(This article is a compilation of Dr. Pan Xiangdong's speech at the academic forum "The 25th Anniversary of the Birth of the Euro" at Peking University)
Thank you, organizers! Today, we will mainly discuss the theme of "European political economy", then I will talk about Sino-European economic and trade relations from the perspective of "security and development", it happens that now the EU is ready to impose high tariffs on us on electric vehicles, and we are expected to adopt some reciprocal measures.
First of all, we should realize that in the past decade, the world has undergone earth-shaking changes, and in the words of the leaders, there have been "changes unseen in a century" in the world. In such an environment of great global changes, analyzing economic problems and simply looking for some laws from the data itself has pale and cannot explain the causes and consequences, and it is necessary to consider political factors and geopolitical conflict factors, which can be said to be the return of political economy, and the economy has become pediatric in the face of politics.
Since Williamson put forward the "Washington" consensus, we have always used the term "open economy" when analyzing economic issues, but now and for some time to come, we are faced with the need to be named "under the G2 pattern". Because I have been doing research in investment banks, our research conclusions will be based on asset allocation, and when the geopolitical conflict intensifies, the first thing we think of is that global investors will reduce their risk appetite and choose to return to core assets.
Now we will come back to discuss the economic and trade relations between China and the EU, and now the development of economic and trade relations between China and the EU is facing a "wall" that cannot be bypassed, that is, the "security" issue that the EU cares about. The conflict between Russia and Ukraine and the Palestinian-Israeli conflict, in addition to the countries concerned, is the European Union that has been most affected. The conflict between Russia and Ukraine first cut off the relatively cheap raw materials and energy supplies that European industry depended on, and more importantly, Europe began to worry about its own security and that the war would spread to itself.
The instability of the Red Sea has led to the impact on the trade of goods between Europe and Asia and Africa, and the impact of maritime trade will inevitably affect the price and economic development of Europe.
On the issue of "security and development," Europe will certainly choose "security," because it is at stake in its own "survival." However, Europe relies on the United States for its security and defense. Since the United States has provided it with defense and security, it is very difficult for Europe to deviate too far from the US policy in terms of economic and trade relations. As soon as there is a deviation, the "security issue" will be brought up to talk about the matter, and the war around Europe will appear like a "ghost". Let's see, the global currency settlement system (SWIFT), before the Russia-Ukraine conflict, once had the proportion of the euro rebounded, and there was a trend of replacing the dollar, after the Russia-Ukraine conflict, there was a sharp decline, and the euro not only in terms of settlement, but also in the proportion of global currency reserves. Economic and trade development without independent security and defense as a guarantee is doomed to be lame.
This reminds me of the "China-Japan-South Korea Free Trade Area" in East Asia, before the epidemic, the three countries went through many negotiations and were about to sign it, but as a result, the United States announced the deployment of the "THAAD system" in South Korea, and chose "security" on the issue of "security and development". Similarly, the security and defense of Japan and South Korea is provided by the United States, and once the United States feels that the development of economic and trade relations has deviated too far from the track they expected, security issues will be brought up to the ground, and at this time, economic and trade relations will generally be yellow.
Since Europe now cares most about "European security" and the challenge posed to it by Russia, if they think that China has provided convenience in the military aspect of the Russia-Ukraine conflict, it will definitely affect the development of Sino-European trade. Total trade between China and the EU was $780 billion last year and reached $840 billion in 2022. Last year, the total trade between China and Russia was about 240 billion US dollars, and it increased by more than 60 percent.
The level of trade between Europe and Russia is now less than 90 billion euros, and before the Russia-Ukraine conflict, it was about 230 billion euros, a decrease of about 147 billion euros, and it is still declining further. Before the Russia-Ukraine conflict, European industry enjoyed cheap energy and raw materials from Russia, and now faces relatively high prices imported from the Middle East and the United States, which is fatal for industrial manufacturing. But it can also be seen that when it comes to security and development, Europe will choose security.
From the proportion of economic and trade sales in each region, we should also see where our production capacity is mainly sold and where our major customers are.
So now the question we are facing is what to do?
In this way, I think of boxing, the opponent is too strong, so hold it tightly first, at least it can consume the opponent's physical strength, and then look for opportunities to find solutions. Therefore, in the face of the United States defining China as a competitor, whether it is imposing high tariffs or small courtyards with high walls, our choice is to unite vertically and horizontally, divide and disintegrate, and seek space for our own peaceful development.
We should see that although the EU and the United States are dependent on the United States in terms of defense, they are still relatively independent in economic and trade relations, and they are not monolithic, so in terms of the development of China and Europe, we should fully understand Europe's demands, what we uphold is to do business peacefully, we will do anyone's business, but we will resolutely not supply anyone's fire, and we will not touch the "security" border when cooperating with anyone, and the trade between China and Russia is also open and transparent. Once the conflict between Russia and Ukraine eases and the future moves towards peace, then the mustard between China and Europe will also be eliminated, so in dealing with this geopolitical conflict, we still need to promote peace as soon as possible.
Nationalism is on the rise again in the world, the United States and Europe, right-wing political forces are on the rise, and at this time we must do the opposite, and our current national situation is that it is still a developing country, and the per capita income is still relatively low. Doing more business with everyone, the people's living standards have improved, and the country has become stronger.
Thank you!