Willy Lam looks at the trade offs for a Chinese-European bail out.

The financial and debt crisis plaguing Europe has given China a good opportunity for boosting its already high global profile. If Beijing can secure the diplomatic cooperation of the EU in return for substantial investments there, the Chinese Communist Party leadership can considerably lessen the pressure that the Western Alliance can put on China on a wide range of issues including human rights, Tibet and Xinjiang, as well as RMB valuation and other financial and trade policies.

Beijing has not been shy in laying down preconditions for playing the role of “white knight” in possibly buying the bonds of heavily indebted countries such as Greece, Spain, Portugal and Italy. After all, many senior cadres and government economists are against bailing out the weaker EU economies. And the central government has already been criticized by both economists and Netizens in China for buying too much (around US$1.3 trillion) American treasury bills. For the foreseeable future, the risk of buying European bonds is much higher than that of American bonds.

Conditions laid down by senior Chinese officials, including Premier Wen Jiabao, include the EU’s recognition of China as a “full market economy.” If China gains this status, it will more easily defend itself against charges of dumping and other illegal trade practices.

More significantly, Beijing wants Brussels to do away with a ban on arms export to China, which was imposed soon after the Tiananmen Square crackdown in 1989.

Already in a leaked memo late last year, Catherine Ashton, the EU’s High Representative for Foreign Affairs and Security Policy, said the lifting of the embargo could “happen very quickly.”

Since a unanimous decision among all 27 EU members is required, the removal of the embargo will be seen as a big diplomatic coup for Beijing. It is true that several EU countries have since the early 2000s been secretly selling China military technology – especially so-called dual-use technology. However, the lifting of the ban will significantly widen the choices for PLA companies’ voracious buyers. At the moment, the PLA is looking for items including avionics for jet-fighters and stealth-related electronic devices to make its submarines quieter.

In return for helping the EU with its debt problem, Beijing also hopes to persuade individual European countries – particularly less developed nations such as those in Eastern Europe – to buy Chinese technology in infrastructure and transportation.

Mei Xinyu, a senior researcher for the Commerce Ministry, said the EU must “decrease political interference in China’s investment activities” and grant full “national treatment” to Chinese enterprises based in Europe.

Despite the recent train and subway crashes in respectively Wenzhou and Shanghai, Beijing has great expectations about exporting rail technology to Eastern Europe. Such exports will bring about massive economy of scale benefits that will help lower production costs. The Chinese government is also aggressively marketing Chinese-made commercial jets, which will come into relatively large-scale production in the mid-2010s.

The most important objective that Beijing hopes to achieve by helping the EU tide over its financial crisis, however, has to do with the consolidation of the so-called G3 (Group of 3) system: a new, better-balanced world order based on give-and-take among the US, the EU and China (as well as other BRIC countries).

It has been a long-standing goal of Chinese foreign policy to drive a wedge between Europe and the US – so that these two Western power blocs cannot exert joint pressure on the PRC on both economic and political issues. For example, both Washington and Brussels have accused Beijing of unfair trading practices including keeping the value of the RMB artificially low. The American and European governments – as well as their chambers of commerce – have also made strong demands that China live up to its pledge of according “national treatment” to firms that want to set foot in China.

On the political front, both the EU and the US are sympathetic toward the aspirations of Taiwanese, as well as the Tibetans and the Uighurs. Moreover, the Western Alliance has consistently criticized Beijing’s horrendous human rights records: this was symbolized by the Western world’s massive support for Nobel Peace Prize winner Liu Xiaobo last year.

Beijing’s counter-strategy is to persuade the EU to observe the Chinese “red line” on a host of sensitive issues – for example, European ministers should avoid meeting the Dalai Lama; no more criticism of China’s policy on the RMB, human rights and so forth.

European acquiescence in Beijing’s requests will render it more difficult for Washington alone to put the screws on the CCP regime.

Moreover, the Chinese leadership is eager to get the EU’s stamp of approval for the “China model,” including the recognition that the China system of “state capitalism” does not contradict “international norms.”

Thanks to enhanced EU-China partnership, it will also be easier for Beijing to put forward its candidates for top positions in major world bodies including the World Bank, the IMF, the World Health Organization, as well as other units under the United Nations umbrella.

According to the CCP leadership’s calculations, China’s GDP will overtake that of the US in 10 years or so. However, in terms of comprehensive strength – especially technological and military prowess – China will continue to lag behind the superpower for at least a few decades. Beijing also fears that Washington will use tougher tactics to constrain China’s rise by, for example, exacerbating the so-called anti-China containment policy in the Asia-Pacific theatre. Already, Washington, in Chinese perception, is beefing up an “anti-China” defense alliance with Japan, India, Australia, Vietnam and the Philippines.

It is therefore imperative that Beijing secures the EU’s help to blunt the American juggernaut, which the Chinese leadership perceives as the No. 1 threat to the country’s national security. ■