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China's emerging influence: threats for the EU?
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By Yuan Fang

China.org.cn correspondent reporting from Brussels

Claims that the emerging Chinese economy will pose a threat to the EU are not well-founded, said an economist in the University of Louvain, on May 27 in Brussels, Belgium.

Jean-Christophe Defraigne, a specialist in European studies, made the observation during a meeting with a group of Chinese journalists in Brussels for a media trip from May 24 to 31.

Defraigne said that concern is mounting in Europe over the rise of the Chinese economy, bringing such threats as a squeeze of industries where Europe holds no competitive advantage, or large Chinese firms taking over major western companies, etc.

The economist did not think these concerns are fully justified, pointing out that only 40 percent of China's exports are made by Chinese firms, while 60 percent come from joint ventures or foreign-based multinational enterprises (MNE).

"China has become one of the main workshops of the world, but other emerging economies like ASEAN, Brazil, Turkey and India also challenge traditional European industries at the low-tech end of the value chain," Defraigne continued. "It's a new emerging international division of labor."

Some have criticized the Chinese government for its support and aid for overseas expansion by Chinese firms. In response to this criticism Defraigne said that such state support is quite common, citing similar industrial policies implemented in some OECD countries, as well as key industry strategies in places like South Korea, Italy and France.

He also pointed out some problems in the economic growth of Chinese firms.

"In many industries they perform poorly in terms of profitability and return on capital employed; they engage in limited overseas activity compared to domestic operations; there are failures due to lack of international management know-how; there is also a lack of focus on core business," the economist elaborated.

Defraigne also noted the technological gap between China and EU. The pool of highly qualified labor available for Chinese MNEs remains limited, and China's efforts in R&D still lag behind Europe's in both absolute and relative terms (1.3 percent against 1.9 percent of GDP), while they are far below those of Japan, South Korea and Singapore (all above 3 percent).

"Even advanced firms like Lenovo or TCL do not have the profitability to engage in ambitious R&D schemes comparable to those pursued by their South Korean and Japanese counterparts decades ago," he remarked.

One factor behind the mounting concern in Europe about China's emerging economy is the knowledge gap on China and Asia in Europe, said the economist. "There are few studies on the Asian economy and on Asian society in Europe, and very few programs in universities. China for the moment is a convenient culprit for globalization forces driven by non-Chinese MNEs. This impression is reinforced by populist politicians in Europe and the US, who do not want openly to admit that they themselves benefit from this international division of labor."

The seven-day media trip was organized by the Chinese delegation to the European Commission, and aims to give Chinese journalists a close-up view of the EU institutions, with a focus on EU-China relations.

(China.org.cn May 29, 2008)

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