In private, senior Chinese diplomats are now openly scornful of Britain’s economic prospects and have even asked why Mr. Wen should grace such a weak trading partner with three days of his time.
Indeed, it is telling that the first stop on Mr. Wen’s tour is Longbridge, the old MG Rover car factory that passed into Chinese hands in 2005. Once a byword for poor productivity, wildcat strikes and trade union power in its British Leyland and Austin Rover days, the plant is now host to China’s biggest industrial presence in the UK. Owned by Shanghai Automobile Industry Corporation, the factory designs and assembles MG cars in the UK made from car parts manufactured in China.
However, the Longbridge site remains the only major example of Sino-British co-operation, something that the Prime Minister, David Cameron, whose advisers have helped co-ordinate the visit, is determined to change.....
On Mr. Cameron’s visit to China last year, a target was announced for increasing bilateral UK-China trade to $100bn by 2015, from its 2010 total of $63bn and Number 10 sources said yesterday that they believe that “progress has been made” on hitting that figure.
In formal business and personal conversations between Mr. Wen and the British trade minister and former HSBC chairman Lord Green, who is accompanying the premier around Longbridge today, the UK message will be about further strengthening state and business ties with a view to achieving growth and sending that bilateral figure higher.
Meanwhile, Culture, Media and Sport Cabinet minister, Jeremy Hunt, who is accompanying Mr. Wen to William Shakespeare’s birthplace of Stratford-upon-Avon, will be seeking to set up a formal structure of future summits to develop better “people” relationships between the countries with a particular focus on education, science and culture.
In London, where Mr. Wen may go, apparently, for a jog in Hyde Park, the main topics for discussion will be the weighty topics of climate change (China is now one of the world’s leaders in green technology), the global economy, international security and development.
While Number 10 was refusing to comment yesterday on what else could be on the agenda, the Middle East and the economic crisis in Greece are also expected to come up for discussion.
Yesterday, at the start of his European visit in Hungary, Mr. Wen gave a strong pledge of China’s support for the embattled euro, saying that China will buy Hungarian government bonds and “consistently” support the euro as Europe attempts to fight its way out of a sovereign debt crisis. “China is a long term investor in Europe’s sovereign debt market,” he said at a press conference with the Hungarian Prime Minister, Viktor Orban. “In recent years we have increased by quite a big margin our holdings of government bonds. We will consistently continue to support Europe and the euro.”
Whilst in the UK, the Chinese are determined to be aggressive with their British counterparts in private discussions during three days, demanding access to every area of UK technological expertise. China feels it now has the whip hand, after years of eyeing the West with suspicion. The West’s need for Chinese goods and investment (China has a significant current account surplus) are increasingly outweighing concerns about the way China does business or the low value of its currency. The UK knows it has to compete for business with other EU members as well as North and South America, the rest of Asia, Australia and Africa.
Now only 3pc of export licenses fall foul of the European Union’s “dual-use” regulations, which forbid goods to be sent to China that could conceivably be also used for military purposes.
Instead, it is British companies themselves who have held back their technology, worried that it will simply be pirated once it has arrived in China, and concerned that the playing field for foreign companies in China is still not level.
For Chinese leaders, who are used to instructing their state-owned companies in how to conduct business, the apparently laissez-faire attitude of the British Government towards its companies, is a black mark.
Similarly, the Chinese ambassador to the UK, Liu Xiaoming, has called for China to be handed the contracts to build the UK’s new high-speed rail link. “There’s a lot of talk about getting more Chinese investment but we need more action,” he said ahead of the visit.
“Chinese businesses will compare why they should invest in the UK and not in France or Germany. We need to identify flagship projects and high-speed rail might be one of them”.
Again, there seems to be a culture gap. “They are very keen to do the rail link, and they do not really understand our tender process,” said one source close to the negotiations.
China also has its own issues to contend with. Economic analysts at Credit Suisse last week revised down their forecast of China’s GDP growth for 2012 from 8.9pc to 8.5pc, still well above European levels. They said they believed that persistent inflation, slowing growth and continued fiscal tightening are likely to play out not only in the second half of this year but also well into 2012.
They also expect the financial stress in China’s small and medium size enterprise sector to spread to other parts of the economy. If the situation does not improve soon, they expect weakened demand and rising debt.
The export outlook has dimmed recently and the analysts say they would not be surprised to see zero growth in exports in the second half of this year. Meanwhile, the report expects inflation to peak soon, but say it is likely to stay at elevated levels as services inflation takes off.
So what can we expect to be achieved from the Wen visit, the fourth by a senior Chinese leader to Europe in the past six months? There will be plenty of hand-shaking and even a new slogan: “Partners for Growth”. Officials from both sides will earnestly discuss the “mutual complementarities” of the Chinese and British economies. Some deals will be signed. The Chinese have said they will leave the UK with a bounty of $4 billion worth of deals. The UK, meanwhile, says the actual value is “several hundred million pounds”.
There has been no word on whether a key deal by Diageo, the drinks company, to buy a Chinese spirits maker, will finally go through. Despite ticking all the boxes, and intense pressure from George Osborne, the Chancellor, the deal has been stalled for years by Chinese obfuscations which some say is tantamount to protectionism.
The portents for summits in between EU and China in recent years have been anything but auspicious, however, as Raffaello Pantucci points out in a paper for ISN Insights. He recalls that a 2008, summit was “spooked” by tensions during the Beijing Olympics and attitudes to Tibet. When the French and sitting EU President, Nicolas Sarkozy, made time to meet the Dalai Lama in December 2008, the Chinese responded by pulling the plug on that year’s summit.
2010 also proved tricky when Mr. Wen – who believed that China would be granted the long-awaited Market Economy Status, conferring EU recognition that China is a market economy and providing some anti-dumping protections – was instead handed a list of demands during his Brussels visit. The meeting collapsed and a planned press conference was cancelled.
This time, the constant theme of how to resolve Europe’s debt crisis will run behind the diplomacy. China, which has invested heavily in Greek infrastructure, is likely to cast itself as a magnanimous savior.
Making sure that “certain European nations” overcome their difficulties is “extremely important for us”, said Fu Ying, the vice foreign minister, last week.
But while the Chinese media will sell any intervention as a grand favor to impoverished Europe, it is worth remembering that Europe remains China’s biggest export market. And with the latest surveys indicating that Chinese factories have slowed to almost flat growth, China needs Europe to keep on buying its goods or face difficulties in what remains one of the key pillars of its economy. China may be the world’s fastest-growing major economy, but it still needs moribund old Europe....
This is China's stepping up and making a commitment to European fiscal and economic stability .... and they are putting their money where their mouth is...
Norbert Schwaiger is a true veteran of EU summits. Now in his early 70s, the amiable German recalls with relish the triumphs and disasters from 34 years of service in Brussels as if they all happened yesterday. He chats about Delors, Kohl, Mitterrand, Chirac, Thatcher and the great rows with the British over money. The epic moments of European construction, from the Single European Act in 1986 to the Maastricht treaty in 1992 and the birth of the euro in 1999, are all fresh in his mind.
To catch up with Europe's progress, Schwaiger, a former press officer who retired in 2003, returned to a Brussels summit last week to take the temperature. Much had changed. "The historical idea has faded," he said wistfully. "When we started it was about Germany and France and the Benelux countries building a new Europe to stop the endless wars. Germany, and that generation of Germans, was ashamed of Hitler. It was about creating security, a secure Europe and a secure economy. Then they wanted to have Europe as their new home country."
As EU officials from 27 countries milled around the giant Justus Lipsius building, the venue of a summit dominated by the dire economic plight of Greece and the resulting existential threat to the euro and the EU itself, the contrast in mood could not have been starker from the heyday of integration that Schwaiger had known.
The talk was no longer of high ideals and "more Europe", but of mere survival for the European project. Where they used to talk of "ever closer union" in the commission press conferences, the phrase is so now rarely, if ever, heard except when referring to history. José Manuel Barroso, the pragmatic European commission president, set his sights at this summit on "stability" for the foreseeable future, meaning the EU will do well to steady the ship in the face of Greece's financial implosion and possible exit from the single currency. Never mind any new European dreams.
From Schwaiger's perspective, one of the reasons why Europe has run out of idealism is the passage of time. He argues that Germany's postwar guilt, which did so much to power the European project, no longer drives young Germans to think about the EU as their parents and grandparents did. "In Germany the new generation, just out of school, has no memory of this," he says. Instead the young see a Germany united from its former east and west, communism fallen and a continent no longer haunted by its past or racked by the fear that it could plunge back into war. Much of Europe's original raison d'être has disappeared and Germany is now less willing to be its unquestioning, selfless paymaster.
Greece's plight has greatly sharpened the sense, evident for several years now, that Europe has lost its drive and, in some quarters, is losing its self-belief.
But some things in the European Union, particularly in Brussels, never change, and therein, perhaps, lie the roots of its problem. Outside the unreal echo chamber that is the Justus Lipsius, the building work for the EU empire of which the founding fathers dreamed continues apace. Vast new glass edifices are being erected in the perpetual chaos of dust and noise that is part of life in the EU's capital.
The physical construction of a united Europe seems to carry on in ignorance of the crises unfolding in the wider world. Up the road from the Justus Lipsius they are preparing the home for a new European diplomatic service, where many hundreds of mandarins will be based. Herman Van Rompuy, the first permanent president of the European council, briefed heads of government last Thursday night over dinner about the spanking new £280m base in which he will entertain EU leaders from 2014. David Cameron was apparently incensed and briefed the British press the next morning that European leaders did not "get it" as they showed off their "gilded cages" while Europe's citizens endured austerity and Greece was on the rocks.
Van Rompuy's talk of his new "palace" offered a perfect excuse for Cameron to court popularity at home by attacking a Europe with its head still stuck in the clouds. But whether or not it was political opportunism, the prime minister had a point. Barroso may show refreshing realism, but too many of those at the centre of the EU project still remain in semi-denial. The new pragmatists seem at odds with an old order that refuses to give up. "We do have to respond differently and too often we fail to do so. We all have to rid ourselves of this idea that we are just programmed to march ever onwards," said one EU official.
Early in 1999, shortly after the launch of the euro, Romano Prodi, then president-elect of the commission, was not content with realizing Europe's most ambitious venture thus far, the merging of 11 national currencies into one. Instead he put his foot harder down on the integration pedal. "The single market was the theme of the 80s," he declared. "The 90s was the decade of the single European currency. We must now face the difficult task of moving towards a single economy, a single political unity."
Europe worked in those days on the assumption that if it ever stood still it would fail. As a result, it went at breakneck speed and bent its own rules along the way. In the planning of the euro the desire to create a massively ambitious currency union across much of the EU was achieved only by ignoring its own economic rulebook.
In the run-up to the euro's launch, painful battles were fought between France and Germany to establish a stability pact to ensure members of the currency zone observed fiscal discipline. Euro countries, it was agreed, would have to have debt-to-GDP ratios of no more than 60% and deficit-to-GDP ratios of no more than 3%. "It was about Germany getting a stable euro, a euro like the deutschmark," observed a German official. But when the original 11 countries were admitted in 1999, no fewer than six were allowed in with debt levels well over the required level. The rules were waived as long as their debts and deficits were moving in the right direction.
In the case of Belgium and Italy, their debt was nearer 100% of GDP than 60% – but in they went. The same leniency was shown when Greece joined in 2001, with a debt ratio heading towards double the level required. "We might have been a little too relaxed with Greece," said Richard Corbett, a former Labor MEP who now works as an adviser for Van Rompuy. Within a few years, France and Germany were also busting the stability pact rules.
Twelve years on from the birth of the euro, as the EU prepares to lend more billions to Greece after an initial €110bn failed to do the trick, serious figures in the European debate now believe the euro's crisis could cause the entire EU project to implode. Sir Stephen Wall, Britain's ambassador to Brussels under John Major and Tony Blair – and no kneejerk Eurosceptic – declared recently that the EU was "on the way out". He added: "After all, very few institutions last for ever." A decade ago he could never have predicted he would say such a thing.
On Wednesday, the Greek parliament will vote on a new package of austerity cuts and sweeping economic reforms. If the vote is in favor, the EU will press ahead with its next bailout. No one is sure, however, whether pumping in more EU money will be enough to prevent Athens from defaulting on its massive debts. The fear is that it will not be, and that a Greek default will cause Portugal, Ireland and even Spain to do the same. The effects of that would be appalling, destroying the credit of banks across Europe and further afield that are exposed to Greek debt, wrecking their ability to lend, and landing the default insurance market across the globe with untold costs. The nightmare scenario is another economic crisis on the scale of 2008.
But still the idea – increasingly entertained by economists – that it could all end with Greece being forced out of the euro is not one anyone in Brussels will readily accept. "Greece leaving would just make matters worse, as the Greek currency would devalue, while its debt would remain in Euros," said Corbett. "And people would take fright and move their money out of the country."
Kostas Karkagiannis, the Brussels correspondent of the Greek newspaper Kathimerini, says the Greeks will fight to stay in the euro and the EU because it is their best hope. Greeks, he says, see the EU as a haven. "All these European laws are so much better than ours. At least with the EU laws you have a chance of them being implemented. What will happen if we leave the euro with all our debt in Euros? Think about the devaluation, think about the inflation. We will go back 25 or 30 years."
That may be the view in Greece, but the prospect of throwing so much money to the stricken country is not one that appeals to other states in an EU of supposedly equal partners. Tensions are deepening between the union's wealthier northern nations and poorer south.
The immediate challenge for Brussels is to ease the Greek crisis and hope that its economy can be revived. The aim is to get private banks that are exposed to Greek debt to exchange them for new loans. Then pray the rescue measures work. In the meantime, plans are being pushed through the European parliament to toughen up the kind of rules that were supposed to apply under the stability pact. There will be new surveillance "early warning" measures aimed at ensuring eurozone countries are not heading into economic trouble, such as unsustainable property booms.
Optimists in the EU try to convince themselves that something good could come from the crisis – meaning more economic integration and harmonization of taxes – steps towards the single EU economy of which Prodi dreamed. One of the arguments the commission deploys to calm anxiety is to make out that Europe is no stranger to crises – indeed, it says, it has always thrived on them.
Mark Gray, a spokesman for Barroso, said: "The temptation is to look back at the past through rose-tinted spectacles. But there were always peaks and troughs." He points to the queue of countries wanting to join the EU and the euro as evidence that they are more relevant than ever in a globalised world. Corbett believes that Europe could even emerge stronger. "That is what we hope will happen," he says. "But you don't hear much about that in the British press."
THE EURO: FROM IDEALISTIC BIRTH TO CRISIS....
The Maastricht treaty, negotiated in the last months of 1991, is signed, setting out a path to the single currency. Britain secures an opt-out from its final stage.
The euro is born and begins trading at $1.17. The European Central Bank takes over responsibility for monetary policy in the 11 member states. Currencies such as the franc, peseta and lira continue to circulate for the time being, but as "sub-units" of the euro.
Greece, originally omitted because of its weak economy, joins the euro.
Euro notes and coins become legal tender in eurozone countries, becoming the sole currency in all 12 by the end of February.
Following the enlargement of the European Union, several new member states join the euro: Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in 2009 and Estonia at the beginning of this year, bringing the total number of eurozone countries to 17.
The euro falls to a 14-month low of $1.25 as the growing Greek debt crisis rocks global markets.
The International Monetary Fund warns European leaders they must act to resolve the problems in Greece, or risk another financial crisis.