Illustration: Peter C. Espina/GT

 

The European Commission has just voted against granting China market economy status (MES). The news has angered the Chinese authorities and many Chinese people. The EU's refusal came as a very unpleasant surprise, given that China has made a lot of political and economic gestures to help convince the EU to recognize it as a market economy. 

China's anger can be explained by the unfairness of the European decision. The reason given by the European Commission, which is dominated by Germany and France, is that China is not yet a "complete market economy." But these two countries are not "complete market economies" themselves. The German government and French government have intervened numerous times in their respective economic operations, particularly after the eruption of the global financial crisis and the European sovereign debt crisis. Their intervention has been even stronger at times than in China.

Regarding government intervention in the economy, we know that one of the major indicators of a market economy is its "degree of openness." But China's openness is not less than other economies at a similar stage of development. 

Furthermore, the Europeans appear to have forgotten the fact that they gave MES to the Russian Federation in 2002. No matter what kind of indicators we use, qualitatively or quantitatively, to evaluate these two emerging economies, the answer is obvious: China is much more deserving of MES than Russia was 14 years ago.  

The EU's differing attitudes toward China and Russia show the EU's lack of principles in its evaluation of other economies and whether to grant them MES. It also demonstrates the pragmatism of the Europeans, given their need for gas and other energy supplies from Russia.

The arbitrariness of the MES decision has destroyed the European Commission's image of impartiality, and will further aggravate the negative image of the EU.    

The EU has found ways to deal with the European sovereign debt crisis and banking crisis, but it is still not seeing substantial economic growth. Around 1 percentage point of GDP growth is not enough to support employment domestically, and the tepid situation in external trade cannot contribute too much to the EU economy either. It is this gloomy situation for the whole European economy that has pushed the EU to deny China MES. 

European enterprises are gradually losing their comparative advantages. Europe was the first continent in the world to embark on an industrial revolution and European firms have maintained their leading position for a long time.

But even though European firms have not become weaker, the world has changed and other economies have progressed, particularly with the rise of some emerging countries such as China. Chinese enterprises are now challenging their rivals in advanced economies around the world.

As US firms have been more responsive to Chinese firms' rise, they have reformed their structures and modes of operation so as to adapt themselves to a new global competitive environment. But France and Germany have been more conservative. That's why their enterprises and products have lost their competitive edge against Chinese enterprises and products.

Hence, it is not a surprise to discover that Germany and France are the two major parties behind the EU Commission's vote.

How will China respond to the EU's refusal to grant the country MES? I believe China should take a tough line and teach the Europeans a lesson because they need China much more than China needs them.

Certainly, the large EU market is important, but Chinese enterprises do not make a huge amount of money in the EU.

Instead, Africa is the largest overseas source of profits for most Chinese firms. European enterprises have gradually been driven out of the African market and now depend highly on emerging markets, among which China is the largest.

In other words, the EU's bargaining power is much smaller if they enter into an economic or commercial war with China.

The author is a Paris-based economist and vice-president of the China-France Association of Lawyers and Economists. bizopinion@globaltimes.com.cn