disintegration. People who talk the EU down focus on existing difficulties in EU but fail to see the prospects for its development. The European Union is taking positive measures to lift itself out of the unprecedented debt crisis. The reality is that the EU has the strength and ability to solve the crisis as long as the member countries stick together and make concerted efforts as a unified whole. Moreover, in precipitating necessary reform, the crisis might indeed result in the EU’s strengthened development. Early this year, the EU reached an agreement on the EU “financial contract,” which marks significant progress. The step from unified currency to unified financial policies is one that must be taken for the EU to become more integrated, and indicates that the EU is far from disintegrating. During his official visit to Ireland from February 18 to 19, Chinese Vice President Xi Jinping expressed China’s confidence in the EU, saying,“It is true that the EU now faces some difficulties and challenges and there are some pessimistic voices about Europe in the world. But the EU has a high degree of political consensus on overcoming difficulties and crisis and on preserving and advancing European integration. China does not think one should ‘talk down’ or‘short’ to Europe.”
　　The second voice, that of attempting to “trap China with flattery,” stresses that China enjoys the world’s second largest GDP and the largest share of the world’s foreign currency reserves, and since the EU is in decline it has no use for cooperating with those countries. People speaking with this voice usually have ulterior motives, and are in fact twisting reality to fit their goals. If one takes a closer look at China’s overall strength, especially those figures on per capita, it can be concluded that China is still a developing country. The interdependence and potential to complement each other that exists between China and the EU, therefore, has not changed.
　　The European debt crisis will determine the future of bilateral ties. With this in mind, it seems even more important for the two sides to focus on the strategic possibilities of China and the EU’s relationship. The coming months will be a test of political wisdom and the intent of China and the EU to enhance trust and achieve mutual benefit as a solution to the European debt crisis.