China and the EU — partners in reform
European Commission - SPEECH/14/3 07/01/2014
Other available languages: none
Member of the European Commission, responsible for Internal Market and Services
China and the EU — partners in reform
Development Research Centre
Beijing, 7 January 2014
Good morning ladies and gentlemen,
It is a pleasure for me to be here today. I know that the Development Research Centre plays an important role in China, and provided a key contribution to the Third Plenum which paved the way for reforms for the next 10 years.
The way in which the announced reforms are implemented in a comprehensive approach will be crucial, not only for China, but for the rest of the world, including Europe.
I think you will agree that China and the European Union have much to learn from each other.
We should continue with our constant dialogue.
Exchanging experiences and looking to our shared future.
Because China and the EU are strongly interconnected.
The EU is China’s largest trading partner. China is our second biggest.
Together our economies create one-third of the entire world’s GDP. And the value of trade between us last year reached almost half a trillion euros. So the state of both our economies, and the economic, financial and political reforms we make have an important impact in each other’s territories.
Therefore I was delighted that the tenth anniversary of the EU-China Comprehensive Strategic Partnership marked the beginning of a new phase in our cooperation.
The EU-China Strategic Agenda, adopted at the last EU-China Summit in November, sets the framework for enhanced cooperation until 2020.
I - Europe has taken the right steps and is coming out of the crisis.
I speak to you today not only at the beginning of a new calendar year but also at the beginning of what we hope will be a new chapter in our economies.
We in Europe have been faced with crises - not a single crisis, but several crises - on an unprecedented scale.
Not only the financial crisis, but also economic, social, and political crises.
While the initial trigger for the financial crisis was in the US, it was aggravated by Europe’s own weaknesses. Public finances were not always well managed and there was a lack of proper economic and budgetary governance.
Over the last five years, we have taken radical steps to regulate the financial sector better, return public finances to health, and improve the governance of the euro area.
We demanded that banks hold more and better capital, that they strengthen their risk governance and curtail the excesses of the past. We created new supervisory authorities to make sure banks, markets and insurance companies are supervised adequately and in a similar way across the EU.
And we are well on the way to creating a banking union to fix the fragmentation of banking markets and break the negative link between banks and sovereigns.
The first important pillar of the banking union, the Single Supervisory Mechanism, is now law and will be implemented in November this year. The European Central Bank will become fully responsible for the banking system in the euro area at the end of this year. And the final pillar, the Single Resolution Mechanism, was recently agreed by the ministers of Finance of the EU.
This will make sure that failing banks can be wound up safely without leaving taxpayers on the hook.
We have also taken steps to improve the governance of the euro area and address problems with public debt.
The sovereign debt crisis proved that we cannot have a single currency, the euro and eighteen different economic policies.
We are fixing this by coordinating economic policies better at the European level.
And by making annual recommendations to each EU country to improve national, and European, competitiveness.
In 2013, for the first time, we launched a system to coordinate budgetary policies.
To check that each individual euro area country is keeping its budget in line with European fiscal rules. We look in particular at the impact of budgets on public debt, so that problems in one EU country do not quickly spill over into all the others.
It has not been easy. This has been a painful but necessary process.
Europe’s people have made real sacrifices; they have been faced with reduced public services and lower incomes. And consumer spending has fallen considerably, which, in turn, has had an impact around the globe, including here in China.
But we are now finally turning the corner: stability is returning to the financial sector, Europe will return to positive growth in 2014, And individual EU countries are doing what they need to do to repair their public finances.
We warmly welcome the faith that China has shown in the EU, in the euro and in the resilience of the European integration process. A strong euro is an important contributor to a more diverse Chinese economy.
As we climb out of the worst crisis in a generation, it is crucial that we do not create new imbalances. Imbalances in trade; in financial regulation; in public finances; or in currencies. They could be the spark for a new crisis in the future. And that is something we definitely cannot afford.
II - This rebalancing must be coordinated in global fora, where both the EU and China have a key role to play.
Both China and the EU think that globalisation must be organised and needs rules.
(i) We both consider the G20 as the premier forum.
It has been critically important to develop joint responses to global economic challenges.
In the last few years, the commitments we made in the G20 have been our roadmap for financial reform. Making sure that every financial product, every market and every activity is suitably regulated.
We also committed to avoid protectionism and to promote cooperative and sustainable economic policies. So that we can avoid setting the scene for another crisis as was the case in the 1930s.
(ii) But our cooperation must go beyond the G20 or the FSB framework.
To write the next chapter in our joint economic story.
The launch of investment agreement negotiations is a major step on this renewed cooperation road.
We also look forward to engaging constructively with China in the negotiations for a Trade in Services Agreement (TiSA).
And we hope that China will accelerate the process of joining the WTO Government Procurement Agreement. This would give Chinese citizens better value for money as you develop further infrastructures to cope with the challenges of urbanisation.
(iii) On the basis of this stronger bilateral cooperation, I believe we will be in a better position to push together for progress at the global level on at least four topics:
1: Financial services. There is a whole body of work to do to implement the rules already agreed and to make them work together. It is imperative that our systems be equally robust so that we can avoid a global ‘race to the bottom’.
I am thinking here in particular of the implementation of the Basel rules, addressing the risks attached to the ‘shadow banking’ sector and promoting long-term investment.
2: The whole area of trade, investment, market access and reciprocity;
Making sure that market players from one country or region can invest safely in another. Knowing that their rights will be respected, that they will not be discriminated against as regards the applicable rules; and, where appropriate; that the authorisations obtained at home will be seen as reaching similar outcomes as those in place in the host country.
3. Improving our performance on environmental issues and driving our economies through green growth.
This is something that I know was identified as a central issue, thanks to the DRC, at the Third Plenum held last November. And one that the incoming Australian G20 Presidency sees as a priority.
And 4: Finding ways to protect intellectual property rights
and exploit their value as a real asset and driver of economic progress.
Moving up the value chain is essential for China to pursue its development path.
But in order to become a truly innovative economy, China will need to promote the right policy framework. China has adopted new legislation. So we look forward to seeing it being implemented effectively.
The EU and China have established regular dialogue on this subject which gives us a useful basis from which to tackle it at the global level.
These issues show that what divides us is more than outweighed by what we share.
Many of China’s priorities are also Europe’s own. So we should work together, to make them a reality.
III - To fulfil these objectives, Europe and other regions must pursue a more balanced growth model.
In order for us to act together to make a real difference, in order to truly build a better, greener economy; a broader-based economy; a more balanced and cooperative economy; then each country and each region needs to play its part.
For its part, Europe needs to complete its recovery and restore domestic demand.
This will come by raising the level of competitiveness of our economy.
To do this, we need to make better use our own strengths including our biggest asset: the EU single market of 500 million consumers and 22 million businesses.
The single market could work even better if we could eliminate all the barriers between the 28 Member States, and remove the remaining bottlenecks.
Over the last four years, we have taken significant steps to reduce red tape for businesses, stimulate e-commerce and enhance e-government, and finally set-up a single European Patent. These are only a few examples among the comprehensive reform programme we have launched.
I believe the next step for Europe is to restore its focus on the industrial sector. After all, for every job created in the industrial sector, another two are created in related services.
We need to continue to encourage our vibrant services sector. But we also need to launch a new industrial policy by encouraging innovation, bringing together businesses, the state, universities and research centres, and investing in key sectors such as energy-efficient buildings and zero-emission vehicles.
To be frank, I think that this industrial policy should be the number one priority for the next Commission.
Of course all of these goals will be pursued in line with our international commitments in the WTO with our bilateral relationships with China and other global players, but also with developing countries.
So those are the steps we think Europe should be taking to build a more broad-based, future-focused growth model.
But China too has a role to play, particularly in reducing its own internal imbalances.
The Third Plenum and last month’s Annual Economic Conference gave the opportunity to identify new ways forward. Impressive economic, financial, fiscal and social reforms were announced there. I know that the DRC made an important contribution to these reflections.
As determined efforts towards implementing these reforms are made, key issues need to be considered.
Here in Beijing, the smog reminds you on a daily basis that environmental sustainability is not a ‘nice to have’ but a key element of every sophisticated economy.
So a new balance needs to be found between the economy and ecology.
Being in this busy metropolis also reminds us that the gap between urban and rural areas in China remains wide. Particularly with regard to the income differences.
Young people in China, in rural as well as urban areas need to be able to look forward to the future with confidence.
There needs to be a rebalancing between internal and external demand.
In this regard, we need to see greater progress towards a market-determined exchange rate.
While we acknowledge the positive developments in the recent appreciation of the renminbi.
And there needs to be a further rebalancing between public and private; the state and the market.
It is clear that the State sector, and state-owned enterprises, will continue to play an important part in China’s economy, but we strongly support the approach announced at the Third Plenum that the market is to play a "decisive role” in allocating resources.
In this context, we also welcome recent pilot projects to further open markets.
The Shanghai free trade zone is a promising experiment.
European stakeholders have high expectations of seizing new opportunities and seeing greater market opening.
Ladies and gentlemen,
Europe and China have both engaged in substantial and wide-ranging reforms to fix our financial systems and improve our economic governance.
We are true partners in the G20 and in the WTO. We need to build on these achievements to come out of the crisis stronger and to lay the foundations for a more sustainable, more balanced path to future growth.
I thank you for your attention and I would welcome your questions.