China, EU partners in reform
As we begin 2014, Europe has reached a turning point. The financial sector is more stable. The recovery of the European Union economy is expected to gather some speed this year. We are near to completing the “Banking Union”, which will ensure we have a comprehensive framework for dealing with bank crises and break the negative link between sovereigns and failing banks. EU member countries are doing what they need to do to repair their public finances. Europe must implement a wide-ranging program of necessary reforms and improve the competitiveness of the European economy.
With new leadership and renewed guidelines for reform, China, too, is poised to roll out comprehensive and deep reforms. The Third Plenary Session of the 18th Communist Party of China Central Committee in November and the Central Economic Work Conference in December paved the way for significant economic, financial, fiscal and social reforms in the country.
Both the EU and Chinese leaderships will need determination to adopt the relevant measures in a holistic and consistent way so that, despite the possibility of the process of change being painful, people at all levels of society can feel the benefits. This will happen if people in both economies can be served by greener, more balanced and more inclusive economic growth.
The EU and China are strongly interconnected. As a result, the state of our economies and the social, economic, financial and political reforms we undertake have an important impact on the other’s territory. We need to move forward together; move together in the context of our partnership in the G20 and in the World Trade Organization; and move together in our close bilateral cooperation, the latest expression of which was the EU-China Summit in November.
Over the last five years, we have taken radical steps in Europe to better regulate the financial sector, return public finances to health, and improve the governance of the eurozone. None of this has been easy. It has been a painful but necessary process, one in which Europe’s people have made real sacrifices and faced reduced public services and lower incomes. This has affected consumer spending which, in turn, has had an impact on the world, including on China.
Europe needs to complete the recovery and restore domestic demand by making the single market work even better, boosting its vibrant services economy and bringing a new dynamism to its industrial sector.
And as China develops its reform agenda, it too is aiming to regain balance in a number of areas, such as the balance between internal and external demand, between economic growth and environmental sustainability, between urban and rural areas, and between the State and the market. While it is clear that State-owned enterprises will continue to play an important part in China’s economy, the approach announced at the plenum that the market is to play a “decisive role” in allocating resources is welcome. It will be a pivotal factor in China’s growth strategy and we in Europe will be watching with interest to see how this policy is delivered in practice.
The Central Economic Work Conference identified greater openness as one of six priority tasks. This approach is welcome indeed. European stakeholders have experienced restrictions because of a piecemeal opening of markets and control of foreign investment. In key sectors such as financial services, China would benefit from more openness given that foreign banks had a market share of less than 2 percent in China in 2012.
European stakeholders remain committed to the Chinese market, and support the development of domestic consumption, services and innovation. China continues to be a priority in global strategies. There are high expectations for new developments, such as the China (Shanghai) Pilot Free Trade Zone.
The last EU-China Summit marked the beginning of a new strategic agenda for cooperation and the launch of investment agreement negotiations. We need to make sure that market players from one country or region can invest safely in another and support fair access to markets.
The EU also sees China’s accession to the WTO Government Procurement Agreement as mutually beneficial. The accession process should be accelerated. The time has now come to ensure broader market access to China’s public procurement. This would be in the interests of the Chinese people, giving them better value for their money as China’s infrastructure is being improved to meet the challenges of urbanization.
As all these reforms are rolled out, it is crucial that we do not create new imbalances in trade, financial regulation, public finances or currencies that could spark a new crisis. This rebalancing must be coordinated in global forums, where both the EU and China have a key role to play.
The G20 has emerged as the premier forum to develop joint responses to global economic challenges. Thanks to the determination shown by world leaders in that forum, many of the necessary rules have now been agreed, particularly in financial services. Now we turn to the difficult task of implementing them. As we do so, we need to cooperate closely, for instance through peer reviews, to make sure our implementation is coherent and the rules in place in each territory are equally robust and can be recognized as equivalent when appropriate.
But we need to cooperate more closely in other areas too, issues that touch our people in their daily lives, such as improving our performance on the environmental front and food safety. And we need to focus our attention on sustainable, “green” growth, and on finding ways to protect intellectual property rights and exploit their value as a real asset and driver of economic progress.
With prudence and determination, we need to build on our new strategic agenda for cooperation, come out of the crisis stronger and lay the foundation for a more sustainable, more balanced path to future growth. The author is member of the European Commission, responsible for Internal Market and Services.