1. INTRODUCTION
During the past decades, many international relations have changed. The structural power of the U.S. seems to be in decline and the European Union did not manage to really fulfill its economic and political ambitions. At the same time, many developing countries have successfully narrowed the political and military gap through their economic achievements. Here, China is of a perfect example as it managed to establish one of the greatest economies of the world today in less than twenty-five years.
Both the U.S. and the EU have anticipated on the Chinese rise by establishing bilateral relations with the country, which are primarily based on mutual economic interests. The EU has increasingly stressed the importance of a good relationship with China. For example, the European Directorate General for Trade has issued multiple communiqués that are very positive about China and its economy.
This paper aims to shed a light on the influence of the Sino-EU trade relationships on the Europe 2020 strategy. This strategy puts forward five objectives regarding employment, innovation, climate, education, and poverty, that the EU should meet by 2020 in order to establish a competitive economy. According to the European Commission’s communiqué “Trade, Growth and World Affairs”, international trade is a key element in the Europe 2020 strategy. The communiqué furthermore explicitly mentions China’s importance in this area.
For every Europe 2020 objective, this paper will carry out a literature review on both the trade and investment flows between China and the EU.
2. DIRECT INVESTMENTS BETWEEN THE EU AND CHINA
This paper will start with looking at what foreign direct investments (FDI) actually are. It will address the main reasons to make these kind of investments, and their advantages and disadvantages.
2.1. DEFINITION
Foreign Direct Investments (FDI) are a type of international investments that reveal the long-lasting intention of a company to operate in a foreign economy. It contains all the financial transactions between the investing company and the receiving actors abroad. Moreover, the investor receives a minimum of 10% of the voting power within the company abroad. Today, FDI have become key elements in international trade as they extend the manufacturing chain around the world.
FDI take place in various forms: through mergers, buy-outs, green field and brown field investments. A fusion in FDI terms means that multiple companies in different countries fuse together. In case of a buy-out, a foreign company takes over a domestic company which afterwards ceases to exist. A green field investment is a form of foreign direct investment where a parent company starts a new branch in a foreign country by constructing new operational facilities from the ground up. A brown field investment on the other hand takes place when a company purchases or leases existing production facilities to launch new production activity. (Eurostat, European Union foreign direct investment yearbook 2008 (Data 2001-2006), 2008)
2.2. REASONS
There are four main reasons as to why a multinational corporation would want to invest abroad (Cuyvers, Embrechts, & Rayp, 2002). The first reason regards vertical investments during which a company outsources a part of its production to a foreign country. In this case, the costs of production play an important role. Countries with cheaper production resources are therefore often more attractive. For example, lower production costs in China have been one of the main incentives for European companies to produce their labor intensive products in China and afterwards ship them to Europe. On the other hand, China today is investing in Europe because of its human capital.
The second reason concerns horizontal investments. Here, a company will invest in foreign countries in order to become more familiar with the foreign consumer. When a country has a big, competitive but relatively closed market (such as China) it will often pay off more to take the manufacturing process to the country, rather than to import products from outside. Because of China’s huge market and millions of potential consumers, more and more European companies are willing to invest in China. Nonetheless, Chinese companies too are interested in the European consumer who seems to be longing for cheaper products.
Thirdly, investing in foreign countries can improve the efficiency of the production process. As companies are always looking for ways to boost their production volume, they will often have to restructure their production activities. This can be done by for example relocating to a foreign country or by expanding the already existing production unit abroad. This third reason can be applied to both European and Chinese companies as an incentive to invest in each other’s markets.
Fourthly, companies aim to acquire strategic assets by taking over foreign companies. By doing so, these companies will have an advantage over their competitors and are able to get access to the market of the domestic company. This reason is very important in understanding the Chinese investments in the EU.
2.3. ADVANTAGES AND DISADVANTAGES
For the investor, there are many advantages of FDI: access to a new market, lower wages, high-skilled workers, low environmental standards, well-supplied consumers, etc. Of course not all these advantages are applicable to every country, but in general multiple of them are present (Eurostat, European Union foreign direct investment yearbook 2008 (Data 2001-2006), 2008). Furthermore, the receiving country also benefits from FDI (Seyf, 2000). Firstly, FDI are very reliable as they are not able to just leave a country when for example a crisis occurs. Secondly, FDI positively affect the trade balance both by receiving investments and reducing imports. Thirdly, it has a positive influence on economic growth as production capacities increase, more workers are hired, etc. Fourthly, foreign companies can introduce new technologies and know-how which can spillover to other sectors of the economy.
Still, FDI also have some disadvantages for both the investor and the receiving country (Rosen & Hanemann, 2011). Especially vertical investments in low-wage countries lead to the loss of jobs, capital and knowledge. Furthermore, the receiving economy often experiences a decrease in revenues from import taxes as a result of FDI. Another disadvantage of FDI is that foreign companies can sometimes produce cheaper and more efficiently than the local companies. This might lead to the latter not being able to compete with the former, and eventually going bankrupt.
3. EUROPE 2020
In 2000 the European Council in Lisbon introduced the objective to make the European Union the most competitive and dynamic knowledge-based economy of the world by 2010 (European Commission, 2010a). To reach this objective, a more sustainable economic growth, more and better jobs and a closer social cohesion were put forward. With this plan the Council aimed to assure the social economic future of the European citizens.
However, the European Union is confronted with huge structural challenges: the economic performances are very modest, the structural unemployment is rising, the upcoming globalization requires dynamic policies, climate change endangers the welfare of future generations, and the ageing society costs a huge amount of money (Hultin, 2010).
With the Lisbon strategy, the EU aimed at becoming more competitive. The plan was to focus on the areas in which the EU was already standing strong: international trade in services, internationalizing Research & Development (R&D), and access to knowledge and talent (Huang & Soete, 2007).
The Lisbon strategy however was disrupted by the financial and economic crisis and it soon became clear that the EU would not be able to reach the objectives by 2010. Moreover, many scholars believe that the objectives were quite unrealistic from the start. The Lisbon agreements consequently received a lot of criticism. It was argued that it would break-up the welfare systems of the member states rather than create social cohesion between them, and it would not enhance competitiveness but rather focus on convergence. Despite the criticism, the Lisbon strategy managed to create more than 18 million new jobs up until the economic crisis took place in 2008 (European Commission, 2010a).
When it became clear that the Lisbon objectives were not going to be reached by 2010, the EU decided to take the year 2020 as the new deadline. Concretely, the EU imposed the following objectives by 2020 (European Commission, 2011):
1. Employment: 75% of the population between 20 and 64 years old to be employed;
2. Research, Development and Innovation: 3% of the BBP of the European Union to be invested in research, development and innovation;
3. Climate change and energy: 20% less greenhouse gas emission compared with 1990, 20% of the energy to come from renewable energy sources, and energy efficiency to be raised by 20%;
4. Education: school drop-out rate to be less than 10%, and minimum 40% of the 30-34 year olds to have a higher education qualification;
5. Poverty and social exclusion: a reduce of minimum 20 million people who are or are faced with becoming victims of poverty and social cohesion.
Improving the employment rate is the top priority as every social economic project depends heavily on job-creation. Still, all five objectives are important and complementary to each other.
3.1. THE IMPORTANCE OF TRADE WITH CHINA
In its communication “Trade, Growth and World Affairs”, the Directorate-General for Trade of the EU (European Commission, Trade, Growth and World Affairs: trade policy as a core component of the EU's 2020 strategy., 2010c) explicitly points at the importance of trade in reaching the Europe 2020 strategy. It states that open economies intend to grow faster, stimulate trade efficiently, guarantee low prices, increase competitiveness, etc.
The European Commission furthermore calls attention to the fact that 7,2% of EU employment directly depends on trade, and 18% indirectly. Therefore, when creating new jobs the EU has to keep in mind its international economic position (European Commission, 2010b).
In this strategy, China obviously plays an important role. The above mentioned communication explicitly points out the significance of rising economies, with China in particular. In 2015, one third of the economic growth outside of Europe took place in China. With China as the EU’s second largest trade partner, the EU wants to enhance this relationship, and bring it to a higher level. According the European Commission, the huge export potential with China can bring about more jobs and more economic growth. However, in order to fully exploit this potential, the EU still has a lot of work to do. Therefore, the question remains whether or not trade and FDI can contribute to accomplishing the objectives of Europe 2020.
4. THE EFFECT ON EUROPE 2020
The following part of this paper will examine the impact of the China-EU trade relation on every objective of Europe 2020. Because not every objective is equally influenced by this relationship, not all objectives will be discussed as extensively as another.
4.1. THE IMPACT OF TRADE WITH CHINA
4.1.1. EMPLOYMENT
According to the European Commission, the increasing globalization and liberalization of the European economy did not directly lead to more unemployment (European Commission, 2010b). Even though international trade can lead to bankruptcy, relocation and unemployment, its overall effect is not negative. The following part of this paper will examine whether or not the Commission is right.
The relationship between international trade and employment is quite complex. It can create dynamism and efficiency in one sector, but it can lead to bankruptcy and restructuring in others (Arnal, 2011). Furthermore, in a globalized world, economies are connected with each other in such a way that the choices and developments of one country can influence the job market of others. Because every country has its own specific characteristics, it is not easy to come to one general conclusion.
In the following paragraph, I will refer to some studies that focused on respectively Germany, France, the United Kingdom and Italy, and the way international trade influenced their employment market. These four countries are the four biggest economies of the European Union. The studies however, concern trade flows in general, not between the EU and China specifically. However, these trade flows are of such volume that the conclusions can to a smaller extent also be applied to the China-EU trade flows.
Görg and Görlich (2011) find that international trade does in fact have an impact on employment in Germany. In the service industry, higher export of finished products is linked with a more unemployment. In the industrial sector, this connection is not as strong. Regarding relocation, the service sector again does not perform very well as the unemployment probability raises significantly when relocation is increased. To sum up, the increase of export and relocation in Germany does not automatically result in lower unemployment rates, especially not in its service sector.
Biscourp and Kramarz (2007) focused on France and found a negative relationship between the increase of import of finished products and employment. In this case, it are mostly low-skilled workers in big companies who lose their jobs. Furthermore, the authors find that an increase in import of unfinished goods in the manufacturing industry leads to more jobs , while an increase in export results in less jobs. Thus, the more French companies import unfinished goods, the more they will manufacture and the bigger the amount of workers.
Greenaway et al. (1998) investigated the situation in the United Kingdom and notices that between 1979 and 1991 the employment in the industrial sector has decreased significantly, but the production however remained stable, which points at a higher output per employee. This shift happened during the same period as when the UK began to seriously engage in the world economy. Greenaway et al. find that the increase in trade flows between 1979 and 1991 resulted in a decrease of labor demand in the UK, which would imply that international trade makes production more efficient, which consequently leads to more low-skilled workers losing their jobs. The authors do not make a distinction between import and export, but they do find that international trade has a negative impact on the UK’s employment rate.
Iapadre (2011) looked at the connection between the international integration of the Italian economy and its employment rates. He found that in Italy an increase in net exports have led to a higher net employment rate, especially in Italy’s traditional sectors. Still, low-skilled workers in the low-tech sectors felt the impact of the competition of low-wage countries. But because of the specialization of the high-technology industry, the overall employment rate in Italy increased. The article thus concludes that the Italy’s competition with rising economies was not as bad as one might expect.
The above mentioned articles and studies about the four biggest EU economies expose some overall tendencies. In all four countries employment rates in the industrial industry declined as a result of the increasing international trade flows, especially with developing countries, thus also with China. The low-tech sector, both in the industrial and service sector, have been affected the most by the strong international competition, but the shift to more high-technologic products and services managed to make up a little for the increasing unemployment rate. Whether or not a net increase or a net decrease of unemployment took place, varies from economy to economy. However, all the above mentioned articles show that both the increasing import from China and the increasing export to China are important factors, that will influence the achieving of the employment objectives in both positive and negative ways.
4.1.2. RESEARCH AND DEVELOPMENT
Innovation is very important in realizing economic growth, and trade is one of the most significant elements that encourages innovation. Trade influences R&D in different ways, therefore the trade flows with China can have a positive effect on the innovation objectives imposed by the EU. Once again, this paper will look at an existing study that focuses on the EU in general and not specifically on the EU’s relationship with China. However, from this general study, it is possible to draw conclusions that are relevant for the research question.
According to Kiriyama (2012), there are three big ways through which innovation is influenced by international trade. Firstly, by doing business with other countries, new kinds of knowledge will spread. This is most common in for example the pharmaceutical and chemical sector. Secondly, the import of innovative products can be an incentive to invest more in R&D as these products lead to more competition for local players. Thirdly, export is a learning opportunity which in the long term results in more know-how.
Moreover, close trade relations result in more innovation in the EU, especially in sectors in which the EU has a comparative advantage such as the pharmaceutical industry. The EU is the largest international operator of pharmaceutical products with a big advantage of the United States (Eurostat, 2010). Within the EU, Germany and Belgium are the largest importers and exporters. Furthermore, the EU remains to have a positive trade balance with China regarding pharmaceutical products. This part of the EU’s international trade is very important because it provides high profits which can be invested in R&D. These high profits are the result of worldwide sales, which in turn lead to a distribution of knowledge and technologies.
4.1.3. CLIMATE AND ENVIRONMENT
Trade with China also affects the climate and environment objectives in different ways. First of all, closer trade relationships between China and the EU result in more passengers, and part of the trade between China and the EU happens through cargo planes. However, more air traffic, means more pollution. The EU came up with an aviation tax that requires aviation companies that depart from or arrive at European airports to pay for their carbon dioxide emissions. They have to pay for the entire flight not only for the kilometers within the border of Europe (Klis, 2012). Opponents such as the U.S. and China perceive this European rule as an infringement of their sovereignty and a violation of international law. Recently, China decided to ban its domestic airlines from paying this EU tax. The EU is thus faced with a dilemma. On the one hand, they want to encourage trade with China as much as they can. On the other hand, the EU wants to reduce carbon dioxide emissions through for example the above mentioned aviation tax. How this issue will develop in the future is unclear at the moment (Centre for Aviation, 2012).
A second way in which trade with China affects the EU climate and environment objective is the import of Chinese solar panels which are significantly cheaper than the European ones. Initially, the cheap Chinese solar panels were an encouraging force for European families to invest in this green energy source (European Commission, 2012). However, because investigations showed that these solar panels were imported into the EU at dumped prices and were subsidized, and that European producers were hurt severely by the low prices of these Chinese imports. Therefore, the EU imposed anti-dumping and anti-subsidy duties on the import of solar panels from China in 2013.
Besides solar panels, the Chinese production of biofuels becomes increasingly important. It is expected that by 2020 China will produce over 22 million tons. This huge amount of biofuel can also be exported to Europe, which would contribute to the climate objectives.
4.1.4. EDUCATION
The impact of trade on education is rather small. European policy makers often stress the importance of education in reducing income inequality and improving competitiveness. Theoretically speaking, trade in developed countries – who have a comparative advantage in the high-technologic sector – results in more people pursuing a higher education. Consequently, these skilled professionals aim for sectors that are active internationally (Blanchard & Willmann, 2008).
Against this background, trade with China creates a positive dynamic to make further investments in both primary, secondary and higher education. However, there is no direct impact on the EU’s education objective.
4.1.5. POVERTY
According to the neo-classical trade theory, the income of skilled professionals in developed countries such as the EU member states increases more than the income of low-skilled workers when international trade grows. As a result, inequality will also increase (Harrison, McLaren, & McMillan, 2011).
Furthermore, according to the theory, trade with low-wage countries will result in a decreasing income for low-skilled workers in developed countries. Krugman (2008) however, states that it is nearly impossible to measure the influence of trade on salaries as the available data is insufficient. Authors (Onaran & Stockhammer, 2006; Görg & Görlich, 2011) who did try to measure the effect anyway, find that the effect of trade is rather small as wages are determined by various national factors.
To sum up, either trade with China does not have any significant influence on the EU’s poverty objective, or the influence cannot be measured.
4.2. THE IMPACT OF DIRECT INVESTMENTS
The following part of the paper will examine the influence of direct investments between the EU and China. These direct investments will affect the Europe 2020 objectives more than the above mentioned aspects.
4.2.1. EMPLOYMENT
It is a fact that Chinese direct investments in Europe create jobs and therefore help to achieve the Europe 2020 goals. However, the question whether or not the increased demand of labor forces will have a significant impact on the total employment remains unresolved. Also, will jobs in the EU disappear because of the European relocation to China? The answers to these questions will show whether or not the net effect is positive or negative.
4.2.1.1. Chinese Direct Investments in the EU
First of all, the number of employees in Chinese companies that operate in the EU is rather low. It is estimated an average Chinese company in Europe only has 15 employees (Haiyan, Zhi, & Van Den Bulcke, 2012). This rather low amount can be explained by the kind of investments that Chinese companies make in the EU. In the past, China primarily invested in distribution and wholesale, while the biggest part of employment lies in the industrial and knowledge sectors. Therefore, the fact that China’s more recent investments have been focusing more on these two sectors is positive for the employment rates. For example, between 2003 and 2008 the number of jobs in Chinese companies in Europe increased by 6% (Haiyan, Zhi, & Van Den Bulcke, 2012). In general however, the impact of the Chinese FDI on the European job market is still rather small.
Regarding this issue, Seyf (2000) started a research about the relationship between Japanese FDI and jobs in Europe. The research pointed out that this kind of relationship is not negative, but also is not convincingly positive. For example, in 1994 Japan invested more than 40 billion pounds in Europe which only produced 500,000 jobs. This number is quite low, as at that time the total number of unemployed people exceeded over 12,7 million. Seyf (2000) therefore concluded that governments should adopt another strategy when they want to bring down the unemployment rate, as attracting FDI alone is not sufficient enough.
In sum, Chinese FDI do in fact contribute to achieving the Europe 2020 objectives, but policy makers should not rely solely on this feature as it is only part of the solution.
4.2.1.2. European Direct Investments in China
In the analysis, this paper makes a distinction between vertical and horizontal investments on the one hand, and low and high-skilled workers on the other. The European jobs that disappear are mostly an outcome of vertical investments that result in the relocation of labor that employs low-skilled workers. Horizontal investments however are aimed at finding market opportunities in China, and are thus no threat to the European job market. In fact, a company that is able to expand its market, will probably increase its sales and consequently, hire more employees.
As most labor intensive businesses are already relocated today, future European investments will probably focus more on entering the Chinese market. With the Chinese market still developing, the EU might have a good chance at being a part of this market.
Furthermore, Chinese salaries have increased significantly over the past years, with as much as 20% in 2012 (The Economist, 2012). This means that China might become too expensive for the labor intensive sectors, such as the textile sector, which will eventually lead to less vertical investments in China. Because vertical investments, that often lead to the relocation of labor, are discouraged, it is therefore appropriate to say that the evolution of Chinese salaries has a positive impact on the EU’s 2020 employment objectives.
Research on the effects of relocation on Sweden, France and Italy’s job markets shows that in general relocation to low-wage countries decreases the demand for local low-skilled workers, while the demand for high-skilled professionals on the contrary increases (Temouri & Driffield, 2009). Furthermore, as branches abroad need suppliers, the local economy can take on this duty and gain from it.
Debaere et al. (2010) furthermore claim that there should be a distinction between relocation to low-wage countries and high-wage countries. In companies that invest in low-wage countries, the employment rate decreases severely compared to companies that invest in high-wage countries. In the latter, the employment rate remains steady.
To conclude, European vertical investments in China will probably result in a lower employment rate of low-skilled workers in European companies.
4.2.1.3. The Net Effect
On the one hand, Chinese investments in Europe currently have a slight positive impact on the employment rate in the EU. On the other hand, the effect of the European investments in China depends on the type of investment and the long term strategy of the investing companies.
Consequently, the net effect relies on various factors. Regarding the Chinese investments in Europe, the sector in which China invests is of great importance because not every sector creates as many jobs. Wholesale companies for example, don not require as many employees as the knowledge sector. Moreover, not every sector is equally subject to spillover effects. Sectors that are more likely to be subjected to spillover effects, also have a bigger chance to experience an increase in jobs. Furthermore, the choice of country is also very important as investments in regions that experience economic difficulties can possibly increase the local employment rate.
Still, the economic climate in both China and the EU will be crucial in whether or not these investments will actually pay off. By 2020, FDI from both actors may contribute to the realization of the EU’s objectives. We should however be aware that this alone will not be the solution to the problem.
4.2.2. RESEARCH AND DEVELOPMENT
By 2020, 3% of the European GDP should be invested in R&D. Chinese companies are investing in European research as a way to get access to new know-how and technology. For example, in 2011 the Chinese automotive manufacturing company Geely announced it would invest more than 11 billion dollars in Volvo Cars in order to produce a new type of car that is suitable for the Chinese market (Tay, 2013). Another example of the cooperation between the EU and China are the peaceful uses of nuclear energy. Both actors agreed to exchange knowledge and possibly invest in each other’s R&D. Both examples show that Chinese investment in Europe are beneficial for both parties (European Commission, 2015).
In general, most Chinese investments in the innovative sector abroad take place because of two reasons (Masso, Roolaht, & Varblane, 2010). First of all, these type of investments will help China to collect more information about the know-how and technology of its competitors, customers, universities and partners. This information can later be adopted on its own market. Second, besides gathering new strategic knowledge, China will also be able to investigate this new foreign market up close.
Most Chinese companies are to some extent still owned by the government, therefore many Chinese companies that do business with the EU are also partly owned by the Chinese government. Girma, Gong and Görg (2006) found that this does not heavily impact the way these companies invest in R&D in foreign countries. It rather depends on whether or not a company is modern and dynamic. However, the authors also find that non-competitive SOEs are sometimes discouraged to invest in innovative activities because of the huge competition from foreign companies. Moreover, companies who do invest in the innovative sector abroad, often do not want to share the obtained knowledge with other foreign countries, and will remain to invest more in their own country’s innovative sector than in foreign ones in order to preserve their technological advantage (Masso, Roolaht, & Varblane, 2010).
To sum up, Chinese investments can affect the Europe 2020 objectives in a positive way. Chinese investors seem to be interested especially in those sectors in which the EU has a comparative advantage or exclusive knowledge. Not only do these investments provide the EU with new resources, they also mean access to the Chinese consumer market.
4.2.3. CLIMATE AND ENVIRONMENT
Multinational corporations that develop technologies regarding energy efficiency and sustainable consumer goods are important actors in distributing knowledge to other countries and corporations through FDI (Brewer, 2008). These multinational corporations often buy out the small and medium-sized enterprises that create new pioneering technologies.
In recent years, the Chinese government has been more and more concerned by China’s environmental issues. By increasingly investing in European environmental projects, China has tried to acquire more knowledge as to how to make their economy more energy-efficient. Besides the Chinese government, individual Chinese companies have also invested a lot in R&D regarding ecologic technologies.
By investing in the European green sector, China is able to collect more know-how about climate and environment-friendly technologies, which it can convert into new policies and products in the future. Because of these benefits China is especially interested in European companies who develop exclusive and pioneering technologies.
These Chinese investments are desirable resources for the European green sector, which provides the EU with capital to further develop new technologies that may help to tackle the environmental issues in the future.
4.2.4. EDUCATION
In the part about the impact of trade on education, it was already stated that the development of knowledge is crucial to achieve economic growth. Research pointed out that FDI can have a direct impact on the level of education in a country, particularly on higher education. For example when foreign enterprises sponsor educational institutions. (Blomström & Kokko, 2003)
Besides this direct impact, FDI also exerts an indirect influence on education, and more specifically on the development of knowledge. Whether these FDI happen through establishing “greenfields” or by taking over existing companies, it is the new fresh input that helps to improve the creation of knowledge (Barrell & Pain, 1997). New kinds of knowledge and techniques are then distributed through spillover mechanisms. This way, this fresh knowledge, introduced by FDI, can possibly be transferred to the local economy.
The direct impact of Chinese investment seems to be rather limited as China does not invest a lot directly into European educational institutions. However, as stated above, the Chinese do invest a lot in European R&D, which leads to new creation of knowledge. China’s presence also may initiate new positive dynamics and knowledge that will eventually spillover to education. (Blomström & Kokko, 2003)
4.2.5. POVERTY
One solution to poverty is to create more jobs. However, as mentioned above, most Chinese companies are operating in the wholesale and distribution sectors. These sectors do not create a lot of jobs. The sector that creates the most jobs for low-skilled workers is the industrial sector. Investments in this sector mainly take place in CEE (Central and East European) countries, which in general have rather low living standards (Filippov & Kalotay, 2009). Besides creating jobs, FDI have also positively affected the average salaries in CEE countries. Thus, Chinese investments in the industrial sector can result into a rise of incomes.
In sum, Chinese investments can potentially affect the poverty rate in Europe in a positive way. Investments in labor intensive sectors create jobs, in both a direct and an indirect way. The negative thing however is that the regional employment rate often becomes dependent of investing foreign companies. For example, in 2008 Chinese car and electronic companies in CEE countries suffered severely from the economic crisis which put thousands of jobs on the stake. (Filippov & Kalotay, 2009)
5. CONCLUSION
This paper investigated how the trade and investment flows between China and the EU affect the Europe 2020 objectives.
TRADE WITH CHINA
Concerning the impact of trade flows, this research found that in general the influence on the Europe 2020 objectives is rather limited.
When looking at the employment rate, import and export to China have various outcomes in different sectors and countries. But overall, there is a tendency of less jobs in the European industrial and service sector, but extra jobs in the high-technological sector. Whether or not a net increase or a net decrease of unemployment took place, varies from economy to economy.
The influence of trade flows on the education and poverty objectives is not very clear. Still, this paper found that even though trade with China creates a positive dynamic to make further investments in both primary, secondary and higher education, there is no direct impact on the EU’s education objective. Concerning education, it seems that in most EU countries wages of high-skilled workers increase a lot more than the wages of low-skilled workers when international trade grows. As a result, inequality will also increase. Nonetheless, many scholars find that the data regarding wages is so inaccurate that it is hard to prove a direct link between international trade and wages.
Concerning the climate objectives, the EU is confronted by multiple dilemmas as environmental objectives and trade often seem to conflict one other. However, biofuels and solar panels may provide a positive contribution to the climate objectives of the Europe 2020 strategy.
When looking at R&D, this paper found a positive relation between trade with China and the Europe 2020 objective. The positive trade balance with China regarding pharmaceutical products, provides the EU with high profits which can in turn be invested in R&D.
In general, we could say that in none of the categories trade with China has a negative influence. However, its impact remains often quite unclear. Only for R&D we see a clear-cut positive effect on the Europe 2020 objectives. This however does not mean, that the positive influence in the other domains may become more apparent in the future.
DIRECT INVESTMENTS
Compared to trade with China, direct investments between the two actors are much more relevant for the Europe 2020 objectives.
During recent years, European investments in China have been focused more and more on penetrating the Chinese consumption market. This is a good thing as these kinds of (horizontal) investments do not have negative effects on the European employment rates. Vertical investments from the European side however have been prove to negatively affect the employment of European low-skilled workers. Chinese FDI in Europe on the other hand do in fact contribute to the creation of more jobs.
Regarding R&D, Chinese investments affect the Europe 2020 objectives in a positive way. Chinese investors are interested in those sectors in which the EU has a comparative advantage or exclusive knowledge. These investments provide the EU not only with new resources, they also mean access to the Chinese consumer market.
The same applies to the climate objectives. By investing in the European green sector, China is able to collect more know-how about climate and environment-friendly technologies, while Europe is happy to have access to new resources to further develop new technologies that may help to tackle the environmental issues in the future.
Concerning education, the direct impact of Chinese investment seems to be rather limited as China does not invest a lot directly into European educational institutions. However, the Chinese do invest a lot in European R&D, which may initiate new positive dynamics and knowledge that will eventually spillover to education.
Lastly, Chinese investments can potentially help to fight poverty in the EU. Because of Chinese investments in labor intensive sectors, more jobs will be created, and salaries will possibly raise.
GENERAL CONCLUSION
Overall, direct investments from both actors (except vertical investments from the EU) will have a positive impact on the Europe 2020. For now, this impact might still be rather small. However, if these investments increase in the future, the consequences for Europe’s objectives will evidently also increase. If the Chinese economy will remain to stand strong, it is very likely that Chinese companies will invest more and more in western companies because of their know-how and technology.
Whether or not the impact of the trade relations with China will contribute significantly to achieving the Europe 2020 objectives is not certain. However, it is clear that it undoubtedly creates a positive dynamic that will influence Europe in the long term.
To fully grasp the significance of the Sino-EU trade relations, scientific research based on complete and reliable data, is required. Only then one can conclude on future policy making options in which both the European and the Chinese sides can maximize their mutual benefits.