Europe: China’s Muse?
By David P. Calleo

Nearly 30 years ago, a young Chinese graduate of Shanghai’s Fudan University came to SAIS in Washington, D.C., and decided to concentrate in European Studies. He arrived fresh from a stint as a Red Guard, followed by several years of ideological purification on a pig farm. After a year in Washington, he went on to Bologna and then returned to pursue his Ph.D. His thesis, Recasting the Imperial Far East, Britain and America in China, 1945–1950, was published almost immediately. After various research and academic jobs in the United States and Europe, he was named professor of history at the University Institute of Advanced International Studies in Geneva. He remains a close friend of several of his old teachers and fellow students at SAIS.

In recent years, Lanxin Xiang has reestablished his academic connections with China—in particular with the East China Normal University in Shanghai, which has established a School of Advanced International and Area Studies, with a European Studies program very much like our own. He chairs the school’s board, and SAIS adjunct professor -Kendall Myers and this author are “advisory professors.” The dean, Feng Shaolei, visits SAIS often.

Xiang himself has a wide acquaintance in Washington, especially following a year spent recently as Henry A. Kissinger Scholar at the Library of Congress. Since going to Geneva, he has published two important books, Mao’s Generals: Chen Yi and the New Fourth Army and The Origins of the Boxer War, along with numerous articles—some focused on the Chinese-European connection. In Shanghai, he has organized several international meetings of Chinese, American and European scholars and officials. As frequent participants, we are not surprised by the extent of Europe’s and China’s mutual interest.

Attracting European Investment
What drives this interest? There are obvious economic ties. As anyone who has spent time in China knows, European firms are much in evidence. Europe’s direct investment in China rivals that of the United States and Japan. In 2003, for example, annual direct investment in China stood at $4.27 billion for the European Union countries, $4.20 billion for the United States and $5.05 billion for Japan. (From 1979 to 2002, Chinese cumulative foreign direct investment in North America was $1.27 billion; in Europe it was $561 million.)

Trade figures amplify the story. In 2005, Chinese exports to Europe totaled $116 billion, and the EU’s exports to China were $59 billion—leaving the Europeans with a bilateral deficit of $57 billion. Exports from China to the United States were $252 billion and the bilateral trade deficit was $173.3 billion. To put these figures in perspective, European exports to the United States were $251.5 billion that same year, while American exports to the European Union were $162.8 billion. As of July, China had exported $108 billion in goods to the United States and $94 billion to the EU. Europe was the second destination for China’s imports—$49 billion as opposed to $63 billion from Japan and only $34 billion from the United States. In short, the EU, along with the United States and Japan, is clearly a major presence in the Chinese economy.

In the all-important high-technology- sector, moreover, European firms may have an increasing advantage over American companies, thanks to our habit of closely scrutinizing and attempting to control technology transfers. America’s military presence and commitments in East Asia are a continuing source of tension with the Chinese. Inevitably, American firms seem less reliable suppliers of militarily sensitive goods. Europeans, lacking the same sense of military -rivalry, seem to be safer long-term trading -partners.

Of course, as the debate surrounding the EU’s embargo of arms to China has shown, Europeans are not insensitive to Chinese military potential and are subject to American pressure. Nevertheless, that pressure may grow less efficacious as the Chinese market becomes increasingly important.

Europe, like the United States, also has strong lobbies for human rights and open trade. Western standards in these matters are difficult for China to satisfy. Most important, Europe shares with the United States the problem of how to overcome the market shock of having to compete with China’s immense pool of low-cost labor. Both sides of the Atlantic are increasingly sensitive to globalization’s tendency to increase the inequality of Western incomes and, in particular, to lower the incomes of those who come in direct competition with Chinese labor. Thanks to its welfare states, Europe’s labor is perhaps better shielded, but that protection augments Europe’s very high unemployment and aggravates its already severe fiscal problems.

China as World Money Manager
While China’s remarkable economic growth attracts European capitalism to China, it also feeds anti-Chinese feeling among those who are the principal losers in the exchange—unskilled labor in particular but also industrial labor in general. In Europe, perhaps even more than in the United States, an incipient alliance exists between the urge to protect labor and the tendency to criticize China’s authoritarian regime. Both urges are infused with resentment against China’s “unfair competition”—arguably sustainable, thanks to an authoritarian regime that denies free expression and crushes labor unrest.

China’s economic relations are complicated further by China’s suddenly critical role in managing the world’s monetary system. China’s currency reserves now are roughly $1 trillion. In effect, China’s accumulation of dollars subsidizes a significant portion of America’s consumption. Should China cease this practice, the dollar would fall sharply. Presumably, Chinese trade would suffer accordingly. Europe’s current trade deficit with China is proportionally much less than ours, and the Chinese are not thought to hold large reserves of euros. But presumably a dollar that fell sharply against the renminbi would fall sharply against the euro.The whole situation points toward conflict and recrimination.

China’s rapid rise promises another major source of friction with Europe—environmental pollution and competition for energy and raw materials. Given the West’s own environmental recklessness and profligate use of energy, the opportunities for bitter recrimination all around can easily poison geopolitical relations.

The difficulties of accommodating China’s exuberant rise, peaceful or not, recall the problems that the rapid growth of Germany and the United States created for world politics at the end of the 19th century. In some senses, World War I was the terrible result.

The immense scale of China’s rise, with its huge population and very low wages, makes the problems of the last century seem trivial by comparison. Chinese economic planners must be aware of the dangers of a Western backlash. In principle, they would prefer not to follow the familiar Asian model of export-led growth—fine for small countries that do not weigh heavily on Western markets, but not for China’s giant economy. Instead, the Chinese would like to develop their own huge internal market. But whether they can control the dynamic global and national forces aroused by their galloping development remains to be seen.

In summary, America, Europe and China face a fateful political challenge. How well we all fare in this new century likely will depend on whether the -challenge can be met peacefully. The 20th century offers a great deal of instruction on such challenges, but not much encouragement.

Europe’s Role: Ally or Balancer?
What role is Europe likely to play? Does it have anything special to offer? In general, there seem to be two roles for Europe: America’s reinforcing ally or America’s friendly balancer. Which role would be more useful depends on which is the better outcome for the world’s future—American global hegemony or a cooperative balance of power system along the lines of the EU itself.

Throughout the Cold War, Western Europe played the first role. Since the end of the Cold War, Europe’s view of the international system has been changing. Whereas American post-Soviet administrations have tended to see the ideal world order as unipolar, Europeans have been inclined to see it as incipiently multipolar or plural—hence the geopolitical significance of Europe’s developing ties with China. Both a uniting Europe and a rising China are seen as signs of the plural world rapidly coming into existence.

Such a view of the future encourages both Europeans and Chinese to look for broader cultural and strategic affinities. Xiang, for example, argues that China’s early historical connections with -Europe were much more significant than is normally realized. He is much taken with the historical view, propounded by a noted school of British historians, that ancient Greece should be seen as the “West of the East” rather than the “East of the West.” He finds strong similarities between Western constitutionalism and Confucianism. He also finds a growing closeness of strategic outlooks between Europe and China. Both, he feels, are rediscovering the virtues of a “Westphalian” worldview: one where every state, large and small, has its own sovereign rights, which should be respected by all.

Implicit in this Westphalian outlook is a conservative view of the right of international organizations to interfere in the domestic affairs of nation-states. Most of all, there is a fear of would-be hegemonic powers and an appreciation for a balance of power that constrains hegemonic ambitions. This translates into a common wariness of American imperial power, seen as increasingly unilateral and supercharged with intrusive human rights, free trade and anti-terrorism ideologies.

Undoubtedly, many Europeans are, like the Chinese, chary of American power and its unilateralist habits. From this perspective, aligning China and Russia with Germany and France in the U.N. Security Council to oppose American and British plans for invading Iraq seemed pregnant with a new geostrategic order. Europeans and Americans doubtless were chastened by such direct confrontation and are reluctant to repeat it.

Nevertheless, recent months show evidence of a persisting common Eurasian interest—European, Russian and Chinese—in curbing American enthusiasm for hegemonic interventions in the Middle East. Signs of cooperation to stabilize the region have been clear since the summer of 2006. So far, there has been modest if only provisional success in stabilizing Lebanon, nudging the United States and Iran into negotiations and turning Israel away from continuing military confrontations. In effect, the EU and its states, in quiet and unostentatious concert with Russia and China, have been acting to end an increasingly dangerous and volatile situation in the Middle East.

To describe this collaboration merely as “Westphalian” is perhaps an anachronism. Instead it hints at an extension to Asia of the postwar European model for interstate relations. That model is far more developed than a simple resurrection of a Westphalian state system. In effect, with the EU, the European state system has evolved into a confederacy. Within that union, a complex of institutions and habits, in formation over the past half-century, have more or less eliminated any prospect for war among the members. Europe’s union is, of course, Westphalian in one critical respect: It does not really aim to eliminate its own member states. Instead, the EU enables its members to achieve a more practical and efficacious form of sovereignty than they could achieve outside their union.

Turning to the European Model?
Of course, the European model cannot simply be transplanted where historical conditions are not so favorable and political and economic infrastructures are less developed. And Europe has no magic formula for regional prosperity and harmony. To work, the “community method” requires perpetual negotiation and compromise. But Europe’s institutional experience in these matters is by now a considerable public good for the world. And with ASEAN and ASEAN+ 3, the Asian states have set down Europe’s path.

Arguably, Europe’s method is also -reflected in China’s effort to build a regional concert in East-Central Asia—the so-called Shanghai Cooperation Organization includes Russia along with Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Recently, China has been trying to bring India into this nexus. China’s aim, presumably, is to build an indigenous union in order to preempt the United States from marshalling China’s neighbors into an implicit anti-Chinese alliance. Rather than a bipolar Asia divided between the United States and China, China proposes an “Asian Union.”

The weakness of the scheme is that, without the United States as a balancing force, fear of China could easily stand in the way of regional collaboration. But in a region with one dominant country, the European model can provide a multilateral constitutional and regulatory framework that trammels and refines raw hegemonic power. Better yet, a bigger, more open Asian Union, with room for Japan, India, Russia and, in some fashion, Europe and the United States itself, might help to keep the Chinese embrace from suffocating its neighbors.

In Asia, the United States and Europe might play the same role of balancing silent partner that the United States assumed at the start of Europe’s own grand postwar experiment. America’s presence enabled Europe’s states to cooperate despite the horrors of World War II. The real test of China’s statecraft will be engaging Japan—the equivalent of the Franco-German reconciliation that has been the foundation of the EU.

Given all the problems that lie ahead, China’s interest in Europe is an encouraging development. The European state system has come a long way from Westphalia. If Xiang is right, Chinese statecraft has understood this. If so, Europe may have brought Asia a gift to make up for many sins of the past. n

David P. Calleo is the Dean Acheson Professor, director of the European Studies Program and university professor of The Johns Hopkins University.