eu-china cooperation

Attila Marjan is a Hungarian economist, PhD ininternational relations. Based in Brussels for fourteenyears as diplomat and member of EU commissioners’cabinets. Former public policy scholar of Wilson Centerin Washington DC. University professor and author ofbooks on EU affairs and geopolitics. Associate professorat the National University of Public Administration, Budapest.

EU-China CoopEration Assessment of Key Policy AreAs

AttilA mArjAn

introdUCtion

historiCal ContExt and thE possibility

of mUtUal UndErstanding

EUropEan know how transfEr to China

and ChinEsE viEws on EUropE

EU-China rElations – ovErviEw

mUltilatEralism - gEopolitiCs

and intErnational CoopEration

A new world ordermultiPolArity And multilAterAlism eu As PArtner And model

soCial poliCy

welfAre stAtethe euroPeAn sociAl systemseu-chinA cooPerAtion And chinese reseArch on euroPeAn sociAl Policiesthe chinese sociAl security system – fActs, Problems, solutions

rEgional poliCy

eu-chinA cooPerAtion in regionAl Policy - overvieweu regionAl Policy And its finAncingchinA’s regionAl Policy And its Problemsconclusions

rEfErEnCEs

his paper has a general and also a sectoralangle in its analysis of the EU-China relations.Apart from putting this relationship into a gen-eral historical and geopolitical context, it alsoelaborates on some key policy areas where Eu-ropean experience seems valid for China tocounter its challenges. The paper therefore hasa very broad range of topical coverage includ-

ing a brief overview of the history of Sino-European rela-tions, current day geopolitical issues, as well as social andregional policy issues. Chapters differ significantly as regards the depth of theanalysis and also in style. The paper, although aims to pro-vide fresh evidence on the different fields it assesses, shouldin principle be considered as an overview and also as an in-troduction to a series of more elaborate papers focussing onthe individual topical issues. The paper also wants to con-tribute to better mutual understanding by introducing someof the key geopolitical and political concepts of the two play-ers, therefore it may be interesting for European and Chinesereaders alike. Analyses of Sino-European relations are plen-tiful, as China is getting prominence internationally, researchpapers on China and China-EU relations (especially with asectoral focus) are becoming abundant. Nevertheless paperswith a comprehensive or at least multisectoral research ap-proach are scarce. Research of how European and especiallyEU policy solutions could serve as models for Chinese prac-tice is even less frequent.

t

introduction

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One research evidence should be high-lighted here, the paper Xinning Song pub-lished in 2010 (Xinning Song: European'models' and their implications to China: in-ternal and external perspectives)[1] never-theless that paper more or less limits itsambition to catalogue existing researchdone by Chinese scholars on different EUpolicy areas. As Xinning Song explains[2] Eu-ropean Studies in China developed very rap-idly in the last twenty years. The reason for this is twofold: the EU-Chinarelations have been growing wider anddeeper and so has economic interdepend-ence, but also Chinese scholars and decisionmakers acknowledge the "relevance of Euro-pean models to China's domestic politicaland social development, as well as China'sexternal relations".[3] He reviews Chinese EUstudies in the following areas consideredmost relevant by Chinese academia and thepolitical class: European party politics andthe issue of democratic socialism; the Euro-pean social policy and social security sys-tems, EU regional policy, European foreignand neighbourhood policy, the Europeanconcept of effective multilateralism, more-over Europe as an example of peaceful rise,and finally "functionalism" i.e.: the step-by-step, sector-by-sector approach to reinforc-ing cooperation and how it can be appliedto East Asian regional integration.[4] Xinningalso claims that Chinese would like to learnmore from Europe than the United States,partly because they consider the EU as a "so-cial power" as opposed to the US. Moreoverthe esteem of the European civilization isquite significant in the Chinese academicand political class.

The first institutions for European studies inChina in the 1980s were the Institute ofWestern European Studies at the ChineseAcademy of Social Sciences, the EuropeanDocumentation Centre at Fudan University

in Shanghai, and the China Association forWestern European Studies. At the beginningmost of the studies focused on individualWestern European countries rather than onthe European integration as a whole. In thelate nineties, European studies in China gota new impetus when the EU and the Chinesegovernment launched the first EU-ChinaHigher Education Cooperation Programme(1997–2001) as one of the major objectivesof the programme was to promote EuropeanStudies in China. More than a hundred Chinese and Europeanuniversities and research institutions, as wellas a thousand Chinese and European schol-ars took part in the programme. Moreoverabout twenty new centres of European Stud-ies were established at Chinese universitiesand research institutes. EU studies (includingpolitical science, economics, law sociology,international relations, history) has not onlystarted to flourish but also became deeper,more strategic and better organized.

The present paper puts EU-China relationsand potential fields of know-how transfer ina historical and also a socio-economic frame-work with a multidisciplinary approach andselects three areas of focus considered mostpertinent (multilateralism, social policy andregional policy). The choice to select thesethree domains was motivated by the convic-tion that these are the key areas for Chinesepolicy making to successfully accomplish thetwo most important political imperatives forthe country:

-the successful geopolitical integration ofChina in the global order and-the successful management of internal imbal-ances (regional and social) that could other-wise destabilize the country. There are obviously other areas outside theanalysis of this paper where the EU experi-ence could be relevant, such as soft power

projection[5], or the issue of “peacefulrise”[6], consumer rights, corporate social re-sponsibility, corporate governance and en-vironmental protection. Even the Franco-German historical reconciliation is referredto sometimes as a process worthwhile tostudy for China for reconsidering its relationswith Japan. But these are considered lessstrategically important by this paper. More-over already with the selection of three focusareas the present paper has a very broadrange of topical coverage including a briefoverview of the history of Sino-European re-lations, current day geopolitical issues, aswell as social and regional policy issues. Italso gives overviews of selected EU policieswhich can especially be helpful for Chinesereaders. Although it aims to provide fresh ev-idence on the different fields it assesses, itshould in principle be considered as anoverview and also as an introduction to a se-ries of more elaborate papers focussing onthe individual topical issues.

As far as the level of mutual understandingas a prerequisite to effective know howtransfer and/or cooperation, is concerned, alot remains to be done. Barriers are partlyhistorical partly due to differences in generalpolitical features and partly because of cul-tural and ideological imprints. This holds trueeven if EU studies have a long history inChina and China studies in Europe are get-ting ever more prominent in social scienceand international relations studies.

China's rise seems to herald a new globalorder therefore it is not only important toknow how China's policies develop, but alsoshould be seen as a key opportunity for Eu-rope to influence Chinese strategies andpolicies. There is a fundamental uncertaintyas regards the future global order - severaltheories compete at this point. There seemsto be a point on which all commentators

seem to agree: there is a new global orderemerging in which China will play an impor-tant role. The paper aims to give an overviewof these competing and sometimes contra-dictory views.

As regards multilateralism in internationalrelations, the EU is a key partner for China inbuilding a multilateral global order, but theEU is not really a suitable model to concep-tualize "multilateralism" for three reasons:the EU is not a true hard power, the EU andthe Chinese concepts of “multilateralism”have significantly different meanings, and fi-nally, the EU itself by definition has no na-tionalistic ambitions on the global scene. Asfar as China's future participation in theglobal order is concerned there are charac-teristics in present time China politics thatwarrant optimism as opposed to the fears ofthe emergence of a hostile bi- or multipolarorder.

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Notwithstanding the fact that China is a hardpower,

- it wants to be part of the world order, its inter-est dictates that; - it does not define itself against an enemy;- it has been and is willing to embrace capital-ism;- it has no agenda or intention to export ideol-ogy.

These characteristics render China's geopo-litical strategy clearly distinct from the for-mer Soviet Union. China has a traditionalistapproach to international relations, where inprinciple the "no interference with nationalsovereignty" is the key bottom line which ismostly motivated by the sense of insecurityof a non-democratically elected govern-ment.

As regards social policies, even if there is noEU-level social model and even policy coor-dination on this issue is rather week at Euro-pean Union level, the EU is an obvious modelfor inspiration, especially some of the EUmember states' practices. Nevertheless Eu-ropean social models themselves have comeunder pressure and proved unsustainablelately, so China is best advised to look at themore sustainable versions of the Europeansocial models, such as the reformed Germanor some features of the Scandinavian ones.Moreover Chinese studies on the Europeansocial systems has often been ideologicallymotivated, therefore often produced biasedresults. The key issues with the Chinese socialsecurity system are underfinancing, insuffi-cient coverage, geographical fragmentationand inefficient institutions. This mix of chal-lenges constitute a significant risk to the sus-tainability of social order in the long run.

As regards regional policy, the EU system canbe interesting for China to overcome the fol-lowing shortcomings of the Chinese system:the lack of a single official organization spe-cialized in regional management; the failureto identify the optimal target region for re-gional policy; the lack of effective financialsupport instruments; the over-dependenceon government and failure to include non-governmental actors.

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I would like to express my gratitude to Xi Chen,my student at the National University of PublicService in Hungary (a master student at theEast China Normal University (ECNU), Schoolof Advanced International and Area Studies,Shanghai, China) for her truly valuable workon the regional policy chapter of this paper.

[1]Xinning Song: European 'models' and their implications to China:internal and external perspectives. Review of International Studies,Vol. 36. Issue 3. July 2010. pp. 755-775.[2]Ibid.[3]Another positive factor is that the acceptance and esteem of Eu-rope and the EU is fairly high in the Chinese society.[4]Free trade agreements (FTA's) and the New Silk Road Strategy aregood examples for this[5]More on this in these recent papers: Shambaugh, David: China’ssoft power push – The search for respect. Foreign Affairs, July/August,2015.; Nye, Joseph S.: The limits of Chinese soft power, Project Syn-dicate, 10 July, 2015.; Tao, Xie: China’s soft power obsession. TheDiplomat, April, 2015.; Funnel, Anthony: China pushes to expand itssoft power through cultural export. ABC Net, Australia, 6 May, 2015. [6]More on this in Zheng Bijan: China’s new road towards the peace-ful rise. Beijing Central Party Press, 2005., or Song, Xinning: Rethinkingof the theory of hegemonic stability, China Bok Review, Hong Kong,1988.

n the long run our principles are our interests. Eu-rope has an established and clearly articulatedvalue set. The Chinese government has a distinctlydifferent one. But there are overlaps. China is anauthoritarian country and an ever more assertivehard power. This however does not mean that ahigher level of mutual trust and better coopera-tion is impossible. One way to get there is better

understanding and empathy. Geopolitics: enmity, rap-prochement, concrete political or military decisions besidesstraightforward interests are often based on perceptions andinfluenced by the (lack of) understanding of the counterpart.That is what one can call the geopolitics of perceptionswhich is probably a more important part of international pol-itics than we think. This holds true in the Sino-European re-lations as well that have a long history.If one tried to take aquick look at China's few thousand years of history with aChinese eye, one saw a vast country with a sophisticated cul-ture, which for thousands of years was miles ahead of therest of the world both in terms of wealth and intellectualachievements.A people that gave the world porcelain, gun-powder, paper, the compass, steel-making and the printingpress. A country that managed to protect its territory frominvading barbarians for long centuries.A country that at onetime considered itself so developed and perfect that itsealed its doors off to the outside world, much to its ownmisfortune. But, one day, China's splendid isolation was dis-turbed as men from Europe appeared.

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Historical context and tHe possibilityof mutual understanding

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Even the most knowledgeable of the Euro-pean had a limited understanding of Chinaand its people at that time. David Hume con-sidered non-whites (including the Chinese)to be inferior peoples. Immanuel Kant be-lieved that the Chinese race was a mix ofHindi Indians and Mongols.

Zhongguo or ”Central Kingdom”, i.e. the mid-dle of the universe -- this is what China wasto the Chinese (surrounded by devils: blackdevils in Africa and dog-headed big-nosedones in Europe). Social autism and a ten-dency to isolationism, which caused China's19th-century decline, have always beencharacteristic of this great nation, the mostancient of all living cultures. Chinese culturehas had an impact on all of Asia for thou-sands of years and since the Middle Ages(the European “Middle Ages” that is) on Eu-rope too. China, as is so often the case, onlylooks homogeneous from a distance. Theremay be no borders, but this continent of acountry is just as diverse genetically, linguis-tically and culturally as Europe. In the light ofits heterogeneity and size, it is even morepuzzling that China is the oldest political unitin the world.

One of the secrets is that the elite exercisingpolitical control has always been the soleholder of all wealth, law and justice. The po-litical function has always dominated theway Chinese society is organized. There havenever been strong separate religious, eco-nomic or military elites as was customary inEurope. Political power is the absolute powerin China, and the one and only focus of thispolitical power is the state. This is somethingwe must keep in mind when assessingtoday's China with its malformed democracyand uncompromising immense state proj-ects. . In China there is hardly any publicopinion, there are only decisions and imple-mentation.

The Himalayas keep China convenientlyclosed off from the West and India. Western-ers must accept that China is different fromour Indo-European cultures: the way it seesthe world, politics, arts, law and religion iscompletely different. God and property aresacred values in the West -- not in China. Weseek the truth, the moral, the punchline, allof which are worthless to most Chinese.Westerners and Indians divide the world intocategories; the Chinese tend to see the worldas dynamic, accidental and symbolic.

The relationship between China and Europehas always been shaped by two factors. Thefirst one, distance, proved to be insuperablefor a long time but was surmounted with thehelp of modern technology and improvedtransport. The second one, trade, remains acentral element of Sino-European relations.Trade links between the two continents canbe traced all the way back to early Christian-ity. The volume of goods transported on thefamous Silk Road showed a considerable im-balance from the beginning. All Rome couldoffer in return of a wide range of goods wereprecious metals and valuables. This trade im-balance has always been present, but todayis caused by China's role in the global supplychain rather than by its self-sufficiency.

During the rule of the Yuan Dynasty (whichwas of Mongol origin) from 1271 to 1368,travel to China became easier as the areasbetween China and Western Asia weremostly controlled by Mongol khans. Thegates of China opened to foreigners. KublaiKhan even sent his envoys to Pope ClementIV with a request for a hundred Christian mis-sionaries to promote Christianity and West-ern sciences among the Mongols. TheVenetian merchant Marco Polo was probablythe best-known foreign visitor ever to setfoot in China and Mongolia. He arrived in1275.

On his account, when the 21-year-old wasled to the Khan, he offered his services to thegreat Khan, who accepted, eventually re-warding the young Venetian with senior ad-ministrative posts. He spent the next twentyor so years under Kublai Khan. Marco Polowas appointed a member of the Khan's PrivyCouncil in 1277 and for three years he was atax inspector in Yanzhou. In his book on hisepic journey, Marco Polo describes a flour-ishing, developed and wealthy Chinahanded down from the late Song dynastyand yet unspoiled by Mongol rule. MarcoPolo was only the first of many Europeanswho made the long trip to China. Still underthe Yuan Dynasty, Pope Nicholas IV sent Gio-vanni da Montecorvino as a Roman legate tothe Great Khan, and he was consecrated asthe first archbishop of Peking in 1307. Mon-gol emperors, who never had an uncloudedrelationship with the Chinese they governed,had the habit of appointing foreigners topublic office, opened China to foreigntraders and allowed --sometimes even pro-moted --all kinds of strange new religions.

The Yuan era was the last period of the Em-pire when China was not characterized by in-troversion. From the 15th century on, Chinapractically sealed off its gates to the outsideworld.Portuguese vessels first landed in China in1514, followed by the Spanish in 1543 andthe Dutch another five decades later. Euro-pean missionaries tried for centuries to gaina foothold on Chinese soil. One of the mostsuccessful missionaries was the Italian Jesuitpriest Matteo Ricci, who traveled aroundChina disguised as a Buddhist monk beforesettling in Beijing in 1601. The Chinese were usually more interested inEuropean technological innovations thanspiritual dogmas (yet another Chinese traitwe consider contemporary but in fact onewith a very long history), and the Jesuitswere happy to satisfy their curiosity. Ricci,who took the time and energy to learn aboutChinese culture, introduced several techno-logical novelties, among them the watch.(He ended up being named the patron saintof Chinese watchmakers.)

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Until the 19th century, Jesuits fulfilled an im-portant cultural mission in the Chinese court,playing a vital role in the promotion of Eu-rope's cultural, scientific and technologicalachievements.

Between 1500 and 1800, China had a signifi-cant impact on the modernization of Europe.From the beginning of the 16th century,there were continuous and direct relationsbetween Europe and China. Geoffrey Hud-son labeled this period "China Besieged", bywhich he meant that European nations drewa cordon around China both by sea and landbut were never able to conquer it[7]. In fact,European traders were restricted to a hand-ful of ports, and although the Jesuitsbrought with them a superior knowledge ofmathematics and astronomy, resulting in amore accurate calendar, European presencenever left a lasting mark on the Chinesementality. The impact was much more sig-nificant the other way around: Europe wasmore influenced by China than vice versa.The reports of the Portuguese and Jesuits onChina's achievements in standards of living,urbanization, technology and governancehad a major impact on Europe at the time ofthe Enlightenment. Leibniz and Voltaire, twokey thinkers of the Enlightenment, weregreatly influenced by Confucianism and Chi-nese philosophy. The philosopher Leibnizpraised the Chinese for their efficiency inadapting ethics and politics to practical life.Voltaire was impressed in particular by thesecular nature of Confucianism and by theabsence of clerical influence within govern-ment. Some Chinese ideals were used as abasis for new theories. One example is Fran-cois Quesnay, who in the 18th centurystarted out from his theory on ”natural order”and -- influenced by Chinese philosophy --arrived at his economic doctrine of laissezfaire. Others, such as Rousseau, were morecritical of China.

Nevertheless, China's influence on the Euro-pean continent at the time is unquestion-able. The import of porcelain and teaestablished new social customs; the cult ofChinese products bred the fashion of chi-noiserie, which spread from the affluent tothe rising middle classes. Europe's admira-tion for China stemmed from its perceivedsuperiority but, by the end of the 18th cen-tury, people's enthusiasm for all things Chi-nese faded due to the Enlightenment, theindustrial revolution and China's resistanceto change.

It took several decades from the arrival ofPortuguese vessels on the Chinese coast toestablish serious trading links between Eu-rope and China. In 1699, England set up atrade representation in Canton in SouthChina, which became and remained the cen-ter of Chinese-Western trade for centuries.Despite earning a hefty profit from customsduties levied on goods going through theport of Canton, China tried to restrict andcontrol foreign trade as much as it could.England, on the other hand, wanted to boosttrade and gain more access to Chinese mar-kets and ports. A British embassy sent in1793 to the court of the Emperor was givena welcome befitting a barbarian king's envoyoffering submission, their gifts were consid-ered as "tribute," but the Emperor refused tolisten to British demands. Apart from traderestrictions, Britain had another problemwith China (one of the world's biggesteconomies those days). While the Westwanted tea, silk and porcelain from China, ithad little to offer in return. European mer-chants had to pay in silver, the only com-modity the Chinese would accept. As aresult, a lot of European silver was ending upin Chinese pockets. (Curiously, history re-peats itself: two hundred years on, the tradebalance between China and the West looksuncannily similar.

The West buys what China exports. It is notaccidental that China had accumulated tril-lions of dollars in reserves by the beginningof the 21st century.) By the 1820s, however,the flow of silver to China was reversed asBritain found a product that tickled China'sfancy: opium. With contraband opiumBritain could finally reverse the trade deficitand get its silver back

In fact one of the most shameful episodes inEuropean history was Britain's illicit opiumtrade that the Chinese government tried tocurb by confiscating and destroying largequantities of contraband opium in crack-down in 1839. In response, the British block-aded the city of Canton and the First OpiumWar broke out. Faced with the superiorBritish fleet and army, China was defeatedand forced to sign a treaty in 1842 whichceded Hong Kong to Great Britain andopened five key ports to British trade. With aseries of treaties the colonizing powers man-aged to open almost a hundred Chineseports and over thirty concession zones. Still,the West could never take full control of thisvast country, let alone make it an exclusivecolony of a single power. Instead, the rivalcolonial empires each established their ownareas of interest on Chinese territory. West-ern powers launched another military cam-paign against the Chinese government,which became known as the Second OpiumWar (1856-60). As a result of the opium wars,China lost much of its sovereignty to foreignpowers. The once great Chinese Empire wasforced into semi-colonial status.By the end of the 19th century, China was nolonger a remote, mysterious land sealed offfrom the outside world. With the help of itsmerchants and missionaries the West hadpenetrated the Great Wall.In the 19th cen-tury; China underwent a shock therapy of so-cial, economic and intellectual changes andwas dominated by Europeans.

A series of military defeats and embarrassingtreaties delivered a serious blow to China'snational pride and traditional worldview. Thedisdain for foreigners shifted into anti-Euro-pean sentiment and mass xenophobia. Themost extreme example was the Boxer Rebel-lion of 1900. This popular uprising by the"Righteous Fists of Harmony" -- called Boxersin the West -- was a violent anti-imperialist,anti-Christian movement triggered by West-ern expansion into North China. The rebelleaders called for the death of all foreignersand Christians in the country. European,Japanese and US troops easily quashed therebellion. Under the terms of the Boxer Pro-tocol, the West exacted enormous war repa-rations from China and the LegationQuarters occupied by foreigners were re-moved from Chinese jurisdiction.

To the Chinese the Opium Wars marked thebeginning of long years of humiliation andexploitation by foreigners. This is the periodwhere we find the roots of China's mixedfeelings towards the West: on the one hand,they admire the developed Western econ-omy and technology as well as the achieve-ments of Western civilization; on the otherhand the idea of being colonized stirs ani-mosity towards the West as a whole.[8]

In the 19th century, Europe brought exten-sive and rapid changes to a country that hadbeen stable for thousands of years andwhose society, economy and culture hadbeen used to slow, gradual change. At theturn of the 19th century, China's agriculture,which employed 80% of the 400-millionstrong population, still used ancient technol-ogy and obsolete methods. As the country’spopulation grew, the area of farmed land re-mained unchanged. Farming technology toowas unchanged, well behind the times. Ruralcommunities were largely self-sufficient, ca-pable of producing little marketable surplus.

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These economic circumstances considerablylimited urbanization and industrialization.What China was unable to do on its own, Eu-rope did for her: the Chinese economy wasin these years largely built with and there-fore dominated by foreign capital. The bank-ing system, shipping companies, railroadconstruction, mining, and certain industrialsectors, such as iron and steelmaking andtextiles, all owed their birth to Western in-vestment. The Chinese elite had to decidehow much of the old China it could try tokeep and how much of the West to acceptfor the sake of modernization. It remains adisputed question whether China wouldhave been able to modernize itself withoutthe West and whether the West fulfilled amission by modernizing China or simply de-stroyed the old China. Western ideas breached the Great Wall ofChina way before the Opium Wars: thisprocess began with the translation of theBible and other religious texts into Chinese.However, the translation of Western litera-ture into the local language only began on alarge scale in the early 19th century. At thistime the Chinese elite became interested inthe West, its military, industrial and techno-logical advances, as well as its philosophy,political institutions, social structures and lit-erature. Various schools of thought soughtto copy Western models and modernize thetraditional system of Confucianism. Chinasought to modernize itself to be able to keepup with the European invaders. But it wastoo late; China was unable to lift itself out oftrouble. It proved too feeble and had fallentoo far behind the West for such a bootstrap-ping act. Europe's position in China was con-siderably weakened by the two world warsand reached its lowest ebb during the ColdWar. With the Cold War over a reunified Eu-rope and an ever-changing China were givena new opportunity to reshape their bilateralrelations.

However, a new breaking point appearedalongside the traditional geopolitical oppo-sition: Europe and China had drifted apartideologically in the wake of Communism'svictory in China.

We have seen that throughout the 19th and20th centuries Europe had a crucial impacton China. The key legacy of this period,which China refers to as "the century ofshame and humiliation", lay not so much inthe military defeats and conquests as in thepsychological and intellectual spillover ef-fects. Before, the Chinese intelligentsia hadalways seen conquerors as barbarians whomight have been superior in military termsbut whose material and intellectual inferior-ity to Chinese civilization was unquestion-able. In the wake of its defeats in the twoOpium Wars, China realized that it faced anunprecedented historic challenge. Yet, thereasons behind China's defeat were consid-ered mainly technological; thus the solutionwas thought to be a better navy and im-proved weapons. The slogan, which heldtrue for Mao's China and continues to holdtrue today, is: modernization to the greatestextent possible in order to preserve the Chi-nese state and culture. In other words,changes necessitated by practical challengesare only accepted as long as they do not af-fect the core of the system. Mao Zedong pro-claimed the People's Republic of China on 1October 1949. The Middle Kingdom wastransformed into a Communist dictatorship.Chinese policy, however, has come a longway in the last fifty years. While Stalin was areal father figure for Mao, Khrushchev wassimply a distant cousin. After Mao's death,China began dismantling the ideologicaland economic walls built around it. Duringthe Cold War years, between 1949 and 1989,Sino-European relations were shaped by ide-ological opposition as much as by the twosides' links with the superpowers.

The relationship between NATO membercountries and China was primarily definedby US foreign policy. Accordingly, relationsare best described as icy until 1971, whenUS-Chinese relations were normalized (andeven started improving). From that point on,Europe made advances towards China, re-maining careful not to upset its sensitivelinks with the Soviet Union. China wished toamend ties with Europe to bypass the USembargo, and later, in the '70s and '80s, togain access to European civilian and militarytechnology as well as to reinforce its positionvis-à-vis the Soviet Union.

From the 1970s, political and economic tiesdeveloped steadily. European countries re-established diplomatic representations inChina, which pursued the policy of the"Three Worlds". In the Three Worlds theoryEurope belonged to the Second World, themiddle element between the two super-powers of the First World and the developingcountries of the Third World. The aim was toalign Europe against the Soviet Union. Butthe huge political and ideological gap be-tween China and Europe was a natural ob-stacle to such strategic cooperation. Later,economic reforms turned China's attentionto Eastern European countries, whose neweconomies were more similar to its own thanWestern Europe's. Nonetheless, China didrecognize the danger that Eastern Europeaneconomic reforms and Gorbachev's pere-stroika posed to its political system. The in-creasingly close relations between Chinaand Europe were cut off abruptly with theTiananmen Square shootings in 1989. Eu-rope was hoping that China would soon fol-low in the footsteps of the Soviet Union andEastern European regimes and the Commu-nist system would dismantle. These sweep-ing political changes came as a shock forChina. Once again, Europe and China be-came estranged.

But the wounds healed rapidly and relationswarmed up soon. The handover of HongKong in 1997 and of Macau in 1999 weresymbolic. While China negotiated these han-dovers with the UK and Portugal, trade talkswere conducted with the European Union.The years that followed marked a meteoricrise in trade relations. The EU became China's number one tradingpartner. But the biggest leap forward wasthat China relaxed its ideological rigidity asit entered the mainstream of global capital-ism squaring the circle and reconcile capital-ism and markets with autocracy. In modernChina, especially among the most dynamicsocial class of entrepreneurs, economic cap-italism is no longer an obscene word; it israther a model to imitate, the key to prosper-ity and progress.

[7]More on this in: Yahouda, Michael: The Sino-European encounter.In China-Europe Relations, Routledge, 2008.[8]This interpretation of the past is not shared by all western scholars.As Axel Berkofksky for one puts it (See in: Berkofsky, Axel: EU-Chinarelations: rhetoric v. (a very different) reality. January 28, 2015. Centerfor Strategic and International Studies) "more often than not the Chi-nese request to (unconditionally) endorse a Chinese version of his-tory and current affairs with China as a victim of Western andJapanese imperialism during what Beijing calls the 'Century of Na-tional Humiliation' (the 100 years from the Opium Wars in the 1840suntil the founding of the People’s Republic in 1949). He goes on say-ing that "those scholars who refuse to sign up to official Chinese in-terpretations of the past and present of Chinese domestic andforeign policies are accused of not understanding China and its5,000-year history. Such Chinese 'history lessons' have become alame exercise imposed on scholars and analysts who have read andwritten a book or two on China." I would add that any incident of thepast should not be regarded as an excuse for revenge, and ideallynor should it be taken as a source of a moral high ground. This is oneof the most powerful common understandings that the EU itself isbased upon.

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n the nineteenth century Europe's key cultural im-pact on China has probably been its influence inmodernizing the Chinese state. In the 1870s and1880s, Chinese engineers who visited Europe re-alized in no time that Europe's successes were notjust due to technological advances but were moredeeply rooted.

One returning scholar was Yan Fu, who translated the worksof Montesquieu and Adam Smith, which introduced Westernideas to China and changed the way subsequent genera-tions saw the world around them. Thomas Huxley's Evolutionand Ethics made the theory of social Darwinism popular. Al-though the writings of Bakunin and Kropotkin led some Chi-nese towards anarchism, but the most influential streams ofpolitical thought among the elite were those of liberalismand socialism, which then made their way into the wider so-ciety through nationalism aimed at China's modernization.Until the end of World War I the teachings of liberalism dom-inated public thinking, but the Treaty of Versailles sent Chinathe message that the Western powers had exchanged theirliberal worldview for the policy of force. In the post-waryears, socialist ideas quickly caught on as they emphasizedthe common good and not the individual as the key motiveof restructuring society.

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EuropEan know how transfEr to Chinaand ChinEsE viEws on EuropE

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The teachings of socialism and Marxismgradually became more widespread inChina. It had been a widely held belief thatthese ideologies could only become success-ful in a developed capitalist country, but theBolshevik revolution demonstrated that So-cialist and Marxist ideas could release enor-mous energies from the tyrannized classesof underdeveloped Russia. One of thefounders of the Chinese Communist Party, LiDazhao believed that since China was evenless developed than Russia, its revolutionarypotential was greater. Europe influenced China in several otherways throughout modern history. China hadto abandon its historic hopes of becoming auniversal power and to settle for being justa state like any other, only bigger. This meantthe acceptance of a Westphalia-type setup,which introduced the new concepts of sov-ereignty, territorial integrity and clearly de-fined borders.

The two key events of the post-World War IIera that have left their mark on China's viewof Europe were the consolidation of theCommunist regime in China and the processof European integration. Following the endof the Cold War, many Chinese scholars wereconvinced that the globe would be domi-nated by one superpower and several re-gional powers, which would eventually leadto a multipolar world order. Studies on Eu-rope are usually based on this presumption,therefore Chinese analysts usually first dis-cuss whether the European Union can beconsidered an independent internationalpower, in particular whether it can act inde-pendently of the United States. Independ-ence from the USA has become China'syardstick of Europe's place in the world. There is no such thing as an independent ap-proach to Europe's role in today's world. Chi-nese analyses of Europe's place in the worldoften reflect their own preconceptions.

Observations about Europe mostly reflectthe hope that the international order is on itsway towards a world in which there is notone single dominant power but several po-litically equal regional centers, a world witha culture characterized by diversity and aneconomy characterized by interdependence.

Even though some Chinese authors do un-derstand the complexity of decision-makingprocedures in the European Union, the diffi-culties of finding consensus in an enlargedEurope, and the traditionally pivotal role ofthe Franco-German axis, the majority ofthem more or less see the EU as a singleactor on the global scene. At the same timeChinese are fully aware of Europe's weaknesson the international political scene, which islargely due to the Union's cumbersome andnon-coordinated foreign policy profile.

The Asia-Europe Foundation conducted asurvey in 2006 on how the Asian media, theelite and the ordinary citizen saw the Euro-pean Union. Three leading newspapers wereobserved for a full year for the frequency ofEU-related news, their relative significanceand themes. The biggest daily publishedabout 60 pieces of news on the EU monthly,while the leading TV channel featured adozen news items on the EU monthly in itsevening news program. Most of these newsitems were not leading ones and were usu-ally unaccompanied by any commentary.The researchers queried 400 ordinary Chi-nese citizens about their knowledge andopinion of the European Union.

The majority of respondents said thatChina's key partner was the USA, followed bythe EU, and somewhat surprisingly addingthat the EU was likely to take over America'spole position at some time in the future. . Inlinks with the EU, trade and finance wereconsidered the most important.

Most respondents associated the EU withthe euro and trade when asked the question:what is the first thing that comes to yourmind when you hear the term EU? There wasa general consensus that the euro was themost important symbol of the EuropeanUnion. The third part of the survey involvedinterviews with representatives of the Chi-nese political, economic and media elite aswell as of civil society. 95% of the intervie-wees said that the EU was a major power,and they also agreed that the EU was one ofChina's key partners alongside America andRussia. The opinion of the political elite was morepositive than the economic elite's: the lattergave an unequivocal answer, putting theUSA as clearly the number one partner ofChina. However, to the question whether theeuro would ever replace the dollar in inter-national money markets as the leading cur-rency, the economic elite gave a surprisinglyopen and positive answer: most respon-dents did not rule out the possibility of thisscenario. Let us not forget though that thiswas before the Eurozone crisis. The opinionof the political elite differed: they believedthat, due to America's political dominance,the dollar would maintain its top spot. Ingeneral terms, the EU was considered mostimportant by the political elite and the leastimportant by the media elite, but all fourgroups expected the EU to take on a moreimportant international role in the future.

The EU became China's leading trading part-ner in 2004, and China is now Europe's sec-ond most important trading partner behindthe United States. The total value of EU-China bilateral trade grew more than sixty-fold since 1978, and Europe has worked itsway up to become China's number one sup-plier of technology. Germany is China's keyEuropean trade destination, absorbing athird of all Chinese exports to the continent.

To many Chinese authors Europe symbolizesthe spirit of the modern age, all the more soas they see their own aspirations materializein European policies. Chinese analysts agreethat Europe is not only keen but increasinglymanages to build a key international posi-tion independent of the USA since the endof the cold war. More and more Chinese ac-ademics realize that the EU not only talksabout the necessity of an effective multilat-eral system but also puts those ideas intopractice. Some believe that this European aspirationstems from Europe's postmodern foreignpolicy orientation and the neoliberal schoolof international relations. The majority ofChinese have an overly generalized and ide-alized view of Europe's position in the globalpecking order. They understand that the EUlacks one of the key prerequisites for statusas a global power – military power – whichis somewhat counterbalanced by soft powerand economic might.

16

Accordingly, many Chinese scholars considerthe EU as an incomplete and unbalancedpole of power. Some Chinese analysts areconvinced that both Europe and China wishto strengthen economic globalization andcurb political globalization, i.e. American po-litical and cultural hegemony. Moreover interestingly many in China be-lieve that the Chinese economy is alreadymore open than the often protectionist Eu-ropean economy. China does not see Europe as having aglobal strategic vision - primarily becauseEurope is divided internally hindering it tospeak with one voice on the internationalpolitical scene. Due to these internal rifts inEurope, apart from trade policy, Sino-Euro-pean relations take place at the level of themember states not only with the Union as awhole. China - known to steer clear of sensi-tive issues during international talks - doessupport Europe's soft-power policy on thesurface, but in reality has always been avidfor hard solutions. The failures of Europe'sforeign policy in the Balkans and the MiddleEast have exposed the weaknesses of thesoft-power approach to China too.

The one area where Europe's economic, po-litical and symbolic unity is beyond questionis the single currency, the euro. Having saidthat, China still has no idea whom it shouldnegotiate with on international monetary is-sues. Europe's institutional representation ismuddled, unlike in the United States, wherethere is a Treasury Secretary (finance minis-ter) and a Chairman of the Federal Reserve(central bank governor) and that is it. Accord-ing to Chinese predictions, in 30 years' timethere will be three major currencies in theworld: the yuan, the dollar and the euro.China, including its intelligentsia – for severalreasons - still has a rather haphazard andchangeable view of the EU. In the 1970s,China saw the EU as the embodiment of the

capitalist world, the state-monopoly and im-perialism, a political union of Western impe-rialist countries. It speaks volumes about theage that, in the seventies, the Eastern Euro-pean press commented on European inte-gration in much the same way. The Chinesedefined the European Union as an ally of theUSA, as Washington's instrument to controlWestern Europe and as a political formationborn out of the rivalry between the SovietUnion and the United States.

These beliefs were based on Lenin's theoryof imperialism and the Maoist "three worlds"concept. Back in those days, the popular Chi-nese line of thinking saw three reasons forthe nations of Western Europe to create a Eu-ropean Union. Firstly, European integrationwas thought to be the upshot of the unbal-anced development of capitalist politics andeconomics. America's power was believed tobe superior but provisional, which wouldgradually give way to a rising France, Ger-many and Italy. With this predicted shift ofpower, the Chinese thought that the aim ofuniting Western Europe was to gain progres-sive detachment from the USA. Secondly, theEuropean Union (the Common Market) wasregarded as a product of the competitionbetween Western Europe and the UnitedStates. With the spread of the Soviet Union'ssphere of influence and the collapse of thecolonial system, the West was no longer bestplaced to compete for the markets of the in-dustrialized and developing world. The Chi-nese were in no doubt about the objectiveof the six founding members of the Com-mon Market: to secure their grip on key mar-kets. Thirdly, the Common Market was seenas an offshoot of state-controlled monopo-list imperialism. Monopolization is one of thebasic features of imperialism -- Lenin tells us.The European Coal and Steel Communitywas the first step towards international mo-nopolization and a logical continuation of

the Italian, German and French monopolisteconomies' post-war development. The EUsymbolized to the Chinese the highest levelof European monopoly, created between pri-vate and state monopolies.

In the Maoist "Three Worlds" theory, WesternEurope was America's ally but also China'spotential partner for a joint fight against theSoviet Union. Intriguingly, from an intellec-tual point of view, in the 1960s and 1970sChina had a bigger impact on Europe thanvice versa. Many Western European intellec-tuals and the student movements of 1968saw their own aspirations - namely their re-jection of the establishment - in Mao's Cul-tural Revolution. This only went to show howfragmentary their knowledge of the realityof the situation in China really was. Chineseanalysts reckoned that the aim of the USAwas to subdue Europe by way of its eco-nomic, political and military unification.When Europeans realized what the USA'splans were, they brought into being theirown Union in order to be able to counteract

American and Soviet weight through eco-nomic and political unity. Nevertheless, inmilitary terms, Europe needed America andNATO to protect it from the Soviet threat aswent the Chinese version.

These rough-hewn theories were then re-placed in the 1990s by a more sophisticatedand better grounded view of the EU. Fromthis point on European studies became moresocial science oriented in China, devotingmore attention to how the EU and its policieswork. Chinese academia changed its opinionand no longer believed that the EuropeanUnion had been founded to counterbalanceanother economic or political world power.China now understood that the main moti-vation behind the EU was to secure the con-ditions for economic development andlong-term peace through regional coopera-tion.

China began to study Europe and the EU me-thodically, dissecting it from an economic,political and cultural perspective.

18

In the late 1990s, China recognized thatWestern powers were still members of thesame family and that globalization only drewfamily ties closer. Hence, the main trend ofdevelopment of international relationspointed towards a multipolar world ratherthan towards one without any poles. In sucha world order the European Union's missionwould not be to simply act as one of thepoles but to use its political and economicclout and become a key diplomatic player.

This Chinese fascination with European stud-ies stems partly from the fact that they seeEurope as a potential model for integrationinvolving China and Taiwan or the Asianeconomies. The market economy reformsled not only to economic growth but alsocreated new social problems in Chinese so-ciety, such as regional disparities, the grow-ing gap between the rich and the poor,problems of public health and the mass in-flux of the rural population into cities. Theseproblems generated a degree of social insta-bility that could undermine the position ofthe ruling Communist regime. In response tothese domestic social challenges, Chinese re-searchers started looking into the welfareand social security systems of Europeancountries and into the regional policy of theEuropean Union. It is significant that most ofthe Chinese scholars visiting Brussels cameto study European social policy. This keen in-terest is attributable to the fact that Chinacan only envisage a successful social securitymodel with a strong state presence; there-fore the Chinese are more curious about Eu-ropean achievements in this field than aboutthe American model based on the idea ofself-support. For some Chinese intellectuals,the model focusing on social equality andenvironmental friendliness instead of eco-nomic efficiency could serve as an examplewhen implementing the long-cherished Chi-nese dream of "harmonious social order".

Just as European thinkers such as Voltaire orLeibniz once felt that another distant societywas much closer to the ideal society, someChinese may feel that way about Europetoday.

The peaceful rise of China is the number onepriority of the Chinese political elite, whocollect all available analogies and lessonsfrom around the world. China has several les-sons to learn from the integration of modernEurope. European countries first fosteredclose links with one another and then ex-tended various forms of cooperation to moreand more areas on their way towards widen-ing integration. The success of this processcould serve as an example for the future de-velopment of an Eastern-Asian Community.On the other hand, while rising to the rankof a global actor through this process of in-tegration, Europe was wise enough to main-tain good relations with the USA within theframework of their political and military al-liance. Thanks to the Atlantic alliance andtheir economic interdependence, the USAdid not see Europe's integration as a chal-lenge to its dominance. The Chinese often refer to the USA-EU al-liance as the "Western collective hegemony",indicating the strength of trans-Atlantic ties.In parallel with its rise, the European Unioncommanded an increasingly important rolein international institutions in the creation ofwhich the USA had a decisive part. In fact,Europe became a major international playerwithout becoming a competitor or chal-lenger of the USA, and it did so by aligningitself to the international order built by theUnited States.

As China assumes a growing role in interna-tional organizations it can rely on the EU's ef-fective doctrine of multilateralism as a modelto follow, as opposed to the USA's unilateralinstincts.

So a proper management of relations withneighbouring countries, key global powersand the international community is the keyfactor. The ongoing enlargement of theUnion is seen in China as proof of the factthat the EU is an attractive club that moreand more countries wish to become mem-bers of, which in turn further strengthens itsinternational clout. The 2004 Big Bang en-largement of the European Union - the re-unification of Eastern and Western Europe -confirmed that Chinese conviction.Nonetheless, some of the ramifications ofthis last round of EU enlargement makeChina somewhat anxious. Most of the newmember states had been liberated fromCommunist rule only a decade or so earlier,and with the Soviet Union now gone andconsigned to the history books China re-mains the only major country governed by aCommunist party.

Some in Europe have the belief that Europecould become China's “tutor”, introducingthis vast country to the world of fundamen-tal European values such as soft power, con-sensus-based foreign policy, multipolarity, asocial model built on justice and solidarity orenvironmentally-conscious living and busi-ness. But China has a different view. Nodoubt that China is sincerely interested in,studies and uses the achievements of theWest and of Europe, but the idea of Europebecoming China's tutor is mere fantasy. Nev-ertheless there is a middle ground how onecan approach this issue. Continuing inten-sive exchange of views and structured dia-logue at different levels, reinforcinginstitutionalized political and academic con-tacts to enhance the depth of Chineseknowledge about Europe’s values andachievements would definitely be beneficialfor both.

As Xinning Song puts it[9], although the "EUis a semi-supranational and semi-intergov-ernmental institution and China is an author-itarian one-party state" but studyingEuropean "models", i.e.: policy solutions, andtheir potential implications for China's do-mestic development and its foreign relationsis indeed important for the Chinese.

[9]Song, Xinning: European 'models' and their implications to China:internal and external perspectives. Review of International Studies,Vol. 36. Issue 3. July 2010. Pp. 755-775.

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22

he EU is China’s most important market andtechnology partner. China has started to investin infrastructure projects, the energy sector, realestate, and high-tech companies The EU is thesecond most important destination for Chineseinvestments after Asia, surpassing even UnitedStates. European investments in China are even

much more voluminous. While trade and economic cooper-ation is the most important element of the EU-China rela-tions, they cover a very broad array of domains includingculture, diplomacy, secutity and global governance issues.The EU and China are in negotiations to establish a bilateralinvestment treaty which over time could pave the way to afree trade agreement. There is nevertheless more to this cooperation than econ-omy. As Shi Zhiqin, dean of the department of internationalrelations at Tsinghua University points out[10] "beyond ma-terial calculations of economic stability, the European projectis an atypical project that seeks to unify former existentialenemies into a sui generis political construction, and this issomething that China endorses as it seeks a harmoniousmultipolar global order and a new type of great power rela-tions."

t

EU-China rElations - ovErviEw

24

In his 2014 paper[11] Jiang Shixue remarksthat "After 40 years of development, China-Europe relations have developed into exem-plary North-South relations. In 1975 Chinaand the European Economic Community es-tablished diplomatic relations. In 1983 Chinaand the European Community entered intofull-fledged diplomatic relations. The EU-China Strategic Partnership of 2003, whichhas developed on the basis of the 1985 EU-China trade and cooperation agreement, hasgrown to include foreign affairs, securitymatters and international challenges such asclimate change and global economy gover-nance. The EU-China Strategic 2020 Agenda for Co-operation agreed at the EU-China Summit in2013 is the current framework document ofSino-European relations. Already the 17thEU-China summit was held in June 2015(these summits are normally held annually).Cooperation is based on three topical pillars:politics, economics and trade and finallypeople-to-people relations. Over 60 regularhigh level and senior officials' dialogues - onforeign policy matters as well as technicaltopics such as industrial policy, education,customs, nuclear energy and consumer pro-tection – underpin the three pillars. Humanrights – a contagious issue for the EU-Chinarelations are discussed as an integrated partof the EU-China relationship under theiragreed 2020 Strategic Agenda - with littlesuccess. Jiang Shixue argues that the reasons of theEU being such an important partner for theEU are the following: the EU is a huge mar-ket; it has very sophisticated technologies; itis an ideal place for investment (with rule oflaw, legal and political stability as opposedto Africa); the EU is also helpful in making thejuan an international currency; the EU is alsoan important geopolitical actor; as well as akey partner for China's participation inglobal governance.

Key factors of improvement of the EU-Chinarelations are the following according toJiang: to solve trade frictions, including rec-ognizing China's market economy status bythe EU; promote mutual understanding be-tween people, institutions, the political andcultural spheres; to respect each other's bot-tom line interests (here obviously referencesare made to Tibet, Taiwan); to seek commongrounds in international actions (thoughagain by "respecting differences" – the usualChinese caveat on cooperation) and en-hance mutual trust at various levels; to en-rich the content with concrete joint activitiesof the several cooperation frameworks.

China's Policy Paper on the EU[12] adoptedand published by the Chinese Foreign Min-istry in 2014 states that "since the release ofChina's first policy paper on the EuropeanUnion by the Chinese government in Octo-ber 2003, the China-EU ComprehensiveStrategic Partnership has made importantheadway. Guided by the annual China-EUSummit and focusing on the three pillars ofpolitical, economic and people-to-peopleexchanges, China and the EU have promotedall-dimensional, multi-tiered and wide-rang-ing cooperation. China is the EU's secondlargest trading partner. The EU has beenChina's top trading partner for 10 years. Theannual trade volume has exceeded 550 bil-lion US dollars and there have been over 5million visits between the two sides eachyear". The Policy paper talks about two majorforces, two major markets and two major civ-ilizations, one is the cradle of the westernculture the other one a key representative ofthe oriental culture. The 2014 policy paper on the EU draws ablueprint for the China-EU cooperation forthe next decade. It states that multi-polarityand economic globalization have deepened;cultural diversity and global IT usage havebeen enhanced;

the overall strength of emerging marketsand developing countries has been growing.The paper also declares that "with the signifi-cant growth of its overall strength, China isplaying an important role in major interna-tional and regional affairs but China remainsa developing country that suffers from se-vere lack of balance, coordination and sus-tainability in its development".

The paper states: China and the EU have farmore agreement than differences and theChinese government intends to work withthe EU and its member states to implementthe China-EU 2020 Strategic Agenda for Co-operation that has the following key facets:China-EU partnership for peace; for growth;for reform and for civilization to bring thetwo major civilizations in the East and Westcloser. Apart from a better coordination onglobal political and foreign policy affairs, thepaper envisages an enhanced cooperationin macroeconomic policy within the G20 andin defence and security. The paper reiteratesthe Chinese request that the EU should liftits arms embargo and maintain tightly itsone-China policy.

Apart from political cooperation, the PolicyPaper elaborates on the following areas ofcooperation: economy and trade; urbanisa-tion, fiscal and financial cooperation; indus-try, agriculture, transportation, science,technology, IT; climate, energy, environmen-tal protection; judicial matters and finally ed-ucation and culture. 2012 was declared theEU-China Year of Intercultural Dialogue.Al-most 100 multilateral events, involving twoor more EU Member States, were part of theYear’s official calendar. A further 100 bilateralprojects also took place, covering all culturalsectors as well as education, research, multi-lingualism and youth. The EU-China Year ofIntercultural Dialogue is the second in a se-ries of thematic years in EU-China relations.

2011 was the EU-China Year of Youth. Also in2011, EU and China extended the scope oftheir cooperation by creating a 'third pillar'of their strategic partnership, through theEU-China High-Level People-to-People Dia-logue. The number of Chinese students atEuropean universities has multiplied six-foldbetween 2000 and 2010, reaching a total ofover 120 000. The EU has provided ErasmusMundus grants to more than 2 000 Chinesestudents in six years, the Chinese govern-ment has committed to provide 10 000scholarships to Europeans who wish to studyat Chinese universities. Looking behind the optimistic official decla-rations and often rather vague blueprints wesee a more sober reality. Axel Berkofsky ar-gues[13] that contrary to the optimistic rhet-oric by both the EU and China since theadoption of the strategic partnership morethan a decade ago, the reality of EU-Chinacooperation and the results of institutional-ized bilateral exchanges, are sobering.

26

Many of the problems and controversiescovered by the bilateral dialogues have beendiscussed for years without progress. This isespecially true for trade, investment, marketaccess, government procurement, intellec-tual property rights, and other matters Euro-pean business has been complaining aboutfor years. The list of obstacles European in-vestments in China confront is still very long.The list of achievements of actual EU-Chinacooperation in regional and global securityis even shorter. Moreover China remains ut-terly nontransparent about its defense poli-cies as well as on its regional security policystrategy in general. Sino-China relationswould definitely develop much faster shouldthe Chinese Communist Party allowed agradual political pluralism and participationin China.

According to several authors (Jing Men[14],Jeremy Garlick[15], Richard Balme[16], etc.)the EU-China relations cooled and the en-thusiasm of the early 2000's disappeared forseveral reasons contrary to the obviouslybroad set of common interests and the in-tensive economic relations. But this canprove to be a temporary phenomenon. Theimpact of the new European Commission'spolicy focus on China[17] and Europe's re-covery from the crisis is still to be seen. Butissues like intellectual copyright, China'sdealings with tyrannical regimes and thestate of the rule of law in China on one side,and the issue of the EU arms embargo onChina, and the reluctance to grant marketeconomy status on the other will definitelyhinder relations. Shi Zhiqin argues the periodfrom 2003 to 2005 was a golden age forChina-EU relations, but after 2005, relationscooled for European fear of Chinese eco-nomic competition and because of the "elec-tion of more assertive politicians in Europe"Like Nicolas Sarkozy and Angela Merkel, who"became more aggressive toward China."[18]

Lack of unity in Europe also puts a strain onSino-EU relations. Dealing with the EU makesit slow and more complicated to reachagreements. Several Chinese scholars andpoliticians hold that while China would liketo have more streamlined relations with theEU, the slow decision-making system makesit impossible. China has realized that the EUcannot take swift actions and Beijing startedto focus on bilateral relations with individualcountries. Shi Zhiqin candidly admits[19]that "China also benefits from the competi-tion between EU countries, which is not op-timal for EU interests".The established Chinese view on the Eurocrisis that started in 2009 is that it is a criticalpoint in the EU's history and also that this cri-sis is not only economic but political as well.It is also the general Chinese view that thelongevity of the euro necessitates a strongerfiscal architecture and also a closer politicalunion. "While China has been vocal aboutthis necessary step, it is only Europe herselfand the European constituencies that cantake that very crucial step for their fu-ture."[20] China watched EU member statessuffering by the specter of bankruptcy highunemployment, serious political calamitiesand the emergence of populist and anti-EUpolitical parties both in EU member statesand in the European Parliament. Accordingto a 2014 article by Shi Zhiqin[21], the tur-bulent European economic and politicalscene and especially the emergence ofstrong anti-European parties could have sev-eral unfavorable effects on the Sino-Euro-pean relations from slowing down thenegotiations on the China-EU investmenttreaty, a recourse to a Fortress Europe policy,a more prominent general anti-China senti-ment, and finally the populist right's supportof Putin's Russia that could weaken or derailEU foreign policy which in turn would fur-ther erode the EU's position as a globalpower.

A year later it is obvious that none of thesefears materialized.In the early 2010's China has realized that Eu-rope is its key partner. The European eco-nomic crisis made it clear how dependentthe Chinese economy is on European mar-kets. But even more importantly Chinesegeopolitical analysts has started to look atthe EU as the balancer in international affairsin the period of US decline and a partnerduring the transition towards a multipolarworld order.

As for the outlook of the relationship, onemay foresee a slight realignment of strengthin bilateral relations (and again perceptions)as the EU recovers from its worst recessionand with the possibility of a major stock ex-change bust in China ahead. The Chineseeconomy produced the slowest year ofgrowth in a quarter of a century. The stock-market crashed already in July 2015. Chinahas become a source of global forebod-ing[22] in spite of the official Chinese inter-pretative ideology which is labelled the „newnormal” i.e.: a lower but steady growth willbe the new stable and sustainable Chinesepath.[23]

[10]Zhiqin, Shi: It is the 40th anniversary of China-EU relations.Where do they stand? (interview). The Diplomat, July 27, 2015.[11]Jiang Shixue: How to further improve China-Europe relations.Discussion paper for the 11th Annual Conference on the Taiwanissue in China-Europe Relations, Shanghai, China, September 14-16, 2014. [12]China's Policy Paper on the EU: Deepen the China-EU Compre-hensive Strategic Partnership for Mutual Benefit and Win-win Co-operation (2nd April, 2014)[13]Berkofsky, Axel: EU-China relations: rhetoric v. (a very different)reality. January 28, 2015. Center for Strategic and InternationalStudies [14]Jing Men: EU-China relations: problems and promises. JeanMonnet/Robert Schuman paper Series. Vol. 8. No. 13.[15]Jeremy Garlick: A critical analysis of EU-China relations: to-wards improved mutual understanding. Contemporary EuropeanStudies, 1/2013.[16]Richard Balme: A European strategy towards China? The limitsof integration in foreign policy making. 2008.[17]It is a recurring criticism from the Chinese side that dealingwith EU institutions is cumbersome (see more on this in Garlick,2013.).[18]Sarkozy and Merkel both met with the Dalai Lama, and in 2008after the "chaotic passing of the Olympic torch in Paris" Sino-French relations have been very tense and an anti-French senti-ment developed in China. China cancelled the 2008 EU-Chinasummit just a few days before it was supposed to take place.(Zhiquin, Shi 2012)[19]Zhiqin, Shi: Understanding China-EU relations. Carnegie Eu-rope, October 15, 2012.[20]Zhiqin, Shi: Interview. The Diplomat. July 27, 2015.[21]Zhiqin, Shi: Could the EU’s Political Earthquake Affect Sino-EURelations? Carnegie-Tsinghua Center for Global Policy. July 16,2014.[22]See more in Economist:http://www.economist.com/news/leaders/21660535-world-should-worry-more-about-chinas-politics-economy-party-beach#VaVdf32zO1BK5yS1.99[23]See more on this interpretation in Hu Angang’s article in For-eign Affairs May/June 2015: https://www.foreignaffairs.com/arti-cles/china/2015-04-20/embracing-chinas-new-normal

28

In the late 1990s, China recognized thatWestern powers were still members of thesame family and that globalization only drewfamily ties closer. Hence, the main trend ofdevelopment of international relationspointed towards a multipolar world ratherthan towards one without any poles. In sucha world order the European Union's missionwould not be to simply act as one of thepoles but to use its political and economicclout and become a key diplomatic player.

This Chinese fascination with European stud-ies stems partly from the fact that they seeEurope as a potential model for integrationinvolving China and Taiwan or the Asianeconomies. The market economy reformsled not only to economic growth but alsocreated new social problems in Chinese so-ciety, such as regional disparities, the grow-ing gap between the rich and the poor,problems of public health and the mass in-flux of the rural population into cities. Theseproblems generated a degree of social insta-bility that could undermine the position ofthe ruling Communist regime. In response tothese domestic social challenges, Chinese re-searchers started looking into the welfareand social security systems of Europeancountries and into the regional policy of theEuropean Union. It is significant that most ofthe Chinese scholars visiting Brussels cameto study European social policy. This keen in-terest is attributable to the fact that Chinacan only envisage a successful social securitymodel with a strong state presence; there-fore the Chinese are more curious about Eu-ropean achievements in this field than aboutthe American model based on the idea ofself-support. For some Chinese intellectuals,the model focusing on social equality andenvironmental friendliness instead of eco-nomic efficiency could serve as an examplewhen implementing the long-cherished Chi-nese dream of "harmonious social order".

Just as European thinkers such as Voltaire orLeibniz once felt that another distant societywas much closer to the ideal society, someChinese may feel that way about Europetoday.

The peaceful rise of China is the number onepriority of the Chinese political elite, whocollect all available analogies and lessonsfrom around the world. China has several les-sons to learn from the integration of modernEurope. European countries first fosteredclose links with one another and then ex-tended various forms of cooperation to moreand more areas on their way towards widen-ing integration. The success of this processcould serve as an example for the future de-velopment of an Eastern-Asian Community.On the other hand, while rising to the rankof a global actor through this process of in-tegration, Europe was wise enough to main-tain good relations with the USA within theframework of their political and military al-liance. Thanks to the Atlantic alliance andtheir economic interdependence, the USAdid not see Europe's integration as a chal-lenge to its dominance. The Chinese often refer to the USA-EU al-liance as the "Western collective hegemony",indicating the strength of trans-Atlantic ties.In parallel with its rise, the European Unioncommanded an increasingly important rolein international institutions in the creation ofwhich the USA had a decisive part. In fact,Europe became a major international playerwithout becoming a competitor or chal-lenger of the USA, and it did so by aligningitself to the international order built by theUnited States.

As China assumes a growing role in interna-tional organizations it can rely on the EU's ef-fective doctrine of multilateralism as a modelto follow, as opposed to the USA's unilateralinstincts.

So a proper management of relations withneighbouring countries, key global powersand the international community is the keyfactor. The ongoing enlargement of theUnion is seen in China as proof of the factthat the EU is an attractive club that moreand more countries wish to become mem-bers of, which in turn further strengthens itsinternational clout. The 2004 Big Bang en-largement of the European Union - the re-unification of Eastern and Western Europe -confirmed that Chinese conviction.Nonetheless, some of the ramifications ofthis last round of EU enlargement makeChina somewhat anxious. Most of the newmember states had been liberated fromCommunist rule only a decade or so earlier,and with the Soviet Union now gone andconsigned to the history books China re-mains the only major country governed by aCommunist party.

Some in Europe have the belief that Europecould become China's “tutor”, introducingthis vast country to the world of fundamen-tal European values such as soft power, con-sensus-based foreign policy, multipolarity, asocial model built on justice and solidarity orenvironmentally-conscious living and busi-ness. But China has a different view. Nodoubt that China is sincerely interested in,studies and uses the achievements of theWest and of Europe, but the idea of Europebecoming China's tutor is mere fantasy. Nev-ertheless there is a middle ground how onecan approach this issue. Continuing inten-sive exchange of views and structured dia-logue at different levels, reinforcinginstitutionalized political and academic con-tacts to enhance the depth of Chineseknowledge about Europe’s values andachievements would definitely be beneficialfor both.

As Xinning Song puts it[9], although the "EUis a semi-supranational and semi-intergov-ernmental institution and China is an author-itarian one-party state" but studyingEuropean "models", i.e.: policy solutions, andtheir potential implications for China's do-mestic development and its foreign relationsis indeed important for the Chinese.

[9]Song, Xinning: European 'models' and their implications to China:internal and external perspectives. Review of International Studies,Vol. 36. Issue 3. July 2010. Pp. 755-775.

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he EU is a key partner for China in building amultilateral global order, but the EU is not asuitable model to conceptualize "multilateral-ism" for three reasons: the EU is not a true hardpower, the EU and the Chinese concepts of“multilateralism” have a significantly differentmeanings, and finally, the EU itself by definition

has no nationalistic ambitions on the global scene. As far asChina's future participation in the global order is concernedthere are characteristics in present time China politics thatwarrant optimism as opposed to the fears of the emergenceof a hostile bi- or multipolar order. Notwithstanding the factthat China is a hard power,

- it wants to be part of the world order, its interests dictate so; - it does not define itself against an enemy;- it has been and is willing to embrace capitalism;- it has no agenda or intention to export ideology.

These characteristics make China's geopolitical strategyclearly distinct from the former Soviet Union. China also hasa traditionalist approach to international relations, where theno interference with national sovereignty is the key bottomline which is mostly motivated by the sense of insecurity ofa non-democratically elected government.

t

MultilateralisM - geopoliticsand international cooperation

34

A NEW WORLD ORDER

Thirty years ago China's share of world tradehovered below 1% but has increased morethan tenfold since. Every year since the turnof the millennium, China has provided aquarter of the international economy's an-nual growth. China's entering the main-stream of the global economy wassymbolically completed when it became amember of the World Trade Organization(WTO) in 2001. This added 800 million workers to the inter-national labor force. China is now thebiggest market and the biggest economy inthe world. The West’s economy and politicalelite are forced to ride the shock wavescaused by China's rise. Western retailerssource most of their stock from China. Mil-lions of blue-collar workers have lost theirjobs in the West as production is relocated tothe Far East, and China's huge untappedrural labor reserve will not run out in thecoming decade. The entry of China and Indiainto the global labor market reduced theglobal capital to labor ratio by 55 to 60%.This is the single most important ratio ex-plaining the phenomenon we call globaliza-tion. The development of Chinese capitalism isfundamentally different from the previousBritish or American models though, wherethe technological innovations of their owninventors fuelled progress. China, on theother hand, imported ready-made solutionsfrom the more developed parts of the world.China is also becoming an international fi-nancial power. It has become the leadingholder of US Treasury debt and thus is nowofficially the American government's largestforeign creditor. China has also accumulatedthe largest foreign currency reserves in theworld.

In 1820, China and India combined ac-counted for about half of the world output,while Europe only accounted for 24% andthe US only 2% (!). China only exported, theWest - primarily Britain, the hegemonicpower of the 19th century - imported. Ahuge global trade imbalance was accumu-lated to China’s advantage and China held anincredible amount of British silver. Today’ssituation is surprisingly similar. In the 19thcentury this led to the opium wars and to theend of the once mighty Chinese empire. In1978 China accounted for less than 1% ofglobal GDP. What the West sees now is in-deed the re-emergence of China in an in-credibly fast way.

China's middle class is expanding at an un-heard of speed, and its wealthy few are be-coming the wealthy many. Chinese society isundergoing rapid transformation, which al-ters people's self-identity as well. A poll pub-lished by the Chicago Council on GlobalAffairs[24] already in 2007 indicated that theChinese believed that, in ten years' time,their country will be just as powerful and in-fluential in the world as the United States. Atthe same time the majority of Americans,Chinese, Indians and South Koreans polledwere of the opinion that China would pullahead of the US in the global race. ClearlyChina is no longer just an economic powerbut also a political force to be reckoned with,often flexing its muscles to further increaseAmerican unease.

The turn of the new millennium saw theemergence of new centers of gravity, oftenin the form of non-centralized conglomer-ates of states with large differences amongthem and without a single political will. Themost important such center of gravity isSouth-East Asia, which has a growing influ-ence on the global economy and world pol-itics.

With the boom in the Chinese economy, theslow but steady recovery of Japan's econ-omy, the reinvigoration of the "small tigers"and the strengthening regional roles of Indiaand Australia, South and East Asia looks setto become the key focal point of the nextworld order. But with that role and powercomes increased responsibility, in particularfor the region's leading country: China. Is-sues that have been considered domestic innature -- such as setting the yuan's exchangerate, the efficient organization of the textileindustry, health care reforms, better andmore transparent governance or curbingcorruption -- will have a direct global impact.

As Asia rises, so does the West's economic,demographic, political and military signifi-cance erode. The days of the global rules andinstitutions established by the West are num-bered. Most Chinese researchers, politiciansand even the man in the street are convincedthat, things will soon be back to normal asChina is becoming the world's biggest econ-omy just as it had always been until the be-ginning of the 19th century. (As late as the18th century, China was the world's largesttrading nation, conducting one third ofglobal trade, with India as runner up boast-ing one sixth of global trade.)By 2015 the era of G7/G8 – in other words:the era of absolute Western domination withUS hegemony - is over. The 21st century willrefashion the global political order as well asthe global financial world. The hegemony ofthe dollar -- just as of the USA -- will come toan end. International institutions need to bereformed. It is just absurd for Belgium tohave greater voting weight in the Interna-tional Monetary Fund than India. At the mo-ment international organizations arefunctioning inefficiently and are on the de-cline, which is not surprising, as they are in-stitutions of the post-war West-centeredworld[25].

We are living in an era of G20 but this seemsonly an interim solution. The question iswhat world order follows? Suggestions areplenty.

There is Robert Haass’s vision of a non-polarworld order[26], more precisely a non-polardisorder, which is inevitably unstable in thelong run. G3 is more of a Chinese idea. It is amultiple variable geometry in which differ-ent G3 setups can be envisaged (China, USA,Russia; China, EU, USA; China, Japan, USA) ac-cording to the needs of and relevance to theissue in question. G2 (a Sino-American tan-dem)[27] seems for the time-being to be aweird animal to the Chinese. China has atleast two problems with the G2 setup: for thetime-being, it does not want to expose itselfas a real global power nor wants it to bedrawn too close to the US. Westad ar-gues[28] that even the future of the Sino-Eu-ropean relationship will not be decided byChina or the EU but by the US.

[24]Chicago Council on Global Affairs: World Public opinion, 2007.[25]Zhao Kejin concludes that "today it seems that EU states aretaking a case-by-case approach toward China’s initiatives to con-structively reform the Bretton Woods system. They tend to supportreform of the international monetary order, thus accepting RMB’sinclusion in the SDR, yet they are not committed to sharing gover-nance of the old institutions, as this would limit European influ-ence and prestige." In: China's National Security Commission.Carnegie-Tsinghua Center for Global Policy. July 14, 2015.[26]Robert N. Haass: The age of non-polarity – What will follow USdominance. Foreign Affairs. May/June, 2008.[27]In 2009, some began talking about a G2 in the model of theG7, G8 or G20 and envisioned an Obama-Hu Jintao duo decidingthe fate of the world. China was abashed by that talk of a G2 andwas quick to deny any speculations about a bipolar USA-Chinaworld order. [28]Westad, Odd Arne: China and Europe: opportunities or dan-gers? LSE Global Policy. 2013. 03. pp. 96-100.

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The American strategy vi-a-vis China and theEU during the time its global leadership istested will be the determinant factor. Heclaims that the future global strength of theEU is also a factor of US strategy to a greatextent.

Chinese politicians and scholars treat theWest's loss of influence as granted, but thereare people in China who worry about thepossibility of America's rapid decline. Themore realistic observers in Beijing believethat America's collapse (no matter how real-istic this is anyway) would have disastrousimplications, because China is not yet readyto build an alternative world order. Hencethe objective should be to compel the USAto show more willingness to cooperaterather than bring it down.

"The rise of China is granted by nature. In thelast 2,000 years China has enjoyed super-power status several times...China's declineis a historical mistake which should be cor-rected" -- the political scientist Yuan Xuetongwrote[29] in the Journal of ContemporaryChina in 2001, the year when the image ofthe USA's invincibility was shattered. "Isn't itpossible that China, like all rising powers ofthe past, including the United States, wantsto reshape the international system to suit itsown purposes, commensurate with its newpower?" Robert Kagan asked four years laterin the pages of the Washington Post[30].

China is preparing itself, trying to identify theweaknesses and strengths of its rivals. Itsvast administration, including the army andintelligence services, is busy calculating, an-alyzing, generating strategies, and suggest-ing dos and don'ts for China's rise.Meanwhile, the Chinese economy is growingat breakneck speed and beginning to re-shape the global market.

Chinese foreign policy has restricted its at-tention to local, or at most regional affairs,but the isolationist, policy of the nineties isinappropriate in the 21st century. China is ahard power with aspirations to project moresoft power globally, but the country's truegeopolitical character is still in the making.China has been involved in wars or armedconflicts with almost all of its neighbors andits assertiveness especially on the South-China Sea is getting momentum[31]. StillChinese political leaders seem to be uncer-tain at this point how to define the futurerole of China in the emerging world order. Itis indeed a major problem for the West thatit does not see where China is headed; but itis a big problem for the whole world thatChina itself does not know either. In themeantime China is reinforcing its global se-curity focus. Chinese President Xi Jinping al-ready announced the setting up of theChinese National Security Commission(CNSC).[32] In July 2015, the Chinese govern-ment passed a new national security law thatwill strengthen its role in China’s national se-curity policy.[33] The Chinese Security Commission decidedto establish high-level communicationmechanisms with the US National SecurityCouncil as security issues between Chinaand the US already affect the entire globe,and especially the Asia-Pacific region. Thehotline proposed by China between the Chi-nese National Security Commission and theU.S. National Security Council is meant tohandle emergency situations. The transformation of the internationalorder, the end of a hegemonic system, theappearance of a new power has oftenbrought disaster in history. The only excep-tion to this rule was the changeover ofpower between the British Empire and theUnited States in the 20th century, but thiswas a special case for two reasons.

Firstly, the two nations were closely relatedculturally (in the broadest sense); secondly,that changeover happened during globalwars in which the two Anglo-Saxon powersfought side by side. The map of the world isbeing redrawn again at the beginning of the21st century. In a Huntingtonian world thebirth of a new world order and the emer-gence of new global powers inevitably leadto a crisis or a global conflict. Zakaria andKhanna, two well-known analysts of currenttimes are less pessimistic,[34] they talk abouta world coming to terms with a natural mul-tipolarity by the emergence of the secondand the third world.On a historical scale, America's rise to globalpower status was extremely quick: on theeve of World War II the US Army was smallerthan that of the Dutch but by 1944 America'smilitary output was double that of the Axispowers.

The USA climbed to the top of the worldwith unprecedented speed and stayed therefor a short century. In 2000 the United Stateswas the strongest power in history, whoseglobal supremacy was uncontested. Itsbudget showed a healthy surplus, its militarymight was unparalleled, its economic cloutcolossal. However, since 2001 the US's globalposition weakened. There is a lot of discus-sion about the end of the US supremacy andalso on why has America's global dominancecome to an end and how China found its wayup? One obvious explanation is the dynam-ics of history: it is simply impossible to stopthe emergence of new powers. If a civiliza-tion, culture, country or region can improvethe efficiency of its economy, if it can puthuman, technological and financial re-sources at work in a massive way, and if theexternal environment is favorable, it will be-come successful.

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If this happens in a big enough country, itwill become a world power. Another expla-nation is the mistakes committed by theUnited States: its misguided energy policy,its immensely expensive wars have not pro-duced any tangible results but have emptiedthe federal coffers, eroded America's interna-tional image and gave China the chance tobuild up its economy, diplomacy and mili-tary almost unnoticed by the hegemon. Inthe meantime the US economy has becomedependent on China (and vice versa for thatmatter): what China produced the USAbought, and as a result China now holds tril-lions of dollars in US government bonds.

The arrival of the turning point has been ac-celerated by the profound demographic andeconomic changes, the pace of globaliza-tion, 9/11, America's military failures and theeconomic crisis. As the Japanese prime min-ister said at the end of an international sum-mit in late 2008: "History teaches us thatcrises create new order." The shift of geopo-litical power towards Asia coincides with theend of a golden age of the West, whichbrought rapid growth, low inflation and con-siderable improvements in the standard ofliving, as well as with an economic crisis un-seen in 60 years.

The American intelligence community[35]predicted a fundamental reshuffle of theworld as we know it in the next few decadesalready a decade ago. The internationalorder, as it was created in the wake of WorldWar II, will be unrecognizable by 2025 -- theysay, adding that the pace at which wealthand political power will move from West toEast is unprecedented in modern history.The world will become ever more danger-ous, but richer at the same time, which doesnot mean that the majority of the Earth'spopulation will not face food and watershortages.

Today's oil powers may become tomorrow'sbeggars, while developing countries and re-gions that build their economies on hardwork will see stunning growth. The rise ofthe non-Western world, which began in the1950s with Japan and continued in the '60swith the Asian tigers, became a full-blowntrend with the emergence of China, Indiaand Brazil and will continue for decades.

It remains to be seen whether China's risewill happen peacefully in the long run. TheWest is instinctively wary of geopoliticalchanges and knows also that dictatorshipsdo not last long. Still, China needs peace inthe world to be able to strengthen its econ-omy, annex Taiwan at some stage and buildan international order in which Asia andChina play a central role. For the time being,China is not aiming at global hegemony orconfrontation. Since the mid-nineties, Chinahas been claiming to be a responsible,peaceful and cooperative partner of theWest. A confrontation with America is un-likely to pay any dividends and is thereforenot a realistic option. However it is encodedinto Chinese culture that everything musthave a counterbalance. A power without acounterbalance is unnatural and dangerous.Power must be balanced internationallywithout encroaching upon the independ-ence or sovereignty of nation states. Afterthe collapse of the Soviet Union the Chinesehoped that the Cold War era would be re-placed by a multipolar world order, and weredisappointed to see the dawn of total Amer-ican hegemony. China was shocked by theUS intervention in Kosovo in 1999; bilateralrelations were all but frozen, and China wasafraid that the USA would use Taiwan andJapan to keep China at bay. This was the gen-eral view held by Chinese politicians and de-fense analysts at the turn of the millenium.But the world has changed immensely sincethen.

Niall Ferguson talked about the end ofChimerica[36] - a marriage between the USand China in a completely intertwined econ-omy where America consumes and Chinaproduces, China lends, America borrows,China exports, America imports. This coop-eration was obviously a pretty problematicone therefore did not last for long. Both USAand China maintain strong suspicions ofeach other's intentions. Accordingly, bothsides are hedging their bets and securingtheir positions should relations deteriorate.As long as the question of Taiwan is not re-solved peacefully and definitively, hostilitybetween China and the USA remains a real-istic risk. Nonetheless, as long as the USAdoes not pose a threat to its vital national in-terests, China is willing to tolerate the cur-rent global framework but with anever-growing determination to graduallychange it from inside.

According to Kissinger, the United Statesmust be aware of its supremacy but act as ifglobal security depended on all global ac-tors. This strategy can divide the psycholog-ical burden of responsibility and will allowthe principles of freedom and democracy todominate international politics. In otherwords: share power to hold on to power.Kissinger believes that China, with four thou-sand years of history behind it, must knowsomething about survival, hence the Westshould avoid being condescending.Kissinger is convinced that China's rise willbe the greatest challenge to the West as wellas to China itself. Its political mentality, insti-tutional culture and traditions do not pre-destine the US to accept easily the loss of itsstatus as the world's number one power andbecome one of many global actors. Also, forthe US multilateralism has a different mean-ing and importance than to European coun-tries and the EU.

For America multilateralism is the means ofachieving its end of a stable world order withthe USA as the leading power. For Europemultilateralism is the end itself.

Having said all this, in 2015 US's global mili-tary superiority is still beyond question. TheUS Navy commands a fleet bigger than thenext 50 largest fleets together; Americaspends over a billion dollars a day on de-fense. The US economy is world leader notonly in term of output but also in the use ofcutting-edge technology. America's intellec-tual and cultural impact -- from Harvardthrough Hollywood to McDonald's -- is thebiggest soft power in the world. Not to men-tion the fact that the USA is not a status quopower, America is not afraid of change. Apartfrom its unwavering faith in democracy andin its own specialness, its embrace of changeis one of its key distinguishing features[37].

[29]Yan Xuetong: The rise of China in the Chinese eyes, Journal ofContemporary China, 2001, Vol. 10.[30]Kagan, Robert: The Illusion of managing China. WashingtonPost, 15 May 2005[31]China has been developing sea capable fortresses on the Sea.The artificial islands can station Chinese military. China is also tak-ing every measure to avoid discussing this potential issue in the In-ternational forums like ASEAN summit. See more on this in:Bhattacharya, Ipshita: China ready to gulp in South-China Sea.Modern Diplomacy, August 18, 2015.[32]The CNSC has three major tasks.-To advise the Politburo (whichoversees the Communist Party) and the highest levels of the lead-ership on security strategy.-To coordinate between different de-partments throughout the party, the government, the military, andsociety.-To conduct crisis management and risk management, forboth internal and external security threats.

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The rise and reinforced international profileof China and Asia poses some inconvenientbut crucial questions for the West. As Asiarises and Europe stagnates, an overhaul ofinternational organizations naturally seemsinevitable, however difficult that may be. TheFrench president suggested that Indiashould be given a permanent seat on the UNSecurity Council, but when the possibility ofthe EU being given a single seat on the Se-curity Council (instead of the two currentlyheld by France and the United Kingdom), hecalled it very unlikely that the EU -- which hastrouble agreeing on much less contentiousissues -- could find consensus on such a sen-sitive and crucial question.

What guaranteed the prosperity of the West,apart from its military might, was that theworld order that emerged in the wake ofWorld War II was shaped by Western ideas,rules and values. Global politics undergoseismic shifts the global order is realignedand the global value set might also be re-arranged to a certain extent. This latter ismuch less talked about but equally impor-tant – in the long run, certainly. We are wit-nessing not only the competition ofeconomies and military capabilities but ofvalues as well. And what we experience is anew phenomenon: the rise of alternative val-ues and institutions in the world in parallelwith a certain level of democracy fatigueeven in the West.

In parallel with the global power reshufflenew social models are appearing. These newsocietal models are not hybrids combiningelements of Western society. They tend to beforms of state capitalism or non-liberal(pseudo) democracies, where elections areheld regularly but a populist elite rules thecountry nonetheless. Many developingcountries go through this stage in their de-velopment; the question is whether they will

be able to move on and turn themselves intoreal democracies. At the same time Westernliberal democracy shows signs of ageing andbecoming rickety as cowardly political elitesmotivated only by polls discredit democracyaltogether. Postmodern politics is drifting to-wards dim-witted media politics.

Does China's rise really mean that the univer-sal expansion of the Western world and ofliberal democracy have come to a halt?When China broke with dogmatic commu-nism and opened itself up to the world, itspent three decades adopting Western prin-ciples, particularly in the areas of foreign andeconomic policy. China is opening a newchapter: it wants to create a new model of itsown, which can become an alternative to theWestern model and will surely be popular inall countries that have a dislike for the Amer-ican dominated Western world order. Whenthe "Chinese model" crystallizes it can offerthe developing world (Africa, Latin Americaand the Middle East) an alternative to theWestern liberal model. The new China doesnot only rebuff the West-dominated present,it also rejects eurocentric historiography andthe eurocentric worldview as false and dis-torted, because -- it claims -- these advocatethe global supremacy of Greco-Roman cul-ture and underplay the world's oldest cul-ture (i.e. that of China).

The fact that autocracy and state capitalismseem to prevail and flourish in the biggestcountry in the world is a powerful signal formany countries. There are speculations thatthe global system might soon have a viableThird Way (as opposed to the Western andthe clear cut third world dictatorship mod-els) which could be a desirable option formany Asian and African countries in the 21stcentury. It is not a certainty though. But ifdemocracy is challenged by a strong andvivid alternative model on the global scale,

remilitarization and old-school power poli-tics could come back into fashion. China willhave a responsibility as regards how totackle these developments and their conse-quences in the long run.

Francis Fukuyama asks[38] in 2010 whetherliberal democratic principles are really uni-versal or have been revealed not to be. Hisanswer is that they are universal - but this isnot as sure as it was a decade ago. He askswhat the democratic world can do withPutin’s transformation of Russia into an ”elec-toral authoritarian” state, the undermining ofdemocratic institutions by Hugo Chavez inVenezuela, and the rise of China as a success-ful authoritarian modernizer. Are these sys-tems true and viable alternatives ofold-fashioned democracy? They are mostprobably not in the long run, but liberaldemocracy is not the only alternative to all-out dictatorship in worldwide politics any-more. As he puts it: “The next phase of globalhistory will be a challenging one, as Americaand Europe stumble to get back their eco-nomic balance. It seems doubtful that eitherthe US or Britain will achieve the degree ofgrowth in the next generation that they didin the previous one. But one of the great ad-vantages of democracy is that it does not de-pend for its legitimacy on continuing highlevels of economic growth, as the Chinesesystem does. As we move forward, it is im-portant to keep in mind the simple power ofthe idea of a government by, for, and of thepeople. We need to match those high idealswith unglamorous but steady investments ininstitution-building if liberal democracy is todeliver on its promises.”

Robert Kagan says that ideology still mattersin geopolitics, and one should add percep-tion as well to ideology. China’s strengthcomes partly from the fact that the worldsees it as strong, the future great power.

At the same time, part of America’s weaknessstems from the fact that it sees itself as a de-clining power[39]. A change in these percep-tions could cause significant shifts in timesof uncertainty and global transition. Is Chinapotentially an even bigger a power than weimagine or - as Ari Van Assche puts it – doesthe West only make a dragon out of a drag-onfly[40]?

China is changing geopolitics, surely. Is Chinagoing to change the rules of the game? It isdoubtful, but this is still a puzzle to the Chi-nese themselves. China might as well bemuch less powerful as it seems, based on ashaky "Leninist corporatism" whose devel-opment is completely based on stealingknow-how and institutions from the West asWill Hutton points out.[41] But there is ahigh probability that reality will prove other-wise.

[33]Kejin, Zhao: China's National Security Commission. Carnegie-Ts-inghua Center for Global Policy. July 14, 2015.[34]See more in Khanna, Parag: The second world – empires and in-fluence in the new global order. Random House, New York, 2008.and in: Zakaria, Fareed: The post-American world. W. W. Norton &Co, New York, 2008. [35]According to the Global Trends 2025 report.[36]Ferguson, Niall - Schularick, Moritz: "Chimerica and global assetmarkets". 2007. and "The end of Chimerica". 2009. Harvard BusinessSchool. Working Paper 10-037.[37A small note: things in the balance of the international order canchange unnoticed and sometimes scholars and politicians got car-ried away by perceptions of visible trends while obviously disre-garding the ones less obvious. One good example is the surprise atthe collapse of the Soviet Union. In his book (My Country, My Peo-ple) published in the US in 1935 Lin Yutang described China as atired old man (in comparison with the dynamic, youthful West.)Some seventy years later my book on the future of Europe bore thesubtitle: "The Old Lady and the Bull" (a reference to ancient Greekmythology) describing Europe as an old lady instead of the younggirl who she used to be when she had been taken by Zeus dis-guised as a bull. Probably both of us were right at a certain momentin time, but the lifespan of truths in geopolitics seems to get shorterand shorter.

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MULTIPOLARITY AND MULTILATERALISM [42]

The international order can be stable if it isled by one hegemonic power/civilization,which writes the rulebook of the new worldorder and ensures the enforcement of theserules, by force if need be, provided the restof the world cannot object it in a forcefulway. There have been such world orders: PaxRomana (during the Roman Empire), Pax Bri-tannica (the British Empire in the 19th cen-tury) and Pax Americana (in the 20thcentury), which united the West against theSoviet Union. Without a single hegemonicpower, the rules of the game would be verydifferent. In this case the balance of powerwill have to be maintained by internationalrules adopted together by approximatelyequally strong powers (multilateral order).Without a universally recognized and stableglobal rulebook and institutions, the worldwill live in constant instability and will beprone to drift into anarchy. Multipolarity is a doubtful solution; it wouldrequire a constant balancing act from all theleading powers (unless international institu-tions with real power evolve and eventuallya multilateralist order emerges). That will notbe an easy feat to achieve since China preferstraditional intergovernmental cooperationand does not tolerate international institu-tions or other powers to interfere with its na-tional sovereignty. European foreign policystrategists favoring harmonious multilateral-ism believe that the West must acceptChina's moderate foreign policy and backthe gradual modernization process of theChinese society. India must be integratedinto the world of cooperative multilateralismand must be prevented from being caughtup in the world of traditional power poli-tics[43].

One theoretical option is the return of abipolar world order: the dominance of twocompeting -- and probably antagonistic --superpowers. The potential challenger to theUSA is China. Another theoretical alternative is the alreadymentioned non-polar world of RichardHaass, (ex-president of the Council on For-eign Relations). In this world there are nopoles of power, or rather it has dozens, butnot all are national - some are supranational,regional, economic, religious or even terror-ist organizations. In a world like that, wherethere is no coordination, it is impossible toprovide common answers to global develop-ments, and the world would be heading rap-idly towards anarchy.

“Unsolved territorial issues, sporadic irreden-tism, conventional armament, nuclear ambi-tions, conflicts over exploitation of andaccess to the marine biota, other natural re-sources including fresh water access andsupply are posing enormous stress on exter-nal security, safety and stability in Asia. Ad-ditional stress comes from the newlyemerging environmental concerns, that arerepresenting nearly absolute securitythreats, not only to the tiny Pacific nation ofTuvalu, but also to the Maldives, Bangladesh,Cambodia, parts of Thailand, of Indonesia, ofKazakhstan and of the Philippines, etc. Allthis combined with uneven economic anddemographic dynamics of the continent areportraying Asia as a real powder keg.” –writes prof. Anis H. Bajrektarevic on Asia inhis luminary policy proposal.[44] The consensus view is that China's optimalchoice is a multipolar world. In the 1980'sChina’s interest in economic multilateralismhad its origin in political considerations in-stead of economic costs and benefits andpartly related to its desire to end its diplo-matic isolation after the Tiananmen Squareepisode.

A quarter of a century later China needs toplay a significant role in global economicgovernance. As a global economic power,with vast economic interests abroad, Chinais increasingly facing the same problems asother global players. China has alreadystarted to think globally and by the end ofthe first decade of the new millenium multi-lateralism has become an essential part ofChina’s international policy. China hasstarted to apply much pragmatism in its at-titude toward global multilateral institutions.As Li Mingjing puts it[45], the main reasonswhy Beijing has embraced a more multilat-eral approach is because it believes that mul-tilateral diplomacy is a powerful instrumentto counter unipolarity and oppose the US.New Chinese concepts and actions can un-dermine the moral ground of US unilateral-ism. Expanding its multilateral activities alsohelps China to shape the emerging multilat-eral world according to its taste. Moreover amultilateral approach could help diminishthe ‘China threat’ thesis and build a ‘respon-sible power’ image for China in the world.Multilateral diplomacy also provides newplatforms for international cooperation, es-pecially in the East Asian region, again to fa-cilitate Chinese interests.

During the financial crisis which hit the Westmost, China hoped that by the rearrange-ment of global strength the post-crisisglobal order would be less Western. Thesehopes were fulfilled to some extent andmany in China think that the "recent financialcrisis marks a decline in the West’s influenceover global multilateralism — providing anopportunity for China to play a bigger role ininternational institutions." But there are cer-tain strong constraints on China becoming aleading power in global multilateralism, suchas China’s own recognition of the still domi-nant role of the Western countries, the actualdominating global influence of US,

but also other emerging powers' strifeagainst China’s international influence, andfinally China’s reluctance to take interna-tional responsibilities. It is therefore highlyunlikely that China will overhaul, or even dra-matically reshape, the multilateral architec-ture at the global level.

Li Mingjing is probably right saying thatChina will do what it has done in East Asianregional multilateralism in the past decade:"participating, engaging and pushing for co-operation in areas that would serve Chineseinterests", without taking excessive respon-sibilities, blocking initiatives that are harmfulto its interests, and refraining from propos-ing any grand visions, as the Chinese globalmultilateralism is pragmatic and lacks theurge to show a path to follow for the rest ofthe world like the US did. China therefore willcontinue rising from within the existing in-ternational order.

[38]Is the Age of Democracy Over? Spectator. February 10, 2010. [39]An example: According to a 2009 survey by Penn, Schoen andBerland Associates, 81% of Chinese think the USA will stay ahead ofChina in innovation, while 41% of Americans think so. (inNewsweek, 28 November 2009.)[40]Van Assche, Ari: Are We Making a Dragon out of a Dragonfly? –Understanding China's Role in Global Production Networks. Bur-gundy Report, CIRANO Network, 2009RB – 03. January 2009.[41]Hutton, Will: The Writing on the Wall: Why We Must EmbraceChina as a Partner or Face it as an Enemy. Free Press/Little, Brown.[42]According to the established IR terminology multipolarity is astructural-descriptive measurement word for a global order whereseveral centers of power exist, multilateralism is a coordinated wayof operating the international system. Nevertheless the use of theseterms are not entirely precise especially in the political discourse.[43]Western relations with Russia have already deteriorated to apoint that was unprecedented since the cold war.[44]Anis H. Bajrektarevic: No Asian century without the pan-Asian In-stitution, Addleton New York, GHIR. [45]Li Mingjiang: Chinese multilateralism: implications for Sino-USrelations, East Asia Forum 27 April 2011. [46]Ibid.

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But unlike the earlier struggle for UN andWTO membership, China has significantly in-creased its capacity to initiate multilateral in-stitutions in which it has not only an equal,but a major role. These institutions neverthe-less do not compare with the importance ofthe ones established by the West, but thenew multilateral partnerships (Shanghai Co-operation Organization (SCO), Forum onChina-Africa Cooperation, BRICS) are thestepping stones of the alternative order inwhich China plays a critical role. China is set-ting up alternatives to existing multilateralinstitutions without US participation.[46] TheShanghai Cooperation Organization is dom-inated by micro-agendas consequently it hasfailed to become a driver of globalization.China's main position within Central Asia iseconomic, though certain security issuesalso exist. China is extremely interested inCentral Asia for energy supply. At the sametime "issues of ethnic unrest in Xinjiang,China's western border, make cooperationand mutual understanding with Central Asiastrategically advantageous" for China. "ThusCentral Asia acts as a dual purpose eco-nomic-security bridge for China: a bulwarkagainst Uighur and pan-Turkic nationalism/separatism and an energy hub for importingoil and gas.” [47]

In early 2015 the United Kingdom, Germany,France, and Italy joined more than 30 othercountries as founding members of the AsianInfrastructure Investment Bank (AIIB). TheUSD 50 billion AIIB, launched by China, in-tends to meet Asia’s enormous infrastructureneeds, which are well beyond the capacity oftoday’s institutional arrangements to fi-nance. The European countries’ decision tojoin in provoked American anger and theUnited States put pressure on countries tostay away - with little success. According toShi Zhiqin[48] the AIIB issue reflects exactlya “security asymmetry” because the EU

does not face a security competition withChina. The EU members’ states trust Chinamore and are willing to cooperate on devel-opment initiatives.What we see is thatChina’s initiative to multilateralize the finan-cial system replicates American policy afterWorld War II. Joseph Stieglitz argues[49] thatattempts to multilateralize flows of assis-tance (including the BRICS countries’ launchof the New Development Bank in 2014) arelikely to contribute to global develop-ment[50].

China sees BRICS as a multilateral platformto render the current international system tobetter reflect the increased power and inter-ests of emerging economies. After the failureof the IMF reforms in 2010, the BRICS an-nounced plans to build its own counterpartsof the Bretton Woods institutions: the $100billion New Development Bank (NDB) and a$100 billion crisis lending fund, called theContingent Reserve Arrangement (CRA).Both are complementary to the BrettonWoods institutions, but focus on the needsof developing countries, prioritizing infra-structure and sustainable development proj-ects.[51] The much promoted New Silk Roadinitiative is yet another robust example ofChinese politics going global.China does not only reinforce its multilater-alist efforts in the economic field but also inthe security area. Apart from the ShanghaiCooperation (institutionalized in 2001) formilitary confidence building between China,Russia and Central Asian states, Chinesearmed forces have engaged in joint interna-tional excercises with other Asian countriesas well and agreed to giving a security di-mension to the ASEAN Regional Forum aswell. [52]China's relations with Japan andIndia are fraught with tension. Asia does nothave a single hegemon yet, but soon it willhave one, a key actor of Asian integration ordisintegration.

Asian countries are getting their act to-gether, they are preparing for a future dom-inated by China, whose natural objective isto secure regional dominance. Japan andAustralia entered into a security pact in 2007.On the initiative of Japan, India and Australia,a Pan-Asian alliance is being formed to cre-ate -- in the words of the Japanese premier -- a "new Asian order". Such embryonic organizations are the up-shot of other actors in the region positioningthemselves against China, as their efforts toestablish a Western-type area of democracyand peace demonstrate. Democracy couldbe the one organizing principle capable ofuniting a culturally heterogeneous Asiancontinent and serving as an excuse for self-defense integration against China. At thesame time as mentioned previously, China,together with Russia, Kazakhstan, Kyrgyzs-tan, Tajikistan, and Uzbekistan, has estab-lished the Shanghai CooperationOrganization which unites one-quarter ofthe global population and two nuclear pow-ers.

China continues to extend its influence inSouth and East Asia, replacing the UnitedStates as the key trading partner of manycountries in the region. The view remainsstrong in the USA that Chinese expansionhappens to the detriment of America. TheUSA's continued military presence in the re-gion and the inclusion of Japan and India inthe US security network is supposed to servethe purpose of preventing China from be-coming a real rival, a potent challenger. Oneof the main challenges is the absence of athird party capable of mediating betweenBeijing and Washington, and therefore thetwo sides must redefine the limits of theother's room for maneuver and mutually ac-cept each other's presence.

Joel Wuthnow, Xin Li and Lingling Qi as-sessed the possible multilateralist strategiesfor China.[53] They found that four distincttypes of multilateral diplomatic strategiesare available for the Chinese government:watching, engaging, circumventing andshaping.

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Having examined several cases of Chineseactions on the global or international level inthe economic and security domains theyargue that China’s multilateralism is a diversephenomenon and for the time being cannotbe „characterized as either status-quo or re-visionist in nature.” A clear pattern emergesthough: China is getting more and more en-gaging but with an „assertive tact” whichgoes parallel with Chinese interests becom-ing more entangled with the internationalsystem and its institutions.

It is clear that China is a force to be reckonedwith, which also entails responsibilities for it.It no longer has the luxury of letting otherstake global decisions, often with implica-tions for China itself. China has made a majoradvance to become a key actor in the globaleconomy, but still has a long way to go be-fore it can claim an equally prominent role ininternational politics. The latter can be achieved in more ways thanone: a global power can impose its will uponothers, or it can build alliances with countriesthat share its values and aspirations, or it canuse international institutions to forge com-promises that are acceptable to the greatestnumber of stakeholders. China's first focus isthe economic and strategic integration ofSouth and East Asia or, at the very least, tostrengthen regional integration. This wouldserve the interests of the region and rein-force China's international standing too. Thenext challenge is to find its place in theglobal order; a place that is beneficial -- or atleast acceptable -- to both China and the restof the world.

As China is getting more and more self-as-sured, it would be ill-advised to think thatthe West needs China more than the otherway round. This could prove to be a seriousmistake in the long run. The Asian century isa narrative which is à la mode these days;

it goes hand in hand with the paranoiaabout the fall of the West. It is true that therelative weight of the West is going to de-cline, and it is only natural. NeverthelessChina has immense challenges ahead suchas the problems posed by its social and re-gional disparities. These challenges may wellprove to be too much to handle easily. It istherefore not the power of China that willalter the world the most: it is its weaknessthat could have a huge and certainly nega-tive global impact. A successful and peacefulChina’s impact on the global order probablywould be much less significant than that ofa failing one.

EU AS A PARTNER AND AS MODEL

The EU and its member states see China'srise mostly as an economic opportunity aswell as an economic challenge. To the US,China is a major geopolitical challenge, arival that could potentially break Americanglobal hegemony. Understandably, with noimminent geopolitical risk involved, Europeis more inclined to believe that China will bea cooperative member of the post-Americannew world order. Unlike the US, European countries do nothave a military presence in the region andwhile there are obvious frictions (trade is-sues, industrial property rights, humanrights, arms embargo and the market econ-omy status of China) there are no unbridge-able differences between Beijing andBrussels concerning their views on the inter-national order of the future. European coun-tries support the "one China" principle.Economic and trade interests complementeach other and the European Commissionstrikes a fundamentally positive note aboutChina's emergence as a global power.

As said earlier the mainstream Chinese viewon the possible versions of a new worldorder is that it will and should be a multipo-lar one simply because China's interests arebest served by it, displacing American hege-mony, boosting China's global role and influ-ence and dismissing the global fear ofChina's rise. Chinese and European interestspartly overlap, but there are major differ-ences in their geopolitical situation: China isnot part of the Western world or its securityalliance but it has the potential to become achallenger of the USA geopolitically. Neitherof those statements is true for Europe.

It is in the common interest of China and Eu-rope, as well as a precondition for the cre-ation of a multipolar world, that they narrowthe gap between them.[54] Rapprochementbetween powers has been a key driver ofpeaceful development. Bridging the historicdivide between Germany and France was along and arduous task, but it was a sine quanon of European integration. Ideally thisshould serve as a model for East-Asia, butpost-war East Asia is not like western- Eu-rope: there is no NATO or EU to bind formerenemies together. East Asia is much less sta-ble: a mix of countries with very different lev-els of development, some democratic, someauthoritarian. There is no agreement oncommon values or sometimes even on bor-ders. The Korean peninsula, China-Japan re-lations and Taiwan continue to be potentialflashpoints. How these will be solved obvi-ously depends largely on China. Should theChinese government look for a successfulhistorical experience, the EU is certainly oneto examine.Chinese scholars hold – as explains SongXinnig – that the EU's successful rise wasmade possible because the EU handled thethree most important geopolitical relation-ships wisely, namely its relations with itsneighboring countries, its relations with the

dominant power (US), and its relations withinternational institutions. Therefore the EU'sstrategy should provide a good example forChina.[55] As China assumes an increasinglyprominent role in global affairs, it becomesmore important to find a reliable interna-tional partner. That is one of the reasons whythe European Union has become an impor-tant partner of China, despite all the incom-prehension and numerous reservations inforeign policy. Chinese reforms and the pol-icy of opening up to the outside world re-quired an economically viable and politicallyreliable partner. This directed China's atten-tion to Europe, which ticked all the rightboxes. Undoubtedly, Europe has the eco-nomic might as well as the political stabilityto fit the bill perfectly even in the light of therecent economic crisis which proved to bethe gravest in the history of the EU.

[47]The Chinese-led NDB and Asian Infrastructure Investment Bank(AIIB), and the United States-led Trans-Pacific Partnership (TPP) areexamples of both governments setting rules for new multilateralregimes without consulting the other nation. [48]Crosston, Matthew: The Pluto of international organizations: Theevolution of the SCO. Modern Diplomacy, August 13, 2015.[49]Zhiqin, Shi: It is the 40th anniversary of China-EU relations.Where do they stand? (interview). The Diplomat, July 27, 2015.[50]Stieglitz, Joseph E.: Asia's Multilateralism, Project Syndicate, April13, 2015.[51]Stiglitz also remarks that America’s opposition to the AIIB is notunprecedented. The US also opposed Japan’s New Miyazawa Initia-tive of the late 1990s, during the East Asian crisis. "Then, as now, itwas not as if the US were offering an alternative source of funding. Itsimply wanted hegemony. In an increasingly multipolar world, itwanted to remain the G-1." [52]Niu, Haibin – White, Nicole: New Wave of China's MultilateralDiplomacy. Cogit Asia, July 29, 2014.[53]More on this in: Gill, Bates: China's new security multilateralismand its implications for the Asia-Pacific region. SIPRI Yearbook,Stockholm, 2004.[54]Wuthnow, Joel – Xi Lin - Lingling Qi: Diverse Multilateralism:Four Strategies in China's Multilateral Diplomacy. Journal of ChinesePolitical Science, 20 July, 2012.

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Chinese officially use expressions to describeEU-China relations such as: "stable politicalfoundations and strong mutual trust"; "keyeconomic partners with huge opportuni-ties"; "growing consensus on key global andregional issues"; "resolving differences ofopinion through dialogue" -- to pick a fewrepresentative examples of the politicalstatements and diplomatic courtesies issued.

However Chinese diplomatic moves oftenrun in the face of Western principles and in-terests, and have got China into trouble bothwith the EU and the USA. China has violatedbasic international principles by adopting adissident position towards Iran, Sudan, Zim-babwe and Venezuela, and has frequentlyacted as the defender of the third world in anon-constructive manner, to give just a fewexamples. There are indeed several obstaclesto the EU-China partnership becoming atrue community of values: differing ap-proaches to human rights, the issues of Tibetand Taiwan, violations of intellectual prop-erty rights and China's status as a marketeconomy. China's political system and incli-nation for dictatorship are equally problem-atic. But the greatest test of Sino-Europeanrelations is to overcome the differences inpolitical culture so deeply rooted in history.

Europe's interests are also best served by astable multipolar world, in which China is aconsiderably reliable partner. But even ifChina and the European Union share the in-terest in a multipolar power arrangementwhich makes them potential natural part-ners, their relationship obviously cannot andwill not be based on the Chinese hiddenagenda of breaking America's hegemony.China may need Europe to help loosenAmerica's grip on global dominance but itshould not have false hopes: it will neverhave Europe by its side against the UnitedStates.

As Shi Zhiqin puts it:[56] "the relationshipbetween the EU and the United States re-mains strong, as the US is the only majorstate that significantly supports Europeansecurity through NATO. The security interde-pendence between the U.S. and the EU hasbecome even more important today afterthe Ukrainian crisis and the disputes withRussia."

Even though the Chinese talk a lot aboutmultipolarity, they see the world at presentas fundamentally a bipolar one. The only in-ternational hard actor that matters to Chinais the USA. Europe is neither a counter-weight, nor an alternative in geopolitics. Nat-urally, China welcomes any step that Europetakes away from the US position. There areseveral examples of this, the most importantone being the status of Taiwan. China regu-larly reiterates its demand that on Taiwan Eu-rope will never follow the US, and will stickto its one-China policy. Pursuing a multipolarpolicy is therefore useful to China even toprevent the US from extending or upholdingits sphere of influence to the Asia-pacific re-gion.

For several reasons it is rather difficult tobuild a real community of interests betweenEurope and China. First, though, the twosides should understand what they mean bymultipolarity. Can postmodern Europe livewith China's geopolitical definition, whichuses Westphalian principles of balance ofpower, sovereignty and national security?For several reasons that will be explainedbelow, Europe should not daydream about abreakthrough success in showing the exam-ple to China on multipolarity and global re-sponsibility. This does not entail that Europecannot be a key partner for China, but rulesand principles governing the internationalorder will probably not be imported fromthe old continent.

There are three major barriers for the EU toserve as a credible model for China in pursu-ing multilateral geopolitics. The first is thatthe European concept of multilateralism dif-fers from the Chinese idea of multipolarity.The second is that multilateralism (or rathera multipolar geopolitical strategy) for Chinaserves nationalistic objectives which by defi-nition cannot be the case for the EU. Thethird reason is the EU's fragmented diplo-matic and geopolitical profile which lacksthe convincing edge.

David A. Scott[57] has a point arguing thatalthough China and the EU use the termmultipolarity and multilateralism in theirdiplomatic rhetoric, they do not mean thesame concept by these words. Moreover theEU puts the emphasis on multilateralism,while China clearly cherishes multipolarity.In a speech the then foreign policy commis-sioner of the European Commission, BenitaFerrero-Waldner stated in 2005 that many inChina talk about building a multipolar world,„for the EU however, it is not the number ofpoles which counts, but rather the basis onwhich they operate. Our vision is a worldgoverned by rules created and monitored bymultilateral institutions.”[58] This could nothave been made any clearer. China wants aglobal order in which the powers of inde-pendent nation states are balanced, sounipolarity is not possible, while the EUwants a coordinated system, where nationstates cede and pool a certain amount ofsovereignty and accept to be governed bycommon rules and coordinate their policiesvia strong international institutions. This is infact what the EU has done over the last sixtyyears in Europe. Scott also argues that glob-alisation and the general erosion of the con-cept of nation state in the longer run playsagainst the hard interpretation of global af-fairs by China and makes the EU interpreta-tion more reasonable.

There seems to emerge an understandingand acceptance of this even in the Chineseacademic and political circles as well whichdemonstrates that to take the EU as a modelfor multilateral geopolitics is not that out-landish any more.

As Christopher R. Hughes and MichaelLeifer[59] argue, nationalism has an impor-tant influence on China’s foreign policy, andmultilateralism is an effective tool to supportits nationalist interest of becoming a re-gional power and at the same time it helpsavoid the confrontation with the US or re-gional powers such as Japan. Moreover asopposed to the EU, the Chinese type of mul-tilateralism is based on the precedence ofnational sovereignty and therefore its capac-ity for geopolitical compromises is signifi-cantly weaker (see the Taiwan or the SouthChina See disputes). Another facet of the na-tionalistic trait of the Chinese version of mul-tilateralism is that it is shaped to a greatextent to enhance and reinforce the role ofethnic Chinese in the South-East region[60].

[55]This applies to the level of knowledge on the other party whichis still very shallow especially as regards Chinese knowledge and un-derstanding of Europe and especially the EU. As several authorsargue (see for one Odd Arne Westad (2013)) much more intensivecontacts between policymakers and scholars are needed to closethe knowledge and cultural gap.[56]Xinning Song: European 'models' and their implications toChina: internal and external perspectives. Review of InternationalStudies, Vol. 36. Issue 3. July 2010. pp. 755-775.[57]Zhiqin, Shi: It is the 40th anniversary of China-EU relations.Where do they stand? (interview). The Diplomat, July 27, 2015. (ShiZhiqin is dean of the department of international relations at Ts-inghua University.)[58]Scott, David A.: Multipolarity, Multilateralism and Beyond…? EU-China Understanding of the International System. International rela-tions 2013. 27(1) pp. 30-51[59]B. Ferrero-Waldner. Speech 2005. In: David A Scott (2003). p. 42.[60]Leifer, Michael (ed.): Asian nationalism. Routledge, 2000.[61]Hughes, Christopher R.: Nationalism and Multilateralism in Chi-nese Foreign Policy: Implications for Southeast Asia. The pacific re-view. 18 (1) pp. 119-135. "005.

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The other major issue with the EU's potentialto become an international geopoliticalmodel is that Europe hardly ever appears onthe international scene as a uniform politicalactor. The European Union is an undisputedeconomic powerhouse, but in foreign policyand military terms it punches way under itsweight. The EU is the world's biggest economy; bothits GDP and its share of world trade are big-ger than that of the USA, and Europe is alsothe world’s number one trader. The UnitedKingdom and France are permanent mem-bers of the UN Security Council and bothhave nuclear weapons. But the EU due tolack of coordination of policies has a humbleglobal foreign policy and security role ascompared to the US. The EU – even after theLisbon treaty's reforms - still does not speakwith a single voice, it still does not have atruly common foreign policy and the politi-cal union is still not a reality. "European for-eign policy" is an obscure, complicated,multi-tier system. The general rule of una-nimity in the field of CSFP decision makingrenders the EU slow and ineffective.

The evolution of a "common" European for-eign policy has been a painfully slowprocess: the so-called European Political Co-operation (a synonym for consultations be-tween foreign ministries) was onlysuperseded by foreign policy coordination -- misleadingly labeled the common foreignand security policy -- a quarter of a centurylater. European defense cooperation is in anembryonic stage. Europe's total defensespending is about half of the USA's 350 bil-lion (per year), but the main reason behindits military weakness is the fragmentation ofits national armies. The number of Americansoldiers readily deployable oversees nearshalf a million, compared with less than ahundred thousand in the EU.

As we know from the American neoconser-vative Robert Kagan, Americans are fromMars and Europeans are from Venus. An-other piece of terminology, which no articleor book about foreign policy fails to mentionis soft power and hard power.[61]

The term soft power was coined by the ne-oliberal political scientist Joseph Nye in1990. In international affairs, soft power de-notes the ability to obtain what you wantthrough non-violent means, by persuadingthe other party (country or region) throughdiplomatic, economic or cultural relations toadopt your values or models. The populartheory, which has inspired innumerable pub-lications, goes on to identify America withhard power and Europe with soft power.[62]Europe is as this opinion goes a soft powerthat represents and disseminates its valuesand intends to protect universal humanrights.

The latest crisis situations (in Ukraine and inthe Southern Mediterranean areas) showedthat the EU is still not a real global player andwithout effective tools has limited influenceon situations that create serious securitychallenges and threats even in its closestneighbourhood.[63] In 2015 the President ofthe European Commission, Jean-ClaudeJunker argued for the creating a Europeanarmy[64] to face up with Russia and othernew threats[65] nevertheless a project likethis will not materialize quickly nor easily ina community of 28 where national budgetsare under constant pressure and other majorchallenges such as immigration, economicstability, unemployment come first on thepriority list.

Some Chinese analysts like Lai Suetyi and ShiZhiqin claim that the way the EU handledthe Ukraine crisis is a complete failure.

They hold that "EU member states' prioriti-zation of their own interests above the fateof Ukraine, the failure of the EU and UnitedStates to reach an agreement on sanctionsagainst Russia, and the fact that Putin di-rectly discussed the issue of Ukraine’s feder-alization with Obama without consulting theEU—demonstrate that the EU has failed thetest.[66] As a result – they argue - the EU hasmissed the chance to play its unique role aslead mediator. As the crisis has turned into apower struggle between Russia and theUnited States, "the EU is no longer consid-ered a party in core discussions". The Chinesescholars also claim that the Ukraine crisis isnot only a failed test for the "EU and Ger-many but also a significant opportunity forChina to usher in a new relationship amonglarge powers."According to a 2015 research by CarnegieEurope[67] "with few exceptions, Europeangovernments do not think or act strategi-cally." Moreover there is little ambition toshape foreign policy on the EU level. Anotherconclusion was that "instead of the EU forg-ing a common strategic outlook, the unionhas achieved the opposite: ambition, if it ex-ists at all, is inward looking and based on thenational level, on narrow interests, on short-term goals." Ambition seems to have little todo with projecting a strong EU to the world.Only Germany (with Russia) and France (inthe Sahel) showed resolve to act, but eventhese countries do not seem to have a coher-ent proactive and long-term foreign policystrategy. On issues of common concern like the press-ing problem of migration member states arereluctant to give the EU a major role.There isalso an "extraordinary lack of interest in theIslamic State and the serious security and so-cial challenges that the militants pose for Eu-rope." Europe seems to think that is living ina comfort zone which is a false assumptionin reality.

[62]Nye, Joseph S: Soft Power: The Means to Success in World Poli-tics . New York: Public Affairs, 2004; Ian Manners: "Normative PowerEurope: A Contradiction in Terms?," Journal of Common MarketStudies. 40, no. 2, 2002, pp. 235–58.[63]The US is also a remarkable soft power in fact. For decades ithas been controlling the key trends in popular culture.[64]Another problem is that the European defence capabilitieshave been gradually reduced over the years (European DefenceAgency data). 1 million 450 thousand soldiers served in the EUmember countries in 2013, 500 thousand less than in 2006. Thisnumber is equal to the force of the United States, and one and ahalf times higher than the size of the Russian armed forces. At thesame time, the EU countries spent only 190 billion euro (12% oftotal world spending) for the military, 1% less than the previousyear. From 2006 to 2013, the European defence spending declinedby 15% (€ 32 billion), and stood at only 1.45% of the EU's total GDP.World military expenditure in 2013 totalled 1.747 billion $, around2.4% of World GDP. However, China (188 billion US $) and Russia(88 billion US $) continuously increases the military budget. 80%of the European defence spending produced by the "big three"countries (France, Germany, United Kingdom), although each ofthem is reducing its defence budget. Although the EU officially has485 thousand deployable and 110 thousand deployable and sus-tainable troops, the European forces capability to fight modernconventional warfare raises serious doubts. In the Wales NATOsummit most of the European countries promised to increase thedefence budget but only one country (Estonia) will spend 2 % ofGDP on defence in 2015. [65]A European military union is not a new idea: as early as in1952, under the threat of the Korean War and the Soviet militarypreponderance, the establishment of the European Defence Com-munity (EDC), including a joint military force under European con-trol and command was tabled but was refused by the FrenchNational Assembly in 1954. There is still no breakthrough on thisfront, nor is on foreign policy.[66]Jean-Claude Juncker calls for the EU Army. The Guardian, 8March 2015http://www.theguardian.com/world/2015/mar/08/jean-claude-juncker-calls-for-eu-army-european-commission-miltary accessedat 10 March 2015.

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On another major issue, the TransatlanticTrade and Investment Partnership (TTIP)there is huge dearth of public discourse. Asa conclusion the paper holds that "mostcountries neither see the relevance of Eu-rope nor want to make Europe relevant"which is somewhat an exaggeration but stillthere is a long way to go to the establish-ment of a truly common and effective Euro-pean foreign policy.

In sum, the EU seems a reasonably adequatepartner for China in multilateral actions andeven in the process of the establishment ofa new multipolar global order. Although theEU is not as easily manageable as BRICS andother non-western countries may be, but itis certainly more powerful partner especiallywhen economic clout is concerned. The EUis also a politically stable and calculableplayer. The deeply rooted Chinese view thatEurope is not only a place of big businessand cutting edge technology but also ofhigh culture also plays in favour of long-termcooperation. On the other hand, the EU isnot an ideal model for present day China be-cause of different interpretation of nationalsovereignty as well as multilateralism, andalso because of the relative weakness of theEU in global affairs.

[67]Suetyi, Lai - Zhiqin, Shi: EU's Ukraine test. Carnegie-TsinghuaCenter for Global Policy. July 22, 2014. [68]Judy Dempsey: Europe’s Pathetic Lack of Foreign Policy Ambi-tion. Carnegie Europe August 7, 2015.

“The strong do what they have to doand the weak acceptwhat they haveto accept”

Thucydides

www.moderndiplomacy.eu

elfare state" means different things in dif-ferent countries. In the US generallymeans nothing more than "welfare pro-vided by the state". In Europe it encom-passes a broad system of socialprotection. In many "welfare states", no-tably those in Western Europe and Scan-dinavia social protection is not delivered

only by the state, but also by independent, voluntary, andautonomous public services. The "welfare state" in thesecountries is then a system of social protection rather than ascheme operated by government.

The basic goal of social policy is the promotion of social wel-fare. After World War II in Western European countries strongstate intervention was a la mode, which was true for the de-signs of social systems as well. Nationwide social policieswere put in place including the establishment of massive bu-reaucratic entities to manage these policies. This has gradu-ally changed and over the decades the private sector andvoluntary and non-profit organizations gained importance. Welfare state (as it is understood in Europe) is historically atransnational phenomenon that dates back to the late 19thcentury when its main function was to respond to the prob-lems caused by the capitalist industrialization, urbanizationand demographic shocks.[69]

W

Social policy

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In Germany the post-war settlement wasbased on the idea of a 'social state', some-times called 'social market economy' whereeconomic development was the key driverto achieve social welfare. Social benefits areearnings-related, and those without workare less protected. Public expenditure onwelfare should be compatible with the needfor economic development and growth. Thissystem has developed through a corporatiststructure on the basis of decentralized mu-tual aid associations. Social insurance forhealth, some social care and much of the in-come maintenance system, is managed by asystem of independent funds.

In France social protection is based on theprinciple of solidarity: as prescribed by thefirst article of the French Code of Social Se-curity, nevertheless this term is used in differ-ent senses. Solidarity is based in societalinterdependence and mutual responsibility.This is now applied at national level by ex-tending the scope through the creation of anational regime for health and social secu-rity. Since the 1970s this pattern of solidari-ties has been supplemented by socialinclusion, to bring excluded people into thenational social net. The current French sys-tem of welfare is a very complex and expen-sive net of services with a lot of specialarrangements for different groups and cate-gories of people.

The Swedish social model is often seen as anideal form of 'welfare state', offering exten-sive institutional care as a universal mini-mum to its citizens. It puts an emphasis onsocial equality which also entails that Swe-den has the highest level of spending on so-cial protection in the OECD, and the lowestproportion of income left to independenthouseholds because of high taxes - less thanhalf its national income. This 'institutional-re-distributive' model combines the principles

of comprehensive social provision with a cer-tain level of egalitarianism that intends tolimit societal differences.

According to Anthony Giddens, one of thefathers of the “third way” of the Blairite re-formed left in the UK, a social model presup-poses the existence of five criteria: i) adeveloped and interventionist state, wherethe taxes collected represent a significantpart of the national income; ii) a strong wel-fare system, which serves all citizens, espe-cially the needy; iii) a system guaranteeingthe reduction of economic or other dispari-ties; iv) social partners and trade unions,which play a key role in operating the wel-fare system and protecting workers’ rights; v)increased welfare and employment as a keyelement of all political initiatives. Europe’ssocial policy systems have played an impor-tant part in shaping the continent’s econ-omy and its unique social model, which hasgone through several shifts in emphasis overthe decades.[70]

Surprising it may sound, but several welfareprovisions were introduced in China earlierthan in Western Europe. Here not only timingis worth noticing but also the fact that thesewelfare measures were obviously not con-nected to democracy or workers' rights likein Europe. Comprehensive provisions ofwater, food supply, famine relief and educa-tion were introduced for the needy as earlyas the 18th century in China. These provi-sions had a completely different ideologicalbacking than the social provisions later in Eu-rope. These were hand-outs from the sover-eign. According to Confucian politicalideology[71], the emperor was the providerof social order, as a benevolent father of thesociety. Moreover Confucianism stresses amoral obligation to help but not in a univer-sal sense like in Christianity but rather fo-cused to the family.

Inequality between people is taken ab-solutely normal and hard workers for theirefforts upholding the society should be re-warded. This leads to the acceptance of ex-clusion of poor people and to a certain senseof aversion to seek government support. Inturn the government has no obligation togrant social security which in this culture isnot a right, but it grants it as a benevolentauthority for moral reasons.[72] As Lin Ka ex-plains, the different understanding of wel-fare is obvious from the examination of theWestern and Chinese meanings of the word“welfare”. While “welfare” in Europe comesfrom the Norse “Velferd” (fare well) and Ger-man “Wohlfahrt” (well-being), the Chinese“oruzhi” translates into happiness sent fromheaven or a benevolent superior.[73] In theWest the welfare state and social care isbased on citizenship and related social rightswhile the Chinese welfare system is morecollectivistic in which local communities andfamily bonds play important roles.

THE EUROPEAN SOCIAL SYSTEMS

The EU is a union of welfare states, not a wel-fare union. Social policy is a loosely harmo-nized area in the EU based on more or lessvoluntary cooperation between memberstates. Cross-EU welfare payments are alsonon-existent. Individual member states re-tained their sovereignty in this domain. TheEuropean Community was founded for po-litical and economic reasons, therefore at thetime of its establishment it had no social am-bitions. These came later especially after the1970s crises. [74]The German concept of “social market econ-omy” and the European social model arecognate ideas.

The former sets out to guarantee freedoms,fair competition and protection of the weakthrough division of power, acts of legislationand institutional regulation. It is the task ofthe state to create the framework of an eco-nomic order that eliminates unjustified priv-ileges and promotes social equality. In 1949the Christian Democratic Union of Ger-many’s three – occupied – western zones setthemselves the task of creating a “social mar-ket economy”, which was based on rejectinga planned economy, defending private prop-erty, fair and free competition, prices suit-able for the market, independent control ofmonopolies, ensuring the social security ofthe vulnerable and negotiated wage agree-ments. They were opposed to the socialcommand economy as well as the ultra-lib-eral state’s withdrawal from the economy.Justice, the state, traditions and morals, firmstandards and values are the foundations ofthis social market economy, but the model –in order to control economic policy, socialpolicy and market conditions – tries to rec-oncile interests and “protect the weak, re-strain the immoderate, cut down excesses,limit power, set rules of the game and guardtheir observance.

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The market economy is a necessary but in-sufficient condition of a free, happy, just andorderly society” – Wilhelm Röpke, the econ-omist wrote over half a century ago. The con-cept of the social model has undergoneseveral modifications and has been inter-preted in various ways.

In a wider interpretation, the European socialmodel goes beyond social protection (pen-sions, health care) and includes areas such asbenefits, social dialogue, lifelong learningand other active employment policy instru-ments, as well as the fight against povertyand discrimination. The model acknowl-edges the role of social dialogue, particularlyin areas such as combating unemployment,linking work and training, and introducingnew methods of work organisation. In Eu-rope, the state lays down the fundamentalrules of employment, and expectations forsocial protection have come to be deeplyembedded in people’s minds.

The realisation that economic developmentis a necessary but insufficient pre-conditionof society’s development and its citizens’welfare is much more embedded in Euro-pean thinking than in the US. Accordingly,the welfare index – which measures eco-nomic development as well as quality of life– is superior to the American value in mostEuropean countries, which is an eloquenttestimony of the advantages of the Euro-pean model.[75]At the Union level, there is no single officialdefinition of the European social model.Building a “European Social Area” throughcommon standards and harmonising na-tional social policies was a novelty of thenineties, although the Union’s social policyaspirations have been growing more andmore ambitious since its creation. The Treatyof Rome in 1957 only set the objective of im-proving workers’ living and working condi-tions to help create a common market;today, the objectives range from full employ-ment and a high standard of social protec-tion through gender equality to solidaritybetween the member states. Even thoughsocial policy largely remains a national com-petence, there is a certain degree of coordi-nation at Community level. The openmethod of coordination, which was intro-duced gradually, starting in the late nineties,is based on voluntary cooperation by themember states without any binding rules ortrespassing of national competences. Theopen method rests on soft law mechanismssuch as guidelines and indicators, bench-marking and sharing of best practice. Broadcommon strategic goals are agreed, whichare translated into national action plans, theimplementation of which is monitored andevaluated in comparative reports. Commu-nity social policy has taboo areas that itavoids, which typically include wages,salaries, social redistribution and related is-sues.

[69]Jæger, Mads Meier - Jon Kvist: Pressures on post-industrial soci-eties: Better is more or less state welfare. Conference paper. 4th Inter-national Research Conference on Social Security. Antwerp, 5-7 May2003.[70]Giddens, Anthony, and Diamond, Patrick, and Liddle, Roger:“Global Europe, Social Europe”, Polity Press, 2006.[71]Confucian virtues are strong family bonds, benevolent paternal-ism, social harmony, discipline and strong work ethics.[72]This logic is still present in the old age care in rural areas in theabsence of institutionalized social protection schemes.[73]Lin, Ka: Transformation of the Chinese social security system: col-lective welfare vs. state welfare. Turku University. 2014.[74]The powers of the Union have developed through incrementaldevelopment of marginal measures in order to establish precedentand competence. For example, provisions covering cigarette packets,bus passes or language teaching sought to establish competence inrelation to public health, old people, transport and education. Thishas been resisted through the idea of 'subsidiarity', by which actionshould always be taken at the lowest possible level. The EuropeanCommission's approach to the development of policy is based on theincremental development of services, the progressive expansion ofsolidarity, and the insertion of those who are excluded. (Spicker,2014.)

Community social policy is quite limited inits scope: it mostly applies to specific groupsand situations and tends to set minimum re-quirements. The EU has declared maintain-ing the balance between the liberal marketeconomy and social security, or – in otherwords – between competitiveness and soli-darity, a key priority of its policies.

The European socio-economic model restson fundamental western values such asdemocracy, the rule of law, or respect forhuman rights and national self-determina-tion. According to its self-identity, its eco-nomic philosophy is “more social” than theUS or Asian models; social equality is moreemphatic, and economic performance isviewed together with other goals such as so-cial cohesion, environmental protection orthe general welfare of citizens. Accordingly,the state plays a stronger role than in othermodels. Still, critics say that the European so-cial model is not really a model, and is nottruly European. The EU economy functionsthrough the cooperation of different cul-tures and languages, and we can hardly talkabout a European society or European cul-ture, only about the sum of European peo-ples and cultures. Employment, welfare,health and pension policies vary greatlyfrom one country to another, and these dif-ferences only grow with each enlargementof the Union. In general the European socialmodel brings to mind social justice and soli-darity, but the mention of the European so-cial model is often used to stress thedifference between EU and US social policy.The welfare system was one of modern Eu-rope’s finest achievements.

The EU member states pursue different so-cial policies. The EU may issue guidelines andset targets, but jobs are not created by Brus-sels.

The welfare, healthcare and pension systemsalso vary enormously from one country toanother. Obviously, there is no such thing asa single European minimum wage or an EUhealthcare system.

When referring to the European socialmodel, the adjective “European” has anotherdimension: an institutional one. Commonvalues and principles may be important, butthey are of little use without common rulesand institutions. As already stated, the EU israther weak in this sense. One can safely saythat the Treaty of Amsterdam in 1997 was aturning point in European cooperation in thefields of employment and social policy. In ad-dition to the open method of coordination,the member states entrusted the Commis-sion with making proposals for legislationcombating discrimination at the workplaceand outside. From 2009, the Lisbon Treatymade the Charter of Fundamental Rights[76]– which only had the status of a political dec-laration before – part of the EU's legal sys-tem, which among other things enables theCourt of Justice to use its rulings to force themember states to harmonise their legislationeven in the absence of specific Europeanlegal acts.

Even though we cannot define preciselywhat is meant by “European social model”and the boundaries of the concept are ratherblurred, there is a kind of European model,or model-family. When talking about the Eu-ropean social model it should be remem-bered that the concept covers a widespectrum of social systems, there are majordifferences between the welfare, fiscal andtransfer systems of the various memberstates. There are four more or less distinctwelfare systems in the EU: the Nordic (orScandinavian), the liberal Anglo-Saxon, thecontinental and the Mediterranean one.[77]

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The Nordic (or Scandinavian) model, whichhas become an example to follow lately, ischaracterised by guaranteeing – widely in-terpreted – social rights and high redistribu-tion rates. The funding for maintaining thehigh standard of social protection comesfrom high taxes. Employment does not ap-pear to be a problem; registered unemploy-ment numbers are generally low, in whichboth the public and private sectors play theirpart (in some parts of Scandinavia, the pub-lic sector employs 30% of the workforce).There is active state intervention in thelabour market, with training programmesand job placement schemes. Trade unionsare the strongest in the world. An average60% of workers are trade union members,but in Scandinavia and Denmark this figureexceeds 75%. Society is consensus-based,82% of employment contracts are protectedby collective agreements. As a result, incomedisparities are small, and the whole of soci-ety enjoys generous social care. The Nordicmodel is an ideal example of the welfarestate and egalitarian society.

The Anglo-Saxon model is selective in pro-viding care to its citizens; social care is not aninherent right. Accordingly, the level of redis-tribution is low and the state is of moderatesize. Systems following this model havemanaged to cut back public spendingthrough comprehensive reforms, which hasled to an increase in the number of low-in-come families and in social inequalities. Thereforms have included the privatisation ofthe pension system and trimming unem-ployment benefits, which is a guarantee oflong-term sustainability. This model is an ex-ample of the self-provision approach.[78] The continental model, which is found inmost countries of continental Europe, is aunique mixture of state interventions andfamily traditions, with a high level of socialprotection funded by payroll taxes.

The system is characterised by high redistri-bution rates and inequalities in fiscal bur-dens. In the welfare system of thecontinental model, the focus is on creatingnew jobs in the public or private sector. Thismodel if applied rigidly tend to yield modestresults due to high labour costs and thebudgetary burden of unemployment bene-fits to the many jobless. In its French versionthe state and other institutions under the na-tional budget play a central role, and hassometimes a protectionist attitude whichmakes the continental model expensive andunsustainable in the long run in the face ofglobalization.

The Mediterranean model is similar to thecontinental one in many aspects, but differsin some others. The pension system has amore central role, while the family takes oversome of the functions of the social safety net.This model results in striking inequalities insocial benefits and blatant discrimination,which divides workers as well as the jobless(typically women and young people).Women are disadvantaged in these coun-tries as they find their professional careerand family life incompatible. The system iswasteful and often encourages early retire-ment instead of self-training and job-seek-ing. The worst example for this model iscrisis-hit Greece.

The social systems of European countriesthus show great differences and have gonethrough transformation in the new memberstates too in recent years. The state’s role isimportant everywhere, but it is more directin some countries than in others. One ex-treme is direct state provision, the other is astate that only regulates private sector serv-ice providers. The situation varies consider-ably in terms of the role of social dialogue,sectoral rules and corporations in protectingworkers and shaping social benefits.

It is important to note that considerablechallenges[78] have to be faced by the Euro-pean social systems in the 21st century. Thisis especially true in the case of those nationalmodels that bear the characteristics of the(stylized) Mediterranean or Continentaltypes. A more flexible socio-economic envi-ronment is needed to respond global eco-nomic and demographic changes. Moreoverthe entry of China and India into the globaleconomy has also brought billions of newworkers into the global labour market, whichhas cut the global capital to workforce ratioby half. This dramatic development is caus-ing fundamental social shifts east and westalike.

Due to these demographic[79] and eco-nomic constraints welfare states have comeunder serious pressure in Europe forcing es-pecially southern EU member states to intro-duce austerity reforms cutting back welfareprovisions and toughen pension rules.

EU-CHINA COOPERATION AND CHINESERESEARCH ON EUROPEAN SOCIALPOLICIES

Although China obviously cannot afford aEuropean-style welfare state, Chinese deci-sion-makers and scholars have been turningto Europe as the most important referencefor reforms. During the last forty years manyChinese scholars have turned to the socialmodels established in EU member states.The most popular model was of the Nordiccountries, especially the Swedish. In the1980s[80] driven by ideological motives Chi-nese scholars considered it the best exampleto promote social and political reforms inChina. Chinese were intrigued by the factthat the Social Democratic Party could sus-tain its power for such a long time. Therewere suggestions[81] that the only way toovercome the problems within the Commu-nist Party (such as corruption) and the bestway forward for China was democratic so-cialism – someway in the Swedish sense.

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The Swedish social security system was alsoa key reference point. But as the authoritar-ian ideological grip tightened, these ideaswere shelved. Nevertheless the establish-ment of the social security system has beenan issue for the Chinese government sincethe 1980s, so research into EU member statepractices continued. According to Xining al-most all textbooks and academic works,books and articles on social policy and socialsecurity systems in China have a reference toEuropean practices. From the 1990s, Chinesestudies into the European social modelshave become more in-depth, more focusedon individual policy areas such as medicalcare, employment, labour market, agingissue, pension system, and started to look atthese issues from the perspective of whatChina could learn from European ways.

From the early 2000s these studies started toboom thanks to the EU-China Higher Educa-tion Cooperation Programme. 143 collabo-rative research projects were funded and 27of them related to the EU social policies (so-cial security system, welfare state, publichealth, aging, employment policy, environ-mental policy, etc.), about 20 per cent of thetotal. Among the 440 Chinese visiting schol-ars supported by the programme, 117 did re-search in social policies and social securitysystems. According to research by the Insti-tute of European Studies at the ChineseAcademy of Social Science, more than onethousand publications, including books,journal articles and policy reports, were pub-lished in Chinese on European social policiesand social security system by the end of2002.In 2002 the Chinese government put for-ward a new strategy to improve the socialstandards of the society reducing wealthgaps. Studies on European social policiesand social security systems thereby got an-other impetus.

Chinese scholars generally hold that Euro-pean social systems - unlike the Americanone - bring "social justice and harmony intothe capitalist market economy", thereforeconstitute a good example for China to fol-low. By now the EU and China work closelyat technical levels: in 2005 the EuropeanCommission and the Chinese Ministry ofLabour and Social Security signed a Memo-randum of Understanding on EU-China co-operation on Labour, Employment andSocial Affairs. This encompasses social pro-tection, social cohesion, labour legislation,labour market issues and social dialogue.The EU-China Social Security Reform Coop-eration Project has also been kicked off in2006[82].

As Zhou Hong explains[83] unlike other re-search areas the European social policy stud-ies in China are multidisciplinary, encompassing demography, sociology, economics,history, law, finance and even philosophy.Most of the time research was driven by do-mestic needs and direct demand from deci-sion-makers, especially when major labormarket reforms were initiated. Thereforemany of the research has been done withthe explicit objective to show how the Euro-pean example could be helpful in China. Thetopic of social justice and its implementationvia social legislation has been a key researchinterest for Chinese scholars. Lately the com-plementarity and sometimes the contradict-ing nature of social policy planning betweenthe EU and member state levels, moreoverthe role of the private sector in pension pro-vision has raised the attention of Chinese re-searchers. Intensive research has also takenplace in the field of social policy reforms. Thethematic coverage of research encompassedpoverty and family related issues, and familysubsidies, old age pension, health care insur-ance, employment rules, youth unemploy-ment, early retirement,

part-time employment, but according toHong excluded important issues like, the in-teraction between social and economic poli-cies in Europe, institutional issues such as theinterests and motives of key European socialpolicy actors, social exclusion, social inclu-sion or social dumping. Hong criticizes thepolitical (ideological) point of view of re-searchers that often neglected the analysisof contributions, actions and views of policyactors other than the ruling party in thecountry of study. He also claims that the levelof cooperation between Chinese researchersstudying social policy from different angles(EU-level, individual member state focus)and also with general EU-experts is insuffi-cient therefore the research evidence is in-adequately prepared and used.

THE CHINESE SOCIAL SECURITYSYSTEM – FACTS, PROBLEMS,

SOLUTIONS

There are serious issues with the Chineseeconomy and especially with its social secu-rity system that might go unnoticed, forgot-ten amidst the celebration of the Chineseeconomic miracle. The chokehold of bureau-cracy and corruption are strangling China.The best part of Chinese national holdings isin the state’s hands; in key sectors such asbanking, telecommunications, energy, thesteel industry, the automotive industry orforeign trade, state-owned enterprises enjoya monopoly. Investment suffers from ram-pant cronyism. Corruption not only costsChina (being one of the most corrupt coun-tries in the world) billions of dollars, but alsoundermines society’s moral fabric. It is esti-mated that theft, fraud and payola add up toabout 15% of GDP.

If half of that money was spent on thehealth-care system, China could achieve acentury's worth of development. Accordingto the World Health Report[84] China hasone of the worst healthcare systems in theworld. Hospital treatment means indebted-ness for many. The state of the environmentin China also gives rise to concern; the Chi-nese economic miracle is a serious burdenon the global natural environment.

The transition to a market economy is still anunfinished business and as regards socialservices the picture is even gloomier. Hun-dreds of millions of elderly people could beleft without care, and hundreds of millionsof peasants live at or below the subsistencelevel. The most serious challenge is the carefor the elderly. Due to the official one-child-only policy and the closing down of formerstate-owned enterprises (which used to pro-vide care for their retired workers), more andmore Chinese retirees are finding them-selves left without any kind of care or provi-sion. While one tenth of the population (131million people) was over the age of 60 in2000, this ratio rose to 12.5% by 2010, andwill rise to 17% by 2020 and 30% by 2050,when their number will have swollen to 480million.[85] The country’s traditional social care systemhas been falling apart, and the family tiesthat used to ensure that the elderly were notabandoned have already been ripped asun-der. More and more people in China live innuclear families or migrate to cities on theeast coast to earn a living, leaving the elderlyand the sick behind in depopulated villages.The state-owned firms that used to providefor their former employees disappear.Chinais a country of vast social disparities, and thegaps are getting wider, leading to thousandsof local peasant revolts and conflicts everyyear.

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In a year, according to official statistics, thereare more than 50,000 larger riots nationwideinvolving several million people. Instead ofprivatisation, land is often being expropri-ated which causes popular revolt. The mostsevere source of income inequality in today’sChina certainly lies in the striking urban-ruraldisparities. There are 70 million landlesspeasants and close to 200 million migrantcasual workers wandering in the vast coun-tryside. During the last few decades almost450 million peasant have left the land andmoved into cities. While some 200 millionpeople were lifted from poverty, hundredsof millions are still threatened by it. Migrants'working conditions are also dire and 100.000fatal industrial accidents take place everyyear. 80% of the population has no health in-surance (57% in cities and 97% in rural areas).

If these issues remain uncontrolled and un-resolved it might easily be the case that intwenty years' time scholars and politicianswill be awed not by China any more but byIndia at least because of its demographic po-tential. Half of India's population is under 25which is in clear contrast with the situationof the slowly ageing China, whose popula-tion will start to decrease in the near future.

This situation has indeed been a major issuefor the Chinese government for years. As it isunderstood in the West social rights to guar-antee high levels of welfare are a feature ofadvanced capitalist economies and consti-tuting parts of democracies – as explainStepan and Müller.[86] This may put the Chi-nese government in a somewhat awkwardposition from a political/ideological point ofview, but they applied a rather pragmatic ap-proach: they had to establish a functioningsocial system anyway in order to avoid socialdisarray. The comparison of Western and Chi-nese social systems, including its structure,logic, institutions is nevertheless not easy.This is not only a result of the different polit-ical systems, Stepan and Müller argue thatthere are fundamental cultural differencesand even terminology may be elusive tograsp sometimes due to language barriers.Nevertheless it is clear that Western (primar-ily European) social systems are key refer-ences to Chinese decision-makers, and as aresult, the Chinese social system has evermore common or similar features with thatof the West. Lately this also encompassedthe involvement of market based solu-tions.[87] In 2010 Wen Jiabao argued that"Social programs designed to meet non-basic needs should be handed over to thenon-public sector to let the market satisfythe multi-layered and individualized needsof society..."[88]This is a remarkable shift from the mentalityof the pre-80's period when welfare in urbanareas was originally guaranteed by the StateOwned Enterprises (SOEs) which throughtheir danwei (working units) provided a life-long social security system. The rural popu-lation was provided with a minimumsecurity through the public ownership ofland and by the household registration(Hukou) system which also served as thecontrol registry for the rigid rural-urban seg-regation.[89]

Social security (shehui baozhang) is the um-brella term for all different types of public so-cial policies. Social insurance (shehuibaoxian) and social welfare (shehui fuli) arethe major strands of public social services.The social insurance programs include pen-sion insurance, medical insurance, work in-jury insurance, unemployment insuranceand maternity insurance. Insured employeesand their employers pay contributions to theschemes (civil servants had a privileged sit-uation). Insurance systems are gradually ex-tended to the rural population.

Social welfare in China is defined as socialmeasures to help people in need, includingthe minimum livelihood guarantee (dibao),other guarantees and medical assistance sys-tems. Dibao is a cash hand-out financedfrom taxes introduced from the nineties incities and slowly extended to rural territoriesas well. There is also a traditional form ofmainly community based help system is, thewubao which is delivered in kind (food,clothes, shelter, medical treatment) to needyhouseholds or individuals, including or-phans and veterans. Families still play an im-portant role in social welfare provision,especially in the countryside (family insur-ance – jiating baozhang).

During the last thirty years the logic and alsothe structures of provision of social servicesunderwent major reforms. These were nec-essary since political and mainly socio-eco-nomic changes, such as privatization, andimmense migration to cities from rural areasmade the traditional work-unit based socialsecurity system in urban areas as well as thefamily based social system in rural areascompletely dysfunctional. For decades thepolicy focus was growth, little attention waspaid by the government to create a nation-wide, coherent social security system.

This had to be changed: the government re-alized how dangerous it is to run the countrywithout a properly functioning safety netwith sufficient funding and administrativecapacities. Major legislative reforms havebeen launched to counter the rising socio-economic inequalities and to fill the im-mense gap in the safety net caused by thedismantling of work-units and the massivemigration to cities.

In 1998, the government established a uni-fied urban health care scheme compulsoryfor all urban employees, regardless of thetype of enterprise. In rural health care theprocess is much slower, but in 2002 a frame-work for a renewed Rural Cooperative Med-ical Scheme was adopted.After President Hu Jintao’s assumption of of-fice in 2003, a considerable shift took placeas political attention from purely GDP-growth oriented policies towards a more bal-anced, sustainable and socially equitableapproach to development was chosen underthe motto of a “harmonious society”.

[75]EU countries are characterised by a large state, disposing ofroughly half of GDP, the two extremes being Ireland (35%) and Swe-den (60%). The weight of the state and its GDP disposition rate wasincreasing in Europe until the mid-nineties, partly due to the evolu-tion of the social model (and primarily its redistributive policies, suchas healthcare, education, unemployment benefits) and partly dueto other macroeconomic trends (such as the obligation to repaystate debt accumulated as an aftermath of the 1973 oil shock, or theanti-cyclical policies necessitated by the recessions of the eightiesand the nineties). Taxes collected totalled 42% of GDP in the EU in2003, compared with 26% in Japan and the USA and 17% in Chinaand India. The average EU member state spends 27% of its GDP onsocial policy, while Japan and the USA devote 17 and 15% of staterevenues to such purposes, respectively.

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This refocus from GDP to social also meansthat the government wants to equalize so-cial services until 2020 nationwide. From2003 onwards social policy focuses on the in-clusion of the large vulnerable groups suchas rural residents, unemployed and migrantworkers.

A major reform step was taken in 2010 by theadoption of the Social Insurance Law whichspecifies the functioning of the following so-cial insurance programs: pension insurance,medical insurance, work injury insurance,unemployment insurance, maternity insur-ance. Moreover as a result of a number of in-stitutional mergers and re-assignments ofcompetences the Ministry of Human Re-source and Social Security was establishedto have a single and relatively strong institu-tional actor in the field of social insurance.Nevertheless competences for health-re-lated social policies remained scattered. Butinstitutional reorganization seems to be ontrack and competences on the public socialpolicies are ever more concentrated and thepromotion of public welfare is now declaredas an independent function and no longer ishidden behind the patchwork of cross-cut-ting ministerial and other organizationalportfolios.

Although the gradual reform of the urbanpension system started already in the late1990s whereby pension coverage was ex-tended from SOE workers to all urban work-ers, irrespective of the company’s ownershiptype there still is no unified pension systemfor rural areas, only voluntary, poorly funded,and very fragmented schemes exist with alow popular coverage. According to officialestimates, only 7% of rural people aged 60or older receive any pension benefits. [90]China's urban pension system is based onthree pillars since the late nineties: a socialsecurity net (Pillar 0), basic pension

pension insurance (Pillar 1) and supplemen-tary pension insurance (Pillar 2). Under thisframework, pension funds are sourced fromthe government, enterprises and individuals.

According to Hu Yifan[91] the main prob-lems of the Chinese pension system are theincreasingly aging population, the low con-tribution rate, the low coverage, the frag-mented management and the low return oninvestment[92]. The collection rate[93] hasdeclined from 25.1 percent in 2008 to 17.1percent in 2010. Compliance is low becausethe mandatory contribution rates for em-ployers and employees are excessively high(with 28 percent of wages it is almost thehighest in the world). Moreover due to thefragmented nature of the system employees,especially migrant workers, often have toabandon their individual pension accountswhen moving to another city.[94]

In 2000, the central government set up theNational Social Security Fund (NSSF), toserve as a buffer mechanism to mitigatepressure stemming from gaps in the pensionsystem - with no success at all in reality.

The government introduced a rural pensionplan in 2009 and a new urban pension planin 2011. Before 2009, only 30% of the popu-lation had a pension; with these reforms thecoverage grew to 55%, but in reality pensionsystem was still like a patchwork varyingfrom city to city, from urban to rural areas,and from public to private sectors. Small re-form steps are almost continuous and as aresult coverage gradually grows, but whilethe major part of the population is coveredby one of several pension schemes in 2015only about 30 per cent have a coverage thatwill guarantee a meaningful income. Thebasic pension is only 55 yuan ($8.75) permonth, which cannot guarantee even theminimum subsistence.

Pension reforms are necessary also becauseof the challenges (both budgetary and so-cial) caused by China’s quickly ageing popu-lation. The number of people aged over 65will rise from 132 million in 2015 to 331 mil-lion by 2050 (and 480 million people will beover 60), while the number aged 15-64 willfall from 1bn to 849m, according to the pro-jections of the UN.[95] The ratio of thoseaged over 65 to those aged 15-64 will risefrom 13 per cent in 2015 to 39 per cent by2050 in China. (From 2014 to 2050, China’smedian age will skyrocket, from roughly 35to 46.) But even with the current low dependencyratio, many provincial pension systems haveserious shortfalls that are filled by channel-izing current workers’ personal retirementaccounts (nominative pre-funding mecha-nism to pay future pensions) to pay benefitsto current old age pensioners. Underfundedpensions for non-government workers havebeen a source of labour unrest and popularoutrage for years. According to a report co-authored by Ma Jun the funding shortfall inChina’s urban pension system between 2012and 2050 is USD 6.3 trillion in current valueterms.[96] By 2010, there was only 204 billionyuan (US$32.37 billion) in the individual ac-counts, rather than the supposed figure of 2trillion yuan (US$0.31 trillion), creating a gapof a total of 1.76 trillion yuan (US$0.28 tril-lion) for the government to fill. Therefore thecentral government looks into the introduc-tion of a centralized management of thepension funds.

As a reaction to this report the governmentannounced plans to again reform its pensionsystem.[97] Part of the government's plan isto raise the retirement age, which at the mo-ment is 60 for men, 55 for women workingin white-collar industries, and 50 for blue-collar female workers.[98]

In early 2015 the government announcedthe phasing out of the so-called dual-trackurban pension system according to whichcorporate employees must contribute 8 percent of their salary to the pension system butgovernment employees do not have to con-tribute at all (for them the government wassimply paying pension benefits from thegeneral budget).

Life expectancy in the country has soaredand the fertility rate has plummeted, puttinga heavy financial burden on the budget aswell as on the next generation. China's fertil-ity rate is 1.6, far below the 2.1 needed to atleast sustain the population. The ratio ofworking-age adults to pensioners is 5:3, butthe figure is expected to fall to 1:2 by2035.The one-child policy puts pressure onthe second and third generations of onlychildren.

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A couple who are both only children willhave four parents to care for, and their chil-dren could potentially have four parents andeight grandparents to look after. This is a par-ticularly acute issue in China since only 45percent of the income of elderly residents inChina's urban areas comes from the basicpension insurance, while 37 percent fromtheir children and less than 3 percent fromthe other two pillars. In rural areas the shareof the support from the children is 54 per-cent. This is a clear illustration of the insuffi-cient level of rural pension systempenetration. Ageing is an issue in Japan,South Korea and Taiwan as well, but the stan-dard of living in those countries is alreadyhigh. So as it has been said several times,China is getting old before getting rich.[99]

As far as social assistance schemes are con-cerned, the first experiment on the introduc-tion of the Minimum Standard of LivingScheme (MSLS) took place in Shanghai in1993. Later the central government pro-moted its nationwide adoption and ac-cepted financial responsibility, therefore thescheme expanded rapidly. In 2006 MSLS'sgradual extension to rural areas has been de-cided.

Contrary to subsequent reforms - on whichit was possible to give only a very briefoverview in this chapter - many westerncommentators are very critical with the Chi-nese social system. Spicker argues that inChina the provision of social protection is acomplicated mix of incomplete systems thatinclude social assistance, partial social insur-ance and welfare services. Social insurancevaries by occupation and location in a signifi-cant way. Social assistance offers a minimumsubsistence guarantee, but despite its exten-sion to rural areas there are still major gaps.The provision of welfare is limited, frag-mented and excessively localized and largelyinconsistent. It is also often liable to misman-agement, corruption or ignorance.[100] Ac-cording to Stepan and Müller the Chinesesocial security system is fragmented and di-vided along occupational, administrative, ju-risdictional and geographical lines.[101]

Social policy reforms in China have been tak-ing place for two decades now on a contin-uous basis. They can be considered thelargest in human history in terms of the massof people affected. This obviously takes notonly immense amount of financial resourcesbut time as well. Political stability in China is to a large extentcontingent on a redistribution of the divi-dends of growth that guarantees an everhigher level of social protection to the soci-ety especially to the people in extreme need- migrant worker upheavals and strikes[102]clearly demonstrate this. Throughout thesocio-economic transition process the keyrational behind the introduction of welfaremeasures has been to stabilize the Commu-nist Party's rule by reducing social tension.The combination of socialist ideals and Con-fucian values in the grand design of the so-cial system has also been persistent.

RECOMMENDATIONS

To attain a balance between a flexible and ef-fective market economy and adequate socialsecurity provision remains to be the main in-ternal challenge for China for several years,maybe decades. To this end, the EU, espe-cially some of its member states' modelshave been and continue to be a useful refer-ence. As explained earlier the practicalitiesin the design and provision of social servicesin different EU member states are not uni-form, but still there is an over-arching men-tality (accepted by the political class andexpected by the society) in Europe to value,sustain and promote social welfare. This re-mains to be so even if austerity due to budg-etary and demographic constraints hasalready started to put constraints on the so-cial provision systems in Europe. China is forthe time being at a very different stage of de-veloping its social model. The historical de-velopment and the consequent reforms ofEuropean social systems and particular ele-ments of them can therefore be a very mean-ingful field of study for China.

Chinese and European social challenges(even in historical comparison) differ to alarge extent, so does to some extent, the cul-tural perception of welfare provision. Never-theless the European policy systems andsolutions are valuable source of informationfrom administrative, management and fi-nancial points of view.

On some issues such as ageing, China hassimilar challenges with Europe, and clearlyneeds to overhaul its pension system, includ-ing an efficient administrative centralisation,with better financial management and amuch better corporate governance cultureto guarantee that legislation is applied cor-rectly and effectively.

Centralisation has never been alien to theChinese political culture, therefore the frag-mented nature of the pension, and other so-cial service provision institutions reflect awell outdated mentality that these issues arenot first grade political factors.

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There is an understanding now in the gov-ernment that they indeed are, therefore itshould be reflected in their managementand supervisory administrative setup as well.

With huge masses on the brink of poverty inChina, social inclusion should be a key areaof action in the future. European states' andeven EU-level practices can again providemeaningful examples for policy planningand implementation. On the EU-level the Eu-ropean platform against poverty and socialexclusion should be mentioned here whichis one of seven flagship initiatives of the Eu-rope 2020 Program. The platform is designedto help EU countries reach the headline tar-get of lifting 20 million people out of povertyand social exclusion (as foreseen in theEU2020 program).[103]

With the emancipation of Chinese urban em-ployees, strikes and other forms of indica-tions of discontent will get ever morefrequent. Other less contradictory situationswhere effective communication and cooper-ation between employees and employersare nevertheless is of key importance will beeven more of a daily routine in China, there-fore the long-term European (member stateand EU level) experience related to the do-main of social dialogue seems another areaof meaningful know-how transfer.

[76]The Charter of Fundamental Rights of the EU brings together in asingle document the fundamental rights protected in the EU. TheCharter contains rights and freedoms under six titles: Dignity, Free-doms, Equality, Solidarity, Citizens' Rights, and Justice. It was pro-claimed in 2000, but has become legally binding on the EU with theentry into force of the Treaty of Lisbon, in December 2009. It en-trenches: all the rights found in the case law of the Court of Justice ofthe EU; the rights and freedoms enshrined in the European Conven-tion on Human Rights; as well as other rights and principles resultingfrom the common constitutional traditions of EU countries and otherinternational instruments. The Charter sets out a series of individualrights and freedoms including 'third generation' fundamental rights,such as: data protection; guarantees on bioethics; and transparentadministration.[77]In 2004, the new members brought in their heterogeneoushodge-podge of models, which were typically market-friendly withlittle attention devoted to welfare aspects, making it all the more diffi-cult to establish a single social image of Europe[78]The Nordic model is a mixture of the continental and the Anglo-Saxon models. The relationship between government and economyis a liberal one; politics has a non-interventionist approach towardsmarkets (goods, services and labour alike), but the state’s size and re-distributive role is comparable to the continental model. In the Anglo-Saxon model, the approach to markets is clearly liberal and socialprovision is not of paramount importance. In the continental model,social provision is an important principle. The Anglo-Saxon model re-volves around the economy and its social policy serves to rectify theshortcomings of the economy’s operation. The Scandinavian model,on the other hand, subordinates all policies – including economic pol-icy – to social justice. Nevertheless, the Nordic model has adopted amarket-based approach; the rights of active workers are muchstronger than those of the inactive labour force. The Scandinavianmodel increasingly puts employability (individual responsibility) asits focus, as opposed to the old attitude, which put the political bur-den of providing access to work on the shoulders of the state. In theAnglo-Saxon model, there is more room for weighing social justiceagainst economic rationality. [79]Ageing is a also serious budgetary concern: the average malespent 11 years of his life in retirement in 1970, and 20 years in 2010in Europe. Ageing, besides its many other economic and social impli-cations, makes the costly welfare systems impossible to finance in thelong run and holds back growth by about half a percent annually.[80]Most influential works of this time were: Huang Su'an: A generalsurvey of the welfare states in Western Europe , and Li Cond (ed.): Thesocial security system in Western Europe.[81]See more on this from Tao Xie and Song Xinning.

he European Union is not a country governedby a single government, it lacks federal admin-istration as well as a common language. EU co-hesion policy framework is decided by memberstates and the European Commission, imple-mentation is done mostly by national author-ties.[104] Moreover economic and social

challenges in the EU and in China are far from identical. Nev-ertheless common features in regional policy planning andimplementation exist and both China and the EU could learnfrom one another in this respect. Both have large territorieswith significant economic and social disparities and bothhave the objective to achieve a balanced regional develop-ment. Territorial disparities often the source of social ten-sions, migration, and climate related issues are relevant forthe EU and China alike.

The co-operation between China and the EU on regional pol-icy has started already ten years ago. In 2006 a memoran-dum of understanding on regional policy cooperation wassigned between the European Commission and the NationalDevelopment and Refrom Commission (NDRC) to exchangeinformation and share best practices in the field of regionalpolicy.

T

Regional policy

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In 2009 the abovemntioned memorandumwas amended to make room for a strategiccooperation in the field of innovation and onregional clusters. Based on this cooperationa comprehensive study comparing the keyaspects of Chinese and EU regional policywas published in 2010. [105] The report fo-cuses on 15 selected key aspects of regionalpolicy, including a historical review, regionalpolicy’s role in economic growth, definitionof regions, regional planning, regional gov-ernance with Chinese characteristics, ruraland urban-rural integration, sustainable de-velopment and climate issues.

In 2010, the European Commission launchedCETREGIO[106] , a Chinese European Train-ing Series on Regional Policy. CETREGIO in-tends to offer Chinese regional experts asource of reference for designing regionaldevelopment policies focusing on regionalpolicy legislation; statistical information sys-tems; innovation and clusters; territorial co-hesion; urban-rural linkages; and sustainableurban development. The programme alsoaims at strengthening links between Euro-pean and Chinese regions. The EU-China Di-alogue on Regional Policy Cooperation hasalso been set up that helps direct contactsbetween regional and urban authorities in adecentralized way, including the participa-tion of the private sector in the dialogue. Thecommonly agreed key themes for the workprogramme of the Dialogue for 2014 weresustainable urban development, the issue oflarge cities, and major urban challenges in-cluding energy efficiency, low carbon econ-omy. Industrial clusters and enhancinginnovation capacity of regions also made tothe priority list. The EU Commission and theChinese National and Reform Commissionagreed to create a joint multiannualroadmap to frame the common work, more-over the Guangzou Development Zone wasselected as a pilot area of EU-China regionalpolicy cooperation.

Finally even the overarching “EU-China 2020Strategic Agenda for Cooperation” includesa chapter on regional policy stressing the im-portance of the work done by the EU-ChinaDialogue on Regional Policy Cooperationand the need to continue direct contacts be-tween regional policy authorities, joint re-search, training programmes and pilotprojects.

Chinese scholars in the European Studiesfield looked into the EU regional policy al-ready from the late 1980s.

[82]It is meant to strengthen China's institutional capacity for socialsecurity policy development and administration and to make reformsto social security systems including old age pensions, unemploymentinsurance, etc. Several concrete pilot projects have been accom-plished. The are three components of the project. Component 1 sup-ports the National Development and Reform Commission (NDRC) instrengthening institutional capacity for social protection policy de-velopment and reforms. Component 2 supports the Ministry of Fi-nance (MoF) in enhancing institutional capacity for financialmanagement and supervision concerning social security funds. Com-ponent 3 assists the Ministry of Civil Affairs (MoCA) in improving thelegal framework and policy enforcement of social assistance.[83]Zhou Hong: EU social policy studies in China. Asia Europe Journal.2004. 1. Pp.1-13.[84]http://www.eum.hu/nemzetkozi-kapcsolatok/who/world-health-report-2008[85]UnitedNations Statistics Division (http://unstats.un.org/unsd/de-fault.htm)[86]Stepan, Matthias – Müller, Armin: Welfare governance in China?A conceptual discussion of governing social policies and the applica-bility of the concept to contemporary China. Cambridge Journal ofChina Studies. Volume 7. No. 4. 2012.[87]Nevertheless some western experts argue that the difference inthe underlying logic and the cultural interpretation of social protec-tion is so big (as presented earlier in this chapter) that "while in termsof privatization and decentralization there is evidence of convergenceof Chinese and Western patterns, the underlying values and the un-derstanding of welfare differs significantly."

Since 2000, when the regional developmentstrategy has become a priority project forChina, research of EU regional policy has be-come abundant. The general view of Chineseresearchers is that EU regional policy is a suc-cessful tool worth studying and look for vi-able references for the Chinese regionalpolicy to counter ever increasing develop-ment gaps in the country. There are hun-dreds of research papers, policy reports andMA and PhD dissertations in China on howEuropean regional policy can be the refer-ence for China's regional developmentstrategies[107].

Besides know-how exchange joint or coordi-nated development policy actions are alsoon the agenda: in June 2015 at the EU-ChinaSummit the Chinese premier announcedthat its country could invest up to €10 billionin the EU's new EUR 315 billion infrastructurefund, the European Fund for Strategic Invest-ment (EFSI). The Chinese pledge follows de-cisions by EU governments to join theChinese-led Asian Infrastructure InvestmentBank (AIIB), contrary to the misgivings of theUSA. China also sees an opportunity in theEuropean Union policy to digitalize its indus-try (an important thematic priority of EU re-gional policy) and public services whichcoincides with the Chinese Internet Plusplan, whereby everything is connected to asuper-fast broadband network infrastruc-ture.

Cooperation in regional policy is thus wellestablished and ongoing for a decade, thequestion is how relevant it is for the parties.In order to look into this issue an overview ofhow EU and Chinese regional policies func-tion is necessary.

EU REGIONAL POLICY AND ITS FINANCING

EU regional policy (sometimes called cohe-sion policy[108] - causing thereby a slightuncertainty) targets regions cities andpoorer member states (through the Cohe-sion Fund) in the European Union to supportjob creation, business competitiveness, eco-nomic growth, sustainable development, im-prove citizens’ quality of life and decreaseregional development differences. The EUapplies a 7 year long budgetary frameworkfor planning and implementation. The cur-rent one runs from 2014 until 2020. In thisperiod the EU spends EUR 351.8 billion –athird of the total EU budget – on cohesionpolicy. The EU regional policy is basically de-livered through three funds: the EuropeanRegional Development Fund, Cohesion Fundand the European Social Fund.

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[88]Quoted by Stepan, Matthias – Müller, Armin: Welfare governancein China? A conceptual discussion of governing social policies and theapplicability of the concept to contemporary China. Cambridge Jour-nal of China Studies. Volume 7. No. 4. 2012.[89]Sander, Anne - Schmitt, Christopher - Kuhnle, Stein: Towards a Chi-nese welfare state? Tagging the concept of social security in China.The Perspective of the World Review V. 4. No. 2. Aug. 2012[90]Sander, Anne - Schmitt, Christopher - Kuhnle, Stein: Towards a Chi-nese welfare state? Tagging the concept of social security in China.The Perspective of the World Review V. 4. No. 2. Aug. 2012[91]Yifan, Hu: How vulnerable is China's pension system? China.org.cn.10 June 2012.[92]There's almost no market-oriented investment for the basic pen-sion funds (Pillar 1) to ensure their sustainable development. Only 2percent comes from interest, the rest by pension collections and fi-nancial transfers. The supplementary pension insurance's (Pillar 2) av-erage return on investment was only 3.4 percent in 2010, far belowChina's inflation rate of 5.4 percent. A lack of competition is probablythe reason for low investment returns for Pillar 2. (Hu Yifan, 2012.)[93]The ratio between contributors making payment on a monthlybasis and the general number of contributors.

Together with a separate agricultural fundon rural development and a maritime andfisheries fund they constitute the EU’s Struc-tural and Investment Funds. Cohesion Fundis delivered to less well-off member states(whose GDP is lower than 90% of the EU av-erage) and not to subnational regions[109]like the other funds. Economic and social co-hesion – as defined in the 1986 Single Euro-pean Act – is about reducing disparitiesbetween the various regions and the back-wardness of the least-favoured regions. TheEU's most recent treaty, the Lisbon Treaty,adds another facet to cohesion, referring toeconomic, social and territorial cohesion. Theaccession of poor countries such as Greece(1981), Spain and Portugal (1986) signifi-cantly boosted the EU’s consciousness of re-gional differences in the level ofdevelopment, therefore the common re-gional policy was reinforced. The so-calledstructural funds were therefore integratedinto a new broad cohesion policy systemwhich focused on the poorest regions and amulti-annual programming approach wasintroduced. The seven year budget for cohe-sion policy that time amounted to EUR 64billion. In 1993 the Maastricht Treaty intro-duced the Cohesion Fund, and the moneyavailable was doubled.

The 2004 so-called big-bang enlargement ofthe EU was not only an historical event butalso increased the heterogenity of the unionon an unprecedented scale: the new mem-ber states, mostly former communist coun-tries increased the EU's population by 20%,but its GDP by only 5%. The EU had to devotesignificant amounts to reduce the develop-ment differences between the old and newmembers. For the 2007-2013 budget period (in 2007the two poorest countries, namely Romaniaand Bulgaria joined too), the cohesion

budget grew to EUR 347 billion of which 25percent has been earmarked for researchand innovation and 30 percent for environ-ment protection and climate action. In the2014-2020 budgetary period, the budget’ssize remained untouched contrary to heavylobbying by rich member states who pay forthe bill. National governments negotiatedhow the funds should be distributed in theEU Council and, even though all regions stillbenefit from cohesion policy, priority wasgiven to countries and regions whose devel-opment was lagging behind. More than half of the budget – €182.2 billion– has been set aside for less developed re-gions, which have a GDP of less than 75 % ofthe EU average. €35 billion has been allo-cated to transition regions, which have aGDP of between 75 % and 90 % of the EU av-erage, and €54 billion to more developed re-gions which a GDP of more than 90 % of theEU average.

Regional policy is the EU’s most importantcommon investment policy. EU cohesionpolicy helps other EU policy objectives suchas education, employment, energy, the en-vironment, research and innovation policies.it is a key financial support for the EU’s over-arching Europe 2020 Strategy[110]. In theeighties EU regional policy was relevantmainly for the public sector in the form ofstate help for big companies and large-scaleinfrastructure subsidies, now it is much morefocused on SME’s, and on knowledge econ-omy. This nevertheless entails some marketrelated issues - such as guaranteeing publicbenefit by using public money - with whichthe EU and member states have to deal withcarefully.

For the 2014-20 programming period, thereare eleven thematic objectives that are fi-nanced by the EU cohesion policy funds.

For the 2014-20 programming period, thereare eleven thematic objectives that are fi-nanced by the EU cohesion policy funds.(Areas such as research and innovation, SMEsupport, environment, transport, low carboneconomy, transport and energy, employ-ment, training, and public administration.)National and regional authorities specify intheir operational programmes how they in-tend to distribute the available funding be-tween the different thematic objectives. Insome poor member states EU cohesiontransfers are the most important sources ofpublic investment (representing sometimesthe 4 % of these countries GDP), thereby al-leviating the countries' national budgetshelping them maintain a modest budgetdeficit which is an EU requirement for bothEurozone and non-Eurozone members. Insome cases (Slovakia, Hungary, Bulgaria)government investments are financed up to90% from EU funds!

At the same time the assessment of the im-pact and efficiency of the EU’s regional pol-icy is a controversial matter. The EuropeanCommission publishes a so-called CohesionReport on the development of European re-gions and the impact of EU cohesion policy.According to the data published by the Eu-ropean Commission[111] , for the 2007-2010period the GDP per capita in the so-calledConvergence Regions (regions with percapita GDP under the 75 percent of EU aver-age) increased from 60.5 % of the EU-27 av-erage to 62.7 % between 2007 and 2010.Nevertheless the direct impact of EU cohe-sion policy is very difficult to discern. It is es-timated that EU cohesion policy generatedan additional 600 000 jobs from 2007 to2012, at least one third of them in the SMEsector. 25 000 km of roads and 1 800 km ofrail were constructed or modernised in thesame period, 200 000 SMEs received direct

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financial support, and cohesion policyhelped some 80.000 start-ups to get up andrunning. Every year, around 15 million peo-ple take part in the thousands of projects co-financed by the European Social Fund (ESF)across the EU. 2.4 million participants in ESFactions supporting access to employmentfound a job within 6 months between 2007and 2010 and some 60 000 research projectswere supported in the period 2007-2012.Atthe same time, EU cohesion policy especiallyin the phase of its implementation is notwithout problems. Occurances of misuse,waste or even corruption in relation to EUcohesion funds are a well-known. The poorerthe country the graver these problems proveto be. This is one of the biggest obstacle todecrease territorial differences through co-hesion funds in the EU.

To analyze territorial competitiveness at theregional level, the European Commission hasdeveloped the Regional CompetitivenessIndex (RCI) in 2010 which indicates thestrengths and weaknesses of the EU NUTS 2regions.

[94]Labor force migrates more and more frequently in China, so em-ployees pay contributions in one province, but would receive theirpension in another after retirement. As the basic pension funds aremanaged at provincial or municipal level, those provincial regionswith greater labour force inflows will have a substantial surplus intheir pension system, while ones lacking in contributions from in-service employees are often faced with a deficit. (Hu Yifan, 2012).Local governments, short of adequate funds, use the reserves accu-mulated in the individual accounts (Pillar 1) to pay the current pen-sion claims supposed to be funded by the social pooling plan (Pillar0), despite the fact that the two are supposed to stay separated, thusemptying individual accounts.[95]United Nations: World Populations Prospects, 2015.http://esa.un.org/unpd/wpp/[96]Jun, Ma – Zhengyuan, Cao: Resolving mid- and long-term risksof national debt. 2012. Deutsche Bank, Bank of China, 2012.[97]The report warned that only by delaying retirement age and in-creasing state funding will not solve the problem.

The index builds on the methodology devel-oped by the World Economic Forum for theGlobal Competitiveness Index, covering awide range of issues including innovation,quality of institutions, infrastructure (includ-ing digital networks) and measures of healthand human capital.

Eight out of the top ten regions in 2013 hadalso been featured on the 2010 list. It is alsovery important to note that seven out of thetop ten most competitive regions are eithercapital regions or regions including largecities. It is even more important that at thelower end of the European competitivenessscale, regions also seem to have been stuck,therefore indicating the lack of success ofEU’s cohesion efforts in levelling territorialdifferences.

The poorest regions are mainly Bulgarian,Greek and Romanian ones. The Greek eco-nomic crisis is yet another stark indicatorthat – since Greece has been and still is onethe major beneficiaries of EU cohesion sup-port – financial transfers do not work if therecipient countries’ or region’s institutionaland legal framework is inadequate.

CHINA’S REGIONAL POLICY AND ITSPROBLEMS

Since its reform policy began in late 1970s,China has undoubtedly been the most rap-idly growing country in the world. Mean-while, however, there are increasingconcerns over social and political instabilityresulted from regional economic disparitiesand polarization. Increasing imbalances canbe observed not only in the economic devel-opment, but also in incomes, the quality andaccessibility of public services, the level ofdevelopment of a liberal market economyand economic openness in general. There-fore, the Chinese government has been im-pelled to implement a series of regionalpolicy measures to alleviate regional dispar-ities and promoting a coordinated regionaldevelopment[112].

It is also planned to gradually narrow the re-gional disparities, equalize basic public serv-ices, give full play to comparativeadvantages in different regions and deepenregional cooperation are some basic goals ofChina’s regional policy. It is reasonable to ex-pect an observable level development in thetargeted regions, especially the Western, theCentral and the Northeastern areas, as a re-sult of regional policy actions, yet whetherthese regions can keep up with the East re-mains an open question.

[98]By 2030, China’s baby boomers will enter their 60s and 70s. Therate of population aging has been higher in the country’s eastern re-gion, which is the more developed, but the problem has hit the cen-tral and western regions as well. Meanwhile, due to the one-childpolicy and higher rates of women’s education and employment, thefertility rate remains low, at around 1.6 births per woman, lower thanthat of developed nations such as France and the United States.China has moved to relax the one-child policy in recent years, allow-ing couples to have two children if at least one spouse is an onlychild, but this has had limited impact. As of May 2014, only 271,600couples, out of a possible 11 million, had applied for permission tohave a second child. The country’s statutory retirement age is rela-tively young—60 for men and 50 or 55 for women—and given in-creased life expectancy, many are looking at an average of 15 to 25years in retirement. (The retirement age was set in the 1950s, whenlife expectancy was much lower.) Some are rehired after retirement;others start second careers. In early 2015 the government officiallyannounced its intention to raise the retirement age. According toBaozhen (Luo, Baozhen: China Will Get Rich Before It Grows Old - Bei-jing’s Demographic Problems Are Overrated. Foreign Affairs:May/June 2015.) raising the male retirement age to 65 could, by2020, keep some 41.5 million men in the work force. In the mean-time, early retirement means that more grandparents have time tocare for their grandchildren, freeing up working-age mothers to takejobs.

Coefficient of variation (CV), Gini coefficientand Theil index are the three most com-monly used and popular measures in the lit-erature of China’s regional inequality, whichall reveal a similar trajectory of interprovin-cial inequality for the period from 1978 to2006.

According to Figure 2, interprovincial in-equality increased only slightly from about1999 to 2004, and declined for two consec-utive years from 2004 to 2006. The relativeplateau of inequality reached in the late1990s and the subsequent decline since2004 hint at a downward trend of inter-provincial inequality, possibly related to ef-forts such as the Western DevelopmentProgram.

Per capita GDP is another indicator of theoverall level of economic development. Aspresented in Table 1 below, if we take the percapita GDP of Eastern China as 100%, theratio between the central, western andnortheastern regions with the former keepincreasing in recent years.

Decomposing the Theil index into its inter-regional (between-region) and intraregional(within-region) components (Figure 3), onefinds that interregional inequality increasedsharply and continuously during the periodfrom 1999 to 2004, and replaced intrare-gional inequality as the main determinant ofchanges in interprovincial inequality since1993.

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Figure 1. The Eastern, Central, Western and North-Eastern Regions of ChinaEU-China Cooperation Activity on “Regional Policy” Within the Policy Dialogue between DG REGIOand NDRC Final Report of the Chinese Experts – English Language Version, December 2010, P.53

Figure 2 Interprovincial inequality in per capita GDP, 1978-2006Source: C. Cindy Fan and Mingjie Sun: Regional Inequality in China, 1978-2006, Eurasian Geogra-

phy and Economics, 2008, 49, No. 1, pp.1-20

Table 1 Comparison of Per Capita GDP among Four RegionsEU-China Cooperation Activity on “Regional Policy” Within the Policy Dialogue between DG REGIOand NDRC Final Report of the Chinese Experts – English Language Version, December 2010, P.63

Besides, despite a smaller disparity in growthrate between the regions in recent years, theabsolute disparities are still growing. The dis-parity in per capita GDP between the easternand the western regions increased from RMB14,885 to RMB 22,129 during 2005–2009.

It is a fact that per capita GDP in westernprovinces accounts only for two thirds of na-tional average and less than 40% of that ofthe East. Moreover besides the level of eco-nomic development, disparities exist in ed-ucation, health and culture. The per capitaeducational expenditure budget of the west-ern region was only 73.5% of that of the east-ern region in 2008. In 2003, the GDP in theEastern China was 2.38 times more than theCentral region and 3.48 times more than theWestern regions.

From the previous analysis, it is obvious thatalthough the Chinese government make ef-forts to reduce interregional disparities andinvest a lot in the least developed regions,the effect of China’s regional policies are rel-atively limited. There are several reasons toexplain this.

LACK OF A SINGLE OFFICIAL ORGANIZATION SPECIALIZED IN REGIONAL MANAGEMENT

Regional policy is the most important instru-ment for a government to achieve coordi-nated regional development, it is necessaryto set a specialized official organization todesign, implement, supervise and evaluatethe whole process of regional policy. Cur-rently, the Chinese National Developmentand Reform Commission (NDRC) is in chargeof designing regional policies. However, re-gional development is only one of many du-ties of the NDRC.

There are two main offices in the Ministry ofForeign Affairs which also take responsibilityto promote the Go West Strategy and the Re-juvenation Strategy of Old Industrial Bases inthe Northeast China, which are far from pow-erful and effective leading organizations. Inthe implementation of regional policies,Ministry of Land and Resources, and Ministryof Housing and Urban-Rural Developmentare also take part.

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Figure 3 Decomposition of interprovincial inequality, 1978-2006 (Fan and Sun, 2008)

Table 2 Relative Disparity and Absolute Disparityin per capita GDP between the Eastern Region

and the Western Region

Apparently, none of above organizations hasthe full capacity and legitimate status to ad-dress the issue of regional disparities in acomprehensive and forceful manner. In prac-tice, due to lack of a single organization, dif-ferent parties often have conflicts, overlapsand blind spots in regional policy manage-ment.As opposed to China, the EU - as a depart-ment of the European Commission - has itsDirectorate for Regional Policy which is thekey player in designing, implementing andmanaging and controlling Union cohesionpolicy. DG Regio employs some 700 profes-sionals from all over the European Unionusing a wide range of expertise. Besidesbeing the centerpiece of regional policy de-sign and implementation DG Regio has be-come a knowledge base within theEuropean Commission to inform policy mak-ing with regional data and intelligence. DGRegio works with EU member states, regionsand other stakeholders to assess needs, fi-nance investments and evaluate the resultsof EU cohesion policy in a comprehensivemanner.

FAILURE TO IDENTIFY THE OPTIMALTARGET REGION FOR REGIONAL POLICY

Regional policy should target specific prob-lems and regions suffering from those prob-lems. As mentioned above, China’s currentregional policy mainly focus on four re-gions—the East, the West, the Central andthe Northeast. But China is such a big coun-try that even the smallest region is largerthan several European countries combined.(By means of the EU NUTS system, the UK,which only covers about 243000 sq. km, canbe divided into 12 NUTS-1 areas and 37NUTS-2 areas and take diverse regional poli-cies targeting different problems[113]. ) Con-sidering of rather complicated and diversesituations inside the different regions, it isimpossible to fix the regional problems byonly four sets of predetermined toolboxes.

At present, provincial units are generally re-garded as the basis for China’s regional pol-icy formulation. The Chinese governmentshould think about a better identified frame-work for considering and formulating re-gional strategies and policy measures. Inother words, there is a need to shift the basiclevel of regional policy formulation frommerely administrative demarcation to prob-lem-oriented areas which based on similareconomic features and suffers from similarproblems. Only by this can the regional pol-icy be specific and clear, and therefore be ef-fective. There are three levels of regionaldemarcation in China, namely the provinciallevel, the municipal level and the countylevel, are generally comparable. However,the county-level statistics in China are farfrom perfect, lacking in comprehensive sta-tistical indicators. To strengthen the county-level statistics is a major challenge of theChinese regional policy.

Table 3. Territorial features of the four regions

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As the report of the joint EU-China regionalpolicy committee of 2010 states: the county-level statistics in China is unable to providecomprehensive and stable statistical indica-tors. Moreover the regional demarcation sys-tem in China has changed frequently. As thereport claims in addition to a rapid social andeconomic growth and changes in the macroenvironment, there is no definite, long-termregional development strategy – frequentadjustments to the regional developmentstrategy have led to frequent changes in re-gional demarcations.

The authors of the report urge the Chinesegovernment to decide which basic levelshould be used for regional strategies andpolicy measures. There is also a need to shiftthe basic level of regional policy formulationfrom the provincial level down to municipalor even county-level units, to reduce admin-istrative complexity and getting closer to thelevel of implementation. Regional demarca-tion is an important step in formulating a re-gional development strategy, and they aredependant on each other – without a long-demarcation would be less stable and with-out practical importance, while without areasonable regional demarcation, a specificstrategy (measure) is impossible to imple-ment. Without comparable figures amongregions, the formulation of reasonable re-gional strategies and measures is out of thequestion.

As already mentioned in the EU’s NUTS sys-tem, countries are divided into three levels—NUTS1, NUTS2 and NUTS3. Regional policiesare mainly targeting the NUTS2 areas, inorder to avoid the targeted area from beingover- ambiguous or over-fragmented. Themain purpose of the EU’s NUTS is to acquirecomparable statistical data among the mem-ber countries.

The current NUTS 2013 classification(Nomenclature of territorial units for statis-tics) is valid from 1 January 2015 and lists 98regions at NUTS 1, 276 regions at NUTS 2 and1342 regions at NUTS 3 level. The NUTS clas-sification is a hierarchical system for dividingup the economic territory of the EU for thepurpose of:

•The collection, development and harmoni-sation of European regional statistics;•Socio-economic analyses of the regions NUTS 1: major "socio-economic" regionsNUTS 2: basic regions for the application of

regional policiesNUTS 3: small regions for specific diagnoses•Framing of EU regional policies (at NUTS 2level)

[99]Some claim that this statement in false and China can get richbefore or at least by the time it gets old. See more on this in: Luo,Baozhen: "China Will Get Rich Before It Grows Old - Beijing’s Demo-graphic Problems Are Overrated". Foreign Affairs. May/June 2015.Baozhen argues that a rapid development in the standard of livingand at the same time a stable and broad social protection system isattainable if ongoing reforms are delivered with success. There areseveral positive signs. Although China’s working-age population hasindeed shrunk, its employment rate has increased. In 2014, China’sactive work force consisted of 772.5 million people, 2.8 million peo-ple more than in 2013. This growth, despite a smaller working-agepopulation, suggests that many underemployed Chinese, especiallyin rural areas, are being drawn into the work force. As the govern-ment enacts policies to encourage internal migration, including therevision of the household registration system and increasing invest-ment in the mechanization of agriculture, more and more surplusunskilled laborers from rural areas will be absorbed into urban man-ufacturing and service industries.[100]Spicker, Paul: Social Policy – Theory and Practice, Policy Press,2014.[101]Stepan, Matthias – Müller, Armin: Welfare governance in China?A conceptual discussion of governing social policies and the appli-cability of the concept to contemporary China. Cambridge Journalof China Studies. Volume 7. No. 4. 2012.

The basic principles of the NUTS system arethe following:

Principle 1: The NUTS regulation definesminimum and maximum population thresh-olds for the size of the NUTS regions:

LEVEL MINIMUM MAXIMUMNUTS 1 3 million 7 millionNUTS 2 800 000 3 millionNUTS 3 150 000 800 000

Principle 2: NUTS favours administrative di-visions - normative criterion.For practical reasons the NUTS classificationis based on the administrative divisions ap-plied in the Member States that generallycomprise two main regional levels. The addi-tional third level is created by aggregatingadministrative units.

Principle 3: NUTS favours general geo-graphical units because general geographi-cal units are normally more suitable for anygiven indicator than geographical units spe-cific to certain fields of activity.

LACK OF EFFECTIVE FINANCIAL SUPPORT INSTRUMENTS

The effective implementation of EU’s re-gional policy largely relies on its financial in-struments. In the EU five major funds(European Structural and Investment Funds)constitute the financial framework of re-gional policy:

•European Regional Development Fund(ERDF) •European Social Fund (ESF) •Cohesion Fund (CF) •European Agricultural Fund for Rural Devel-opment (EAFRD) •European Maritime and Fisheries Fund(EMFF)

At the beginning of the 1970s, Eurostat (theEU's central statistical office) set up the NUTSclassification as a single, coherent system fordividing up the EU's territory in order to pro-duce regional statistics. For around thirtyyears, implementation and updating of theNUTS classification was managed under a se-ries of "gentlemen's agreements" betweenthe Member States and Eurostat – now it isrule-based. The EU rules establish stability ofthe classification for at least three years withno change. Stability makes sure that datarefers to the same regional unit for a certainperiod of time (this is crucial for statistics, inparticular for time-series analysis). Some-times however member state national inter-ests require changing the regionalbreakdown of a country. When this is thecase, the county concerned informs the Eu-ropean Commission accordingly. The Com-mission in turn amends the classification atthe end of period of stability according therules of the NUTS Regulation.

[102]The largest strike in Chinese history took place in May 2014when some 40,000 workers protested at the Yue Yuen sportswearplant in Dongguan. The reason was that a huge gap was discoveredin the pension funds of the company. The company has underpaidits pension obligations for years and accumulated a gap of USD 31million. This is in fact not a one-off event: it is common practice forcompanies to underpay pensions, while government turns a blindeye on it. The government concerned about losing manufacturingcapacities has for years allowed major factory-owning companies tounderpay pensions as kind of a “backdoor” savings. (Companies havebeen making pension payments equivalent to minimum wagesalaries rather than real wages.) This however as already stated be-fore in the chapter resulted in the huge nationwide underfundingin the pension budget. [103]See more on this at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:52010SC1564&from=EN and at:http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:52010DC0758&from=EN

Every EU region has the right to receivetransfers from the ERDF and ESF (mostlypoorer regions do so). Cohesion Fund issolely devoted to the poorest regions.

The European Regional Development Fundaims to strengthen economic and social co-hesion in the European Union by reducingimbalances between NUTS 2 regions. TheERDF focuses its investments on several keypriority areas, such as innovation and re-search; digital development; support forSMEs and low-carbon economy. The ERDFalso gives particular attention to specific ter-ritorial characteristics. ERDF action is de-signed to reduce economic, environmentaland social problems in urban areas, with aspecial focus on sustainable urban develop-ment. At least 5 % of the ERDF resources areset aside for this field, through 'integratedactions' managed by cities. Areas in a natu-rally disadvantageous situation (remote,mountainous or sparsely populated areas)benefit from special treatment.

The European Social Fund invests in peopleto improve employment and education op-portunities. It also aims to improve the situ-ation of the most vulnerable people that areat risk of poverty. More than € 80 billion isearmarked for human capital investment inMember States between 2014 and 2020,with an extra of at least € 3.2 billion allocatedto the Youth Employment Initiative. For the2014-2020 period, the ESF focuses on thebelow four thematic objectives: promotingemployment and supporting labor mobility,social inclusion and combating poverty, in-vesting in education, skills and lifelong learn-ing, enhancing institutional capacity andefficient public administration. 20 % of ESFinvestments are committed to activities im-proving social inclusion and combatingpoverty.

The Cohesion Fund is – as already men-tioned - aimed at Member States whoseGross National Income (GNI) per inhabitantis less than 90 % of the EU average. It aims toreduce economic and social disparities andto promote sustainable development. Forthe 2014-2020 period, the Cohesion Fund isopen to the following EU member states:Bulgaria, Croatia, Cyprus, the Czech Republic,Estonia, Greece, Hungary, Latvia, Lithuania,Malta, Poland, Portugal, Romania, Slovakiaand Slovenia.

[104]Member States then use the EU funds to finance programmes– thematic programmes covering the whole country (on the envi-ronment or transport, for instance) or regional programmes. The Eu-ropean Commission is not involved in selecting projects (except fora small number of major projects) – this is done by the national andregional authorities responsible for managing the programmes.These ‘managing authorities’ lay down selection criteria, organise se-lection committees and – via a project tendering procedure open toall – decide which projects will receive European funding. The pro-grammes are prepared by each Member State and/or region, and fi-nanced under the European Regional Development Fund or theCohesion Fund. For European Social Fund (ESF) programmes. ‘MajorProjects’ are usually large-scale infrastructure projects in transport,environment and other sectors such as culture, education, energyor ICT. As they receive more than € 50 million in support through theERDF and/or Cohesion Fund, they are subject to an assessment anda specific decision by the European Commission. Search the data-base for details of Major Projects.[105]http://ec.europa.eu/regional_policy/cooperate/international/china_en.cfm (EU-China Cooperative Research Programme on Re-gional Policy – Research Report of the Chinese Expert Group, March,2010.)[106]Since 2010, more than 150 Chinese decision makers from all 31provincial level regions visited EU regional policy best practices sites.[107]Song, Xinning: European 'models' and their implications toChina: internal and external perspectives. Review of InternationalStudies, Vol. 36. Issue 3. July 2010. Pp. 755-775.[108]Cohesion policy should also promote more balanced, more sus-tainable ‘territorial development’ – a broader concept than regionalpolicy, which is specifically linked to the ERDF and operates specifi-cally at regional level, but the use of these terms in practice is notreally precise. The term cohesion policy gained true relevance afterthe accession of poorer southern countries and especially once East-ern-European countries joined in 2004.

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The Cohesion Fund allocates a total of € 63.4billion to activities under the following cate-gories: trans-European transport networks,notably priority projects of general Europeaninterest, and also big infrastructure projectsunder the so-called Connecting Europe Fa-cility; environment; energy and transportprojects, as long as they benefit the environ-ment (energy efficiency, renewable energy,rail transport, intermodality, etc.) It is impor-tant to note that the payments from the Co-hesion Fund can be suspended if thebeneficiary member state has higher deficitthan tolerated by EU rules (3% of GDP).

The European Agricultural Fund for Rural De-velopment (EAFRD) is devoted to the devel-opment of rural and agricultural territories,while the European Maritime and FisheriesFund (EMFF) is directed to the fisheries andmaritime sector.

Apart from the European Structural and In-vestment Funds there are other types offunds to support either member states orstates that want to join the EU. The EuropeanUnion Solidarity Fund (EUSF) was set up torespond to major natural disasters and ex-press European solidarity to disaster-strickenregions within Europe. Also the EU has sep-arate fund for countries that are on their wayto join the EU as members (includingTurkey), the so-called Instrument for Pre-Ac-cession Assistance (IPA). The IPA is made upof five different components: assistance fortransition and institution building; cross-bor-der cooperation (with EU Member Statesand other countries eligible for IPA); regionaldevelopment (transport, environment, re-gional and economic development); humanresources (strengthening human capital andcombating exclusion); rural development.

A relatively new instrument is the EuropeanFund for Strategic Investments (in which asmentioned earlier China also indicated its in-terest to participate), which is established inclose partnership with the European Invest-ment Bank (EIB) in the order of at least €315billion in private and public investmentacross the European Union. This will espe-cially support strategic investments, such asin broadband and energy networks, as wellas smaller companies with fewer than 3000employees. The proposal also sets up a Euro-pean Investment Advisory Hub to help withproject identification, preparation and devel-opment across the Union. Finally, a EuropeanInvestment Project Pipeline will improve in-vestors' knowledge of existing and futureprojects.Besides the different EU Funds the EuropeanInvestment (EIB) also contributes to the exe-cution of EU policies through loans, guaran-tees and equity investment.

[109]EU member states have different ways of dividing their terri-tories into administrative units. But for the purposes of managingEU financed programmes and comparing statistics, the EU devisedthe NUTS system - dividing each country into statistical units(NUTS regions). The EU is currently divided into 274 ‘NUTS 2 level’regions – the most important class of NUTS levels being the basisof regional policy funding. NUTS 2 regions have from 800 000 to 3million inhabitants. [110]The five targets of the EU in 2020 are:1.Employment: 75%of the 20-64 year-olds to be employed2.Research & Development: 3% of the EU's GDP to be invested inR&D3.Climate change and energy sustainability: Greenhouse gas emissions 20% (or even 30%, if the conditions areright)20% of energy from renewables20 % increase of energy efficiency4.Education: Reducing the rates of early school leavers below 10%At least 20 million fewer people in or at risk of poverty and socialexclusion5.Fighting poverty and social exclusion: At least 20 million fewerpeople in or at risk of poverty and social exclusion

The EIB is owned by the EU member states,more than 90% of its activity is focused onEurope but it also supports the EU's externalpolicies to some extent. The EIB also providesprofessional advice and project manage-ment capacity. The EIBS four priority are in-novation and skills, SME finance, climateaction, strategic infrastructure. EIB generallyfinance one-third of the projects but some-times 50%. Its staff is around 2000 people. Itsyounger brother, the European InvestmentFund is a specialist in SME risk finance. TheEIB is the majority EIF shareholder with theremaining equity held by the EuropeanUnion (represented by the European Com-mission) and other European private andpublic bodies. From 10bn in 1988, the EIB'sannual lending jumped to EUR 79bn in 2009,and it was EUR 77bn in 2014.

As opposed to the EU China lacks such acomprehensive financial toolbox to meetlocal needs. Policy largely depends on indi-vidual central fiscal transfers and Chinahardly deploys funds or loans addressed tospecific regional issues. Thus, without a sta-ble and institutionalized financial supportmechanism, economic assistance to the leastdeveloped regions is largely funded via na-tional economic and social developmentplans.

OVER-DEPENDENCE ON GOVERNMENTAND FAILURE TO INCLUDE NON-GOVERNMENTAL ACTORS

A great achievement of China’s economic re-form over last 30 years is to diversify thesource of capital input. Less fiscal investmentfrom government, more capital resources al-located by the market, such as private invest-ment and foreign direct investment.

But the least developed regions are still over-dependent on government investment.China’s regional development still undulydepends on government investment, lead-ing to several negative consequences. Exces-sive fiscal investment may distort theallocation of capital resources and conse-quently be inefficient. In other words, thecapital is less productive. The productivity ofcapital in western areas is much lower thanthe East. In the East, if capital increases 1%,GDP will rise by 1.03%; while every 1% in-crease in capital can only deliver 0.933% in-crease of GDP in the West (Liu and Qiu, 2006).Due to a worse soft-environment, the for-eign direct investment (FDI) in the West is farbehind than that in the East. FDI plays an im-portant role in improving regional economy.It can not only provide more capital supplies,but also brings advanced technologies andmanagement experience.FDI can be an indi-cator of the quality of investment conditions,legislations, labors, and the degree of open-ness.

[111]http://ec.europa.eu/eurostat/documents/3217494/5785629/KS-HA-14-001-EN.PDF/e3ae3b5c-b104-47e9-ab80-36447537ea64[112]According to the 12th Five-Year Plan - 2011-2015 – (12th FiveYear Plan: Optimizing the structure, accelerating the coordinatedregional development and sound urbanization development) ofthe Chinese government the following are the regional policy fo-cuses (besides support to areas populated by ethnic minoritiesand border areas):1.Western region: promoting a new round of large scale develop-ment measures. Infrastructure construction; building several keyprojects of water conservation and ecological, energy projects arethe priorities, also agriculture and tourism. 2.Northeastern region: comprehensive revival the old industrialbase. Here the plan is to upgrade industry and the financial sector. 3.Central region: acceleration of development. Grain production,energy and raw material and transport, clustering.4.Eastern region: Support high-end development. Enhance inter-national cooperation, develop hi-end strategic sectors, modernservices and innovation.[113]Zhang Keyun, The Institution base of EU regional policy andChina’s regional policy in the future, March 2010

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During the period from 1987 to 2007, the FDIin the West accounted for less than 5% oftotal amount (Liu, 2009).Besides, government investments preferheavy industry and infrastructure construc-tion. The qualities of investing conditions,legislation, labor market and the degree ofgeneral economic openness in the West re-main relatively low.

Prof. Anis H. Bajrektarevic describes in thefollowing way the scenery sorroundingChina: “The Sino economy is low-wage- andlabor intensive-centered one. Chinese rev-enues are heavily dependent on exports andChinese reserves are predominantly a mix ofthe USD and US Treasury bonds. To sustainitself as a single socio-political and formida-bly performing economic entity, the People’sRepublic requires more energy and less ex-ternal dependency. Domestically, the demographic-migratorypressures are huge, regional demands arehigh, and expectations are brewing. Consid-ering its best external energy dependencyequalizer (and inner cohesion solidifier),China seems to be turning to its military up-grade rather than towards the resolute alter-native energy/Green Tech investments – asit has no time, plan or resources to do bothat once. Inattentive of a broader picture, Bei-jing (probably falsely) believes that lastingcontainment, especially in the South ChinaSea, is unbearable, and that – at the sametime – fossil-fuels are available (e.g., in Africaand the Gulf ), and even cheaper with thehelp of warships.”

Descriptive and predictive on China, prof.Anis H. Bajrektarevic concludes: “Opting foreither strategic choice will reverberate in thedynamic Asia–Pacific theatre. However, themessages are diametrical: An assertive mili-tary – alienates, new technology – attractsneighbors.

Finally, armies conquer (and spend) whiletechnology builds (and accumulates)! At thispoint, any eventual accelerated armament inthe Asia-Pacific theatre would onlystrengthen the hydrocarbon status quo. Withits present configuration, it is hard to imag-ine that anybody can outplay the US in thepetro-security, petro-financial and petro-mil-itary global playground in the following fewdecades. Given the planetary petro-finan-cial-tech-military causal constellations, thistype of confrontation is so well mastered byand would further only benefit the US andthe closest of its allies.”[114]

The Chinese government has tried to moti-vate other players' involvement by introduc-ing preferential tax measures. It did play apositive role in enhancing economic growthand also boosting corporate profits in theWest at the beginning. Tax preferences in theWest benefited state owned enterprisesmore than privately owned ones. In generalover-dependence on government policiesdoes not provide optimal results.As opposed to the Chinese practice, the out-reach of regional policy institutions towardsother (including different types of non-gov-ernmental) stakeholders is well-establishedand institutionalized. One of the key princi-ples of the management of EU regional pol-icy is “partnership”. DG Regio, as the centralhub of EU regional policy builds partnershipswith and between business, research, edu-cational and public actors. The EuropeanCommission also encourages the MemberStates and regions, as well as enterprises,universities and research centers to cooper-ate in order to maximize the effects of Cohe-sion Policy investments and other EUfinancial sources and programs.The ‘Re-gioNetwork’ is an on-line collaboration plat-form for representatives of European regionsand other stakeholders in the EuropeanUnion's regional policy.

The so-called Regions for Economic ChangeInitiative fosters networking and mutuallearning of other regions' experiences in im-proving their innovation capacity, ICT con-nections and human capital or in giving theirindustrial clusters development.

CONCLUSIONS

The European Union and China are differentin many ways. One is a confederal typeunion, the other is a country. EU memberstates are market economies, as opposed toChina which is while applying a series ofmarket based economic policy tools, still is aspecial form of a centrally planned economy.In the field of regional policy also one candetect several differences in institutions,needs, policy considerations, tools and con-crete measures. Moreover in the EU Union-level cohesion policy has an additionalfunction to nation state development poli-cies although in some poorer regions andmember states it in itself constitutes the en-tirety of development policy. And yet, thereare important lessons Chinese regional pol-icy actors can learn from the EU experience.There is a specific area where Europe mightbe able to contribute with know how: urban-ization which is indeed a key phenomenonin current day Chinese development. Thecountry was overwhelmingly rural a fewdecades ago, but 45% of people in Chinalived in cities already in 2010. That’s pro-jected to reach 60% by 2030, exacerbating arange of challenges from sanitation to theresidential status of migrant workers.Euro-pean experience can contribute in urbangovernance to establish a human-centeredurban environment for hundreds of millionsof Chinese people.

Moreover this learning process is not andshould not be a one-way exercise. The EUhas also been looking at the Chinese exam-ple as a source of inspiration, but this aspectfalls outside the scope of this paper.

As this chapter hinted, EU regional is not aperfect model, especially when efficiency isconcerned, but still has important lessons tooffer to China. EU cohesion policy has clearboundaries, rules, institutions, and financialinstruments.

Regional policy’s status and also longevity isalso guaranteed by the reference to it in thebasic EU Treaty. Cohesion policy in the EUhas a longstanding and relatively stable in-stitutional setup, and also stability in policydirections once these directions are estab-lished by the member states. At the sametime a considerable level of flexibility is alsopresent through flexibility instruments,funds and procedures. The system of re-gional demarcation in the European Union isalso dependable and stable. The fundingframework is complex but rule-based.

The planning and implementation of re-gional policy in the EU is an inclusive act:people, local institutions, market forces, re-gions, civil society are involved. In sum, thefollowing features of the EU regional policyare considered the main advantages of EUregional policy worth considering by China:

-The existence of a strong specialized insti-tutional hub to coordinate the policy all overthe EU;-Clear, effective and stable regional demar-cation regime to manage and control re-gional policy;-Robust and transparent financial supportsystem in the form of the several EU funds;-Designing and implementing regional pol-icy in partnership with a broad spectrum ofstakeholders (partnership), instead of a gov-ernment dominated investment policy.

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