China and CEE perfect partners for economic pas de deux

Updated: 2011-11-25 08:51

By Wu Jiangang (China Daily)

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In world buffeted by financial woes, a new relationship beckons

As the world is shaken by economic turmoil and political leaders busy themselves with rescue plans and attend summits here, there and everywhere, it becomes clear that in trying to restore some semblance of balance, different countries need to find long-term mechanisms for doing so.

Thus the time is ripe for Central and Eastern European (CEE) countries and China to look for possibilities of economic cooperation that can benefit both of them now and in the future.

Even if the developed economies face particular problems because of the crisis, they are still powerful in education, technology, multinational companies, institutions, and other areas. What they need to do is to cut consumption or welfare, raise deposit and manufacturing investment so that they can decrease their private or public debt and improve their balance sheets. Although that can be a lengthy process, the developed economies will continue to be preeminent for a long time yet.

However, developing economies, including China and some CEE countries, may face serious problems.

China is now heavily affected by falling orders from the developed economies. CEE countries were hit by the US subprime crisis in 2008. In 2007 the average GDP growth rate was 7 percent, in 2008 it was 3 percent and in 2009 it was minus 8 percent. Last year there was a rebound, with a more respectable contraction of half a percent, but the European public debt crisis has cast a pall over proceedings.

Strengthened economic cooperation between China and CEE countries could play a role in lifting that gloom. The following are some favorable conditions for bilateral cooperation.

First, they share common history and both are now experiencing economic transitions.

Second, both are big enough. The population and area of CEE is about one-tenth that of China, but about one-third that of the European Union, which makes them good economic counterparts.

Third, they are both on the lookout for partners outside their continent and the other is the nearest strategic option. China is under high pressure to make good use of its $3.2 trillion foreign exchange reserves, and outbound investment is the best choice. But for China, there are not many choices.

Finally, their economies are highly complementary. While China has an advantage in processing and manufacturing industries and infrastructure construction, CEE countries have an advantage in automobile manufacturing, aviation, sewage treatment, brewing and bio-pharmaceuticals, life sciences and other industries.

China could help reduce living costs, and CEE countries could help China upgrade its industry. What's more, China has a huge amount of foreign exchange reserves and CEE countries have a great need for funds.

In addition, taking the economic imbalance of the world and the western development strategy of China, the cooperation can be more meaningful.

For centuries the world economy was based on land transport, before sea transport became important. Now the emergence of cheap, reliable high-speed rail and air transport is likely to mean land transport will become more prevalent as a conduit for commerce. China's western development may now become an economic driving force, since the CEE countries and the west of China are located in the center of Eurasia.

The author is a lecturer at the Management School of Shanghai University and a research fellow at the China Europe International Business School Lujiazui International Finance Research Center.