U.S.-China Economic and Security Review Commission, "Hearing: China-Europe Relationship and Transatlantic Implications," April 19, 2012

Thursday, April 19, 2012
Capitol Visitor’s Center – House side HVC-210

PREPARED STATEMENT OF COMMISSIONER CAROLYN BARTHOLOMEW

Good morning, and welcome to the fourth hearing of the U.S.-China Economic and Security Review Commission’s 2012 Annual Report cycle, which will examine economic, national security and foreign policy aspects of the China-Europe relationship. I want to thank you all for joining us today.

As trade between Europe and China grows, we want to examine how individual European countries balance their interest in Chinese investment with EU-level economic priorities vis-à-vis China. While China provides a vast market opportunity for European companies, there are also a number of areas of concern, such as intellectual property theft, forced technology transfers, and Chinese government limits on market access.

Today’s hearing takes place at an important time. With continuing concerns about the European sovereign debt crisis, there are still many questions about what role China will play in resolving that crisis. EU leadership has been trying to build support for a European Financial Stability Facility (EFSF), seeking financial help from the IMF, the United States, and other rich countries around the world. But it has been China that they have been wooing the most.

China, with its $3.2 trillion in foreign exchange reserves, seems uniquely positioned among world actors to provide funding when others, facing their own economic or political pressures, may be unable or unwilling to help. There are certainly plenty of reasons for China to do so: The EU is China’s biggest export market. Europe is struggling with economic survival and will be more open to Chinese acquisitions of European companies if it means additional jobs.

Moreover, China may be in a position to gain concessions from the EU in exchange for support. Concessions could include the granting of long-coveted market economy status and relaxing criticism of China’s undervaluation of its currency, the renminbi. Although there has been no official confirmation from the EU, some news reports allege that China offered to provide emergency financial assistance to the EU in return for, among other things, lifting the arms embargo. The embargo is a non-binding pact imposed by EU on China following the Tiananmen Square Massacre in 1989.

Like the United States, the EU has been running increasingly large trade deficits with China for many years. Coupled with China’s continued use of trade-distorting subsidies, this trend has led to growing economic frictions. Generally, American companies have the same concerns as their European counterparts, and we’d like to learn how Europe is addressing these concerns. We’d also like to identify key areas where European and U.S. interests coincide, and where the potential exists for better coordination in our respective policies. The United States and the EU have been working together to address some of the challenges posed by China’s anti-competitive trade practices. For example, The United States, EU and Japan have requested WTO consultations over China’s limits on exports of rare earths, which is a precursor to the filing of a formal complaint.

We will hear from experts on the first and second panel before lunch. We will adjourn for a lunch break at 12:15, after which the hearing will resume in this room at 1:15.

Before I turn the floor over to my co-chair for this hearing, Commissioner Blumenthal, I would like to thank House Speaker John Boehner and his staff for securing this room for us today.

PREPARED STATEMENT OF COMMISSIONER DANIEL BLUMENTHAL

Thank you, Commissioner Bartholomew, and good morning.

Next month, NATO will hold its 25th Annual Summit in Chicago. The summit will focus on three themes, one of which is the strengthening of NATO’s network of partners around the world. China currently is not one of these partners, but the upcoming summit will likely explore the possibility of enhancing NATO’s cooperation with China. This possibility makes today’s discussion of Sino-European security ties particularly timely.

Chinese cooperation with European actors on global security matters like anti-piracy, peacekeeping operations, and counter-terrorism helps to promote U.S. objectives of peace and stability in the global commons. The United States welcomes such cooperation and supports China’s will to be a responsible stakeholder in global security.

There are, however, reasons to be wary of enhanced European or NATO security cooperation with China. Not least of these reasons is the recent social media infiltration in which Chinese cyber-spies were thought to have set up fake Facebook accounts for NATO’s most senior military commander in an effort to glean personal information about him from his colleagues, friends and family. Enhancing the NATO-China relationship to a military-to-military partnership also poses the risk that sensitive NATO intelligence and defense technologies will flow to China.

In addition to examining the NATO-China relationship, this hearing will examine the nature and significance of European defense and dual-use exports to China. Even with the European arms embargo, European defense and dual-use sales to China are estimated to be in the hundreds of millions of dollars annually. Some European defense scholars have asserted that EU engagement with China in the military sphere has contributed significantly to the modernization of Chinese naval forces.

Today, we will examine these issues and attempt to discern what implications they have for the United States and the future of U.S. ties across both the Atlantic and the Pacific.

Now, I’d like to welcome our excellent witnesses to today’s hearing. These experts will offer unique insights into our questions and we thank them for their time and dedication. In particular, we are pleased to welcome Congressman Dana Rohrabacher from California, who has taken time out of his busy schedule to join us today.

We regret that although the Commission extended invitations to offices in the Department of Defense, the Department of State, and the Department of the Treasury to provide their views on these important issues, all declined to testify.

Opening Remarks
Commissioner Carolyn Bartholomew
Commissioner Daniel Blumenthal

Congressional Perspectives
Representative Dana Rohrabacher (CA-46)

Panel I: Economic Relationship and the Eurozone Crisis
Mr. Andrew Small, Transatlantic Fellow, German Marshall Fund of the United States, Washington, DC
Mr. Jonas Parello-Plesner, Senior Policy Fellow, European Council on Foreign Relations, London, UK

Panel II: Defense and National Security Issues
Dr. May-Britt Stumbaum, Head of Research Group “Asian Perceptions of the EU,” Free University of Berlin, Berlin, Germany
Dr. Øystein Tunsjø, Senior Research Fellow, Norwegian Institute for Defence Studies, Oslo, Norway
Dr. Christina Lin, Visiting Fellow, Center for Transatlantic Relations, Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University, Washington, DC

Panel III:  Relationship in the Foreign Policy Context
Dr. Gudrun Wacker, Senior Fellow, Asia Division, German Institute for International and Security Affairs, Berlin, Germany
Dr. Jonathan Holslag, Head of Research, Brussels Institute for Contemporary China Studies, Brussels, Belgium
Ms. Michal Meidan, Analyst, Eurasia Group, London, UK