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NEW EUROPE

Against the backdrop of recent strategic decisions in Beijing and the EU-China summit that marked the beginning of a new 10-year cooperation agreement, New Europe is focusing on this new era in the relationship between two of the worlds major actors.
CAI YUEzhOU

DUNcAN FREEMAN

WANG XIAOchU

FRAsER CAMERON

EU-CHINA
HOU YONG ZhI GONG SEN LI JUNRU LI LIN

PHOTO: BY FRIENDSOfEUROpE

DAcIAN CIOlO

A New Era of Cooperation and Understanding


A SPECIAL REPORT ISSUE#1068 FEBRUARY 2014
LONG GUOQIANG

GUsTAAF GEERAERTs

YANG YANyI

LI PING

02 FEBRUARY 2014

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EU China cooperation - A new ambition for a knowledge-based agriculture


By DACIAN CIOLO
EU Commissioner for Agriculture and Rural Development

The demographic challenge on global food demand is staggering: we have to get ready, by 2050, to feed 9 billion people on planet Earth

EU Agriculture Commissioner Romanian Dacian Ciolos (R) visits Spanish cheese factory Casa Macan, in Lugo, northern Spain. 

EPA/ELISEO TRIGO

have been privileged to visit China three times, in 2011, 2012 and in 2013. I also welcomed the Chinese minister of agriculture during one of his visits to Europe, aiming to facilitate a better mutual understanding of our agricultures and rural areas, of our strengths and potential of cooperation. These exchanges provide building blocks for stronger cooperation in the future. This matters not only because China and the EU are key trading partners including in food products but also because agriculture is of strategic importance for us both in addressing the core challenges we face as economies and societies in the decades ahead: ensuring food security, fighting climate change, and achieving a balanced development of rural territories. Following the 2012 agreement for a cooperation plan on agriculture, that has already started producing concrete results, I believe there is still an enormous potential for development for the benefit of both parties. We are stepping up our collaboration in eight areas identified as common priorities, from the quality policy and the Geographical Indications (GI) to the quality and safety of food products, from the sustainable use of natural resources to rural development and diversification, from a better repartition of the added value in the food chain to animal health. We are also working on sectors such as wine, milk and agro-tourism and setting up a common platform for research and innovation. Our cooperation is about enhancing mutual trust and dialogue on norms and standards of production and also about increasing trade. In Europe, we like to say that Necessity is

the Mother of Invention. Over and over again, we, as humans, have shown a formidable ability to be inventive and innovative when faced with new challenges. In China, a lot more has to be done in the field of agriculture. The task ahead is huge: China has to feed 1.4 billion people over 20% of the worlds population, with only 8.5% of the worlds arable land and 6.5% of worlds water reserves. The situation is further complicated by the internal migration from rural to urban areas. The demographic challenge on global food demand is staggering: we have to get ready, by 2050, to feed 9 billion people on planet Earth hopefully offering better living conditions and secure access to safe and quality food to our people. The impact of certain farming techniques, leading to the over-exploitation of natural resources and to negative impacts on the environment, has certainly been damaging, even if the costs of these collateral effects are difficult to evaluate. So, to cut a long story short, we must produce in a better way. We must learn to consume differently, to reduce food waste in the food chain. Fundamentally, this implies a shift towards a different growth path. This is the path taken by the new Common Agricultural Policy that entered into force on the 1st of January this year. But on this path, we should not walk alone. We need to meet this challenge together, or we will fail together. Climate change and environment-related uncertainties require a combined investment in best practice to achieve a global step change in our approach to agriculture. We will all invest massively in agricultural innovation and

we can learn from each other. Economic insecurity also affects all of our farmers and undermines their capacity to plan and invest. The unprecedented volatility of the markets, and the difficulty this creates for rural communities that are dependent on agriculture further exacerbates the growing gap between the standard of living in rural and urban areas. These three uncertainties create instability and call for action at local, national and international level. The cooperation between Europe and China, two of the largest agricultural producers in the world is a key for success on all these fronts. During my official visits there I understood better how broad the field of our cooperation could be. From sustainable resources management - priority of the European Innovation Partnership - to reducing disparities between rural and urban areas, and to improving food quality, food safety and healthy lifestyles, we can achieve more together than alone. I am very pleased that the first steps have been taken. During the last EU-China Summit we signed a Letter of Intent on cooperation in the area of research in food, agriculture and biotechnologies. This new initiative will mean EU and China have committed themselves to develop joint research initiatives, scientific exchanges and projects using their respective programmes in this area. Of course, all the facets of this special relationship with China will always be viewed by both of us as a whole. So our trade relationship must be part of this picture. In agriculture, figures are showing that the relationship to date is a positive one and we are seeking to build on this. We have started a very successful dialogue on qual-

ity products which led to the registration of 10 Chinese GI quality food products in Europe and 10 European GI quality food products in China. Negotiations on a possible bilateral agreement on Geographical Indications are ongoing. The exchanges continue on the EU China organic food equivalency arrangement, and steady progress is being done on the roadmap agreed in 2012. Last year, we signed in Beijing a letter of intent regarding fighting counterfeiting in trade in GI alcoholic beverages. Both parties acknowledge the growing importance of bilateral trade in alcoholic beverages, realize the importance of origin identification and see the need to cooperate closely in combating counterfeiting in this sector. This will have positive effects on the economic and trade aspects, but also regarding public health and food safety. It will bring benefits not only for producers, but also for consumers who will continue to enjoy safe, diverse and quality products. Sometimes, while working together, we see that we have different approaches, as we are also supporting our specific interests. But to sort out these differences its important to build on the elements of trust we have, to make efforts to understand each other in a frank manner, looking at building a long term relationship. I strongly believe that we can work through these challenges and build on these policy initiatives to deliver the win-win potential which certainly exist for us both in the area of agriculture. I am committed to this and to a long term relation with China. And strongly believe that the broader strategic challenges facing global agriculture mean we must succeed, together, in this common endeavour.

A NEW ERa OF COOPERaTIOn anD UnDERSTanDInG


By YANG YANyI

EU-CHINA
Ambassador of Peoples Republic of China

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The reforms in China and the EU testify to their resolve to restructure their economies and promote balanced and sustainable development

Reform and sustainability have been on the Beijing and Brussels agenda. 

EPA/HOW HWEE YOUNG

Reforms in China and the EU offer new opportunities of cooperation


Plenum has set a clear timetable to complete the reforms by 2020. The Central Economic Work Meeting held last December placed reform and innovation at the centre of Chinas economic and social development. The new reform programme aims to redress the lack of balance, coordination and sustainability in Chinas development, and resolve issues of immediate concern to the public. It also endeavours to improve administrative efficiency and promote fairness and justice to uphold social harmony and stability. The EU has been carrying out massive reforms to tackle the sovereign debt crisis and advance European integration. I am delighted to note that the reforms are paying off and that the EU economy is recovering and growing. As a firm supporter of European integration, China welcomes further progress in this area. The reforms in China and the EU testify to their resolve to restructure their economies and promote balanced and sustainable development. These efforts will provide new opportunities for greater cooperation between China and the EU. On the economic front, both China and the EU are committed to promoting open and transparent markets and fair competition. Chinas efforts to build a modern market economy that is open and rule-based will provide a level playing field for European companies in China and boost two-way trade and investment. Trade between China and the EU grew by 2.1% to over $559bn in 2013 and the first round of negotiations on a bilateral investment agreement has been concluded. This gives us full confidence in future cooperation in trade and investment, the engines of development for both sides. In science and technology, both China and the EU are committed to achieve innovationdriven development. Chinas efforts to further reform its science and technology management system will offer incentives to companies to innovate and boost productivity. The EU, a world leader in science, technology and innovation, has recently launched Horizon 2020, the worlds largest research and innovation programme. If we can strengthen cooperation in research and development between businesses, universities and research institutes, we will be better-positioned to meet challenges in the fields of energy, food security, agriculture, biology, aviation and water scarcity and give new impetus to bilateral relations. In urbanisation, the China-EU Partnership on Urbanisation will be a new highlight. China is making rapid progress on this front. Its efforts to improve integrated urban-rural development and promote people-centred urbanisation represent a new powerhouse for Chinas sustainable economic growth. As a forerunner, the EU has a wealth of expertise in this area, and there is enormous potential for cooperation between us. The two sides are set to intensify dialogue on urban planning, infrastructure and urban-rural integration, and advance pragmatic cooperation between cities, parks and companies in a bid to upgrade urban development. With regards to environmental protection, green growth will be the strategic priority for both China and the EU. China will improve its environmental policy, set the bar of ecological protection high, build a market-based system for allocating natural resources and implement an ecological compensation policy. In the framework its 12th Five-Year Plan (20112015), China will invest over 600bn in environmental protection, ushering in a golden era of green growth. It is important that China and the EU work together to establish a strategic policy framework for green and low-carbon growth and launch more flagship programmes of cooperation in green industry and environmental protection. In so doing, the two sides can maximise the synergy between Chinas environmental initiative and the EUs strategy for resource and energy efficiency, and thus better mitigate climate change and protect the environment. In 2014, China will jumpstart its comprehensive reform programme, while a new political and economic landscape will take shape in the EU. The China-EU 2020 Strategic Agenda for Cooperation has charted the course for our cooperation and set the stage for the next decade of our comprehensive strategic partnership. This year will also see frequent high-level visits and interactions. It is such an honour and pleasure to serve as Chinas ambassador to the EU at a time when opportunities of cooperation abound. I am confident that with concerted efforts we will embrace a more rewarding decade in bilateral relations and contribute more to peace, development and prosperity worldwide.

hina has unveiled a master plan for a new round of comprehensive reforms that include opening the countrys markets up to the world. Approved at the Third Plenum of the Communist Partys Central Committee last November, the new reform programme will not only have profound influence on Chinas development, but also create opportunities for cooperation with Europe and beyond. The magnitude of the reform is unprecedented, as the Third Plenum has identified more than 300 measures to achieve 55 main objectives across 15 areas. Some of the objectives, such as sustainable development and innovation, are shared by China and the EU. The new reform drive has the following features: First, it is extensive, covering economic, political, cultural, social and environmental dimensions. This five-in-one approach is imperative as China is navigating uncharted waters in its reform process. Second, it has clear priorities. Economic reform is the centrepiece, accounting for over half of all the objectives. This is because the problems China faces are all linked to development, and therefore ensuring sustainable economic development remains our top priority. Third, it has a strong mechanism for effective enforcement. A Central Task Force on Deepening Reform has been established and many reform measures rolled out. We are moving faster to reform the administrative approval system and abolish the system of re-education through labour. In addition, the Third

04 FEBRUARY 2014

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Chinese dream and Sino-Europe relationship


By WANG XIAOCHU
Vice Chairman of the Foreign Affairs Committee of the National Peoples Congress of China

What is Chinese Dream? President Xi Jinping, of China pointed out that the greatest aspiration of the Chinese people since the modern age has been to achieve the great rejuvenation of the Chinese nation. This is what we call the Chinese Dream. Anyone familiar with the modern history of China knows that after the Opium Wars in China in 1840, the Chinese nation was subject to bullying and oppression by the big powers. But the Chinese people never gave in. At the beginning of the 20th Century, Dr. Sun Yat-sen, the forerunner of democratic revolution in China, first came out with the slogan to revive China, and the Chinese people, generation after generation, had fought hard and fearlessly, leading to the founding of the Peoples Republic, achieving national independence. And then, after ceaseless efforts, China embarked on the road of reform and opening-up, starting the course of modernisation. Therefore, we believe the Chinese Dream is a historical process, which is deeply rooted in the Chinese history. Then what is the connotation of todays Chinese Dream? It includes the prosperity of the country, the rejuvenation of the nation and the happiness of the people. According to this, China has set two goals. First, from 2010 to 2020, to double its GDP and average per capita income, establishing, as the Chinese say, a well-off society in all aspects. Chinas GDP in 2010 is about 6 trillion US dollars and it is expected to reach 13 trillion by 2020. Second, by 2050, to build China into a modernised socialist country which is prosperous, strong, democratic, and harmonious and China would catch up with moderately developed countries. The Chinese Dream is a dream of the nation and, at the same time, a dream of each and every Chinese. The starting point and ultimate goal is to offer all Chinese access to better education, more stable jobs, better income, more reliable social protection, better medical care, better living conditions and a more beautiful environment. It provides opportunities for Chinese people to grow up with the country and realise their individual dreams for a better life. This is why, when the idea of Chinese Dream was put forward by the new Chinese leadership, it was immediately embraced by the general public and has become a grand goal that unites all forces in China. This Chinese Dream is deeply rooted in Chinese history crossing 200 years, it takes great scale involving 1.3 billion people, and it covers extensively all aspects of peoples lives. Thus, it is not an empty slogan, but a vision of the nation, an aspiration of the people, a goal for hard work, and guidance for the government. How to realise the Chinese Dream? President Xi Jinping pointed out: To make the Chinese Dream come true, we must follow the Chinese path, we must foster the Chinese spirit, and we must pool the countrys strength.

Chinese President Xi Jinping met with Claude Bartolone, President of the French National Assembly, in Beijing on 23 Jan. 2014. The meeting marked the 50-year anniversary of France establishing diplomatic ties with China.  AFP PHOTO/GOH CHAI HIN

With 35 years of reform and opening to the outside world, China has sustained high-speed development. The GDP increased from 268.3 billion US dollars in 1978 to 8,355 billion US dollars in 2012, and China turns into the second largest economy in the world. The country has resolved the long-standing problem of food and clothing supply, lifted over 200 million people out of poverty, universalised nine-year compulsory education, built up a social security system with 1.3 billion people in basic medical insurance and 800 million people in basic oldage insurance, which is the largest social security system in the world. The 35 years of reform and opening-up has found China a development approach compatible to its national conditions, an approach we call socialism with Chinese characteristics. Only through this way can the Chinese Dream come true. Of course, as the largest developing country, China is faced with many grave challenges in its course of development. While its economy is the second in the world, its per capita GDP is still positioned behind the 80th. Although it maintained fast economic development, emerging problems become more prominent, including resources bottleneck, environmental pollution, traffic congestion, and food safety. While its society is full of vitality, it also faces challenges such as the urbanisation of 600 million rural population, employment for 25 million new entrants each year in urban labour market, and more conflict of interest in different social groups. The Chinese leadership clearly recognised these challenges, and therefore put forward a scientific outlook on development featuring putting people first. They stress the importance of economic development, and call for comprehensive and coordinated development in economic, political, cultural, social and ecological fields, transforming the development pattern. Efforts will be made to stabilise growth, adjust structure, expand domestic demand, secure employment, improve peoples

well-being and safeguard social justice, as well as to promote industrialisation, informatisation, urbanisation and agricultural modernisation. The 3rd Plenary Session of the 18th Central Committee of the Chinese Communist Party concluded a few weeks ago has made the decision to deepen reforms in all fields. It calls for further reform of economic system, focusing on ensuring market to play the decisive role and further opening of the economy. It also outlines the road maps for reforms of political, cultural, social and ecological systems. The decision has opened a new chapter for Chinas reform and will strongly promote development in the country to make Chinese Dream come true. What does the Chinese Dream mean to Sino-Europe relations? I think it means opportunities for development and cooperation. President Xi Jinping has stated: China will unswervingly follow the path of peaceful development, and unswervingly follow the win-win strategy of opening-up. In todays world, the development of China could not be separated from that of the world, and vice versa. The realisation of the Chinese Dream can only be a process of peaceful development, a road of opening-up and cooperation, and through the strategy for mutually beneficial and win-win result. China is determined to cooperate with other countries to find a new approach to the peaceful rising of a big country. I believe the process to achieve the Chinese Dream will bring opportunities for Sino-Europe relations at least in three perspectives. First, a more prosperous China will greatly broaden economic cooperation and trade between China and Europe. In 2003 the bilateral trade was only 125.2 billion US dollars and in 2012 it grew to 546 billion. In 1985 China purchased its first Airbus plane, while, in 2012, 853 Airbus plans were flying in the mainland, and another 60 were ordered by China in 2013. The

further expansion and development of Chinese economy, especially with its focus on expanding domestic demand, will provide greater market opportunities for European companies and give stronger impetus to our relationship in economy and trade. Second, a more open China will provide broader platforms for a China-EU comprehensive strategic partnership. In recent years, ChinaEU cooperation features higher level, wider coverage and closer contact. The establishment of over 60 consultation and dialogue mechanisms stands as proof. The 16th China-EU Summit was just concluded with fruitful results. In realising the Chinese Dream, we are required to learn from all human civilisations and to pursue dreams together with Europe and the rest of the world to achieve win-win outcomes. The further expansion of Chinas opening-up will continue to broaden and deepen the cooperation between China and Europe. Third, a more harmonious and stable China will better support China-EU cooperation in responding to global challenges and safeguarding regional and world peace. China-EU relationship is among the most important bilateral relationships in the world. To strengthen ChinaEU cooperation is beneficial, not only for the two parties, but also for world peace, stability and prosperity. A more harmonious and stable China will give stronger support to China-EU coordination to meet challenges, to involve closely in international economic governance, and to promote the establishment of a more fair and rational international economic and political order. In conclusion, I would like to stress that the Chinese Dream is not only a dream of rejuvenation and development, but also a dream of harmony and peace. It is our sincere wish that with mutual respect, China and EU could join hands in building a peaceful and prosperous 21st Century where everyones dream can come true.

A NEW ERa OF COOPERaTIOn anD UnDERSTanDInG


By GUSTAAF GEERAERTS
Director, Brussels Institute of Contemporary China Studies (BICCS), Vrije Universiteit Brussel (VUB)

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hinas choice for a modernisation strategy based on export-led growth has turned China largely into a trading state heavily dependent on commerce and economic cooperation with other major economies in the world. The way the Sino-EU relationship has developed over the past three decades is most illustrative of this development. From the very start, this relationship was based on prospects of profitable trade and economic complementarity between a developing and developed economy. This division of labour was at the basis of a solid and fast developing economic and trade relationship. While three decades ago, China and the EU traded almost nothing, now they form the secondlargest economic cooperation in the world. However, the logic of the Sino-EU relationship has been changing. The Great Recession has laid bare the imbalances of both the EUChina trade relationship and Chinas growth model. The Eurozone crisis in tandem with the slowdown in the United States has disclosed that China cannot count indefinitely on rising trade surpluses to absorb the growing distortion between what it produces and what it consumes. The challenge for Chinas leadership is to rebalance aggregate demand, shifting the economy away from fixed asset investment and exports towards domestic consumption. Pushing through such fundamental restructuring would not only be in Chinas interest, as it would create avenues for sustainable domestic growth. A growing domestic market would also offer new export and investment opportunities to European businesses, thus creating possibilities for alleviating the EUs trade deficit with China and shaping the boundary conditions for a more balanced trade relationship. While the Third Plenum of the 18th Party Congress on November 12 has indicated once more that it has become widely accepted in policy-making circles in Beijing that China must make the transition to a growth model that is more consumption-driven, much will depend on whether Chinas leadership is able to muster the required political support for a change-over from export- and investment driven growth to a new growth model, one that is labour intensive, consumption-oriented and driven by rapid expansion in the services sector. The main issue is that a sustainable growth model necessitates sharp reductions in credit expansion and investment so as to increase household wealth and income, thus enhancing domestic consumption. In other words: a sizeable slowdown in GDP growth cannot be avoided, unless Beijing would like to walk the disastrous road of ever-rising debt. A major hurdle to take are the main beneficiaries of imbalanced growth, i.e. the export sector, stateowned enterprises, coastal provinces, the real estate and construction industries, and Chinas banks. These stakeholders have gathered an ever-stronger influence over economic policy and are most resistant to policy reforms aim-

The third plenum: a boost for the EU-China relations?

A container ship arrived at the port of Qingdao on 20 Jan. 2014. Future reforms may see a downturn in Chinese exports, which would affect Chinas coastal cities.  CHINA OUT AFP PHOTO

ing at reducing or reversing household wealth transfers. In their view, limited administrative tweaking will suffice to improve consumption levels without any real necessity to lower investment growth. Judging by the 60-point Decision on Several Major Questions about Deepening Reform, the odds are that the new leadership is determined to side-step opposition from conservatives and vested interests and has set out an ambitious agenda to restructure the roles of the government and the market. Already now, many analysts and commentators have suggested the reform plan is potentially historic and may become of a similar magnitude as the Third Plenum in 1978, which instituted Deng Xiaopings economic reforms to put China on the path to becoming the worlds secondbiggest economy. Potentially, it is also on a par with the Third Plenum in 1993, where market reforms were installed that further modernised Chinas economy and paved the way for membership of the World Trade Organization. A major pledge of the reform plan is to give markets a decisive role in key areas of the economy such as pricing of resources and the financial system. In this vain, it repeated the partys earlier pledges to let the market determine prices of key resources such as water, oil, natural gas, electricity and transport, and called for an acceleration of moves to let the market determine interest rates. And while the reform outline does not challenge state-owned enterprises directly it envisages making them more efficient and more profit-oriented, turning them into private-like economic entities. Moreover the reform package opens avenues

A major pledge of the reform plan is to give markets a decisive role in key areas of the economy
for the private sector, both domestic and foreign, to compete with state-owned enterprises. That is a necessary move if China wants to make its economy more efficient and ultimately more innovative. The plan also included steps to boost Chinas urban population. In Beijings judgement, helping hundreds of millions of rural dwellers migrate to the cities is key to inject a more sustained development path in the worlds second-largest economy its advance up the value chain and wealth creation. It envisages a relaxation of the controversial household registration (Hukou) system and thus commits the central government to managing most of the countrys pension systems, health care, education and social security programmes. Most importantly, Xi Jinpings programme essentially calls for the government to retreat from its role in allocating the basic resources of capital, energy and land, a move that is bound

to substantially boost economic efficiency. However, it will come at the cost of depriving the central government of an important tool of macro-economic management, and local governments of treasured channels of patronage. To counterbalance this retreat from direct market interference, the reform plan spells out the areas in which public goods provision by the government must be improved: macro management and regulation, public service delivery, management of social stability, and environmental protection. The vision seems to be for China to move closer to an economy where the government plays a regulatory, rather than a directly interventionist role. In short: a socialist welfare state with Chinese characteristics, the success of which must ultimately corroborate Beijings model of responsible government. The reform programme reveals Xi Jinping as a powerful and visionary leader, who is leading the Party to redefine the basic functions of market and government, and in so doing has chosen to step in the pragmatic footsteps of Deng Xiaoping. The Third Plenums approval of the formation of two high-level Party bodies, a Central Leading Group for Overall Reforms, and a State Security Commission to oversee the nations pervasive security apparatus, indicates that Xi Jinping is adroitly establishing the institutional conditions for overcoming resistance and achieving his aims. Whether he can deliver on these grand ambitions, and whether his approach will be successful in redirecting Chinas economic model, remains to be seen. But one thing is crystal clear: Xi Jinping has taken up the gauntlet.

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Prospects for EU-China relations


By FRASER CAMERON
A former British diplomat and senior EU official, is Director of the EU-Asia Centre in Brussels.

The High Level Strategic Dialogue will be the main platform to build common ground in tackling difficult issues such as nuclear proliferation, cyber security, organized crime and regional conflicts
Despite the official rhetoric EU-China relations are a long way from fulfilling their potential. But two events last November may have opened the door to a much closer and substantial relationship. The first event was the historic third plenary session of 18th CPC Central Committee which took a number of far-reaching decisions on economic reform. The Chinese leadership was well aware of the dangers facing the Chinese economy and the plenary agreed reforms which, if implemented quickly and efficiently, will move China more towards a market economy and thus respond to peoples needs. This in turn will open up new prospects for closer EU-China cooperation. The second event was the EU-China summit that agreed to open negotiations on an investment treaty and also adopted the EUChina 2020 Strategic Agenda for Cooperation, a visionary document that sets out common aims and objectives in a number of important areas. The summit was also characterized by a new openness in the dialogue between leaders. In contrast to previous summits when leaders usually read prepared statements, the November summit saw a genuine dialogue with the tone and style of the meeting being quite different to a decade ago. This is encouraging.

Introduction

A luxury sports car store readies for its grand opening in a Beijing shopping mall on 17 Oct. 2011. The third plenary session of 18th CCP Central Committee last November looked to reform the Chinese economy and put a greater focus on domestic consumption.  EPA/ADRIAN BRADSHAW

Many of the economic decisions of the CPC plenary will have repercussions for Europe. The overriding motive was to reduce state involvement in the economy and give more focus to the market. The transformation of the Chinese economy into one driven

The third plenary impact on the EU

by domestic consumption will be beneficial to European companies and especially the services sector. But this will not happen overnight given the many vested interests surrounding the state owned enterprises. Indeed perhaps the key question concerns the speed and effectiveness of implementation of the reform programme. In some areas, such as the internationalization of the Yuan, China has shown it prefers to move cautiously. In other areas, such as green growth, China has moved ahead with great speed. The spectacular growth rates in China have resulted in considerable damage to the environment, a fact acknowledged by the new leadership. The plenum stressed that green growth was essential for sustainable development. EU-China cooperation in this area is already creating new business opportunities for Chinese and European companies. The potential is huge and both sides should ensure this continues to be a top priority for cooperation. Green growth has implications for climate change and energy policy. It also is a main feature of urbanisation and here the EU and China are already cooperating in a useful way through the EU-China Urbanisation Partnership Forum. More Chinese are living in cities than ever before and this very useful Forum is designed to share experience on urban planning and design as well as urban socioeconomic issues. The EU and China both face many common challenges including youth employment, social welfare, demographic ageing, as well as migration flows and cross-country mobility. The reforms announced at the plenum should provide further opportunities for EU-China

cooperation in these areas. The principal driver of the bilateral relationship, however, will continue to be trade and investment. The EU and China enjoy one of the worlds biggest and most dynamic trading relationships. Both sides share responsibility for ensuring that their economies remain key drivers for global economic growth and providing prosperity for all. At the November summit, it was agreed to start negotiations on a comprehensive EU-China investment agreement that will provide for the progressive elimination of restrictions for investors to each others market. The investment treaty negotiations will be a major test for EU-China relations. It will require both sides not only to establish the rules of the game but also to engage in a much needed dialogue about the definition of a market and the extent of the states role in the economy. To quote Herman van Rompuy how can we develop a level playing field for European and Chinese economic operators? China accounts for less than one per cent of ODI in Europe, a tiny figure given the size of the Chinese economy. Chinese and European companies often complain about alleged discrimination in each others markets. A good investment agreement should go a long way to resolve these issues. Following the plenum, the menu for EUChina economic cooperation is large and covers areas such as customs, taxation, intellectual property, standardisation, the stability of financial markets, e-commerce, consumer safety, energy efficiency, agriculture, transport and information technology. While the bilateral relationship is hugely important it is important not to forget the multilateral dimension. In De-

cember the WTO had an important success at Bali. China and the EU need to build on this success and redouble their efforts to achieve a conclusion to the Doha Development Round.

It was fortuitous that the plenum was followed soon after by the EU-China summit. This not only gave the EU leaders an early opportunity to hear the future course of Chinese policy from the horses mouth but it also provided the launch pad for a new era of cooperation. Under the 2020 agenda both sides agreed to intensify cooperation on major issues. The first was peace and security where cooperation has been steadily growing in recent years. The High Level Strategic Dialogue will be the main platform to build common ground in tackling difficult issues such as nuclear proliferation, cyber security, organized crime and regional conflicts. As a first step the summit identified the importance of enhancing the bilateral dialogue on Africa, Central Asia, Latin America and the respective neighbourhoods of the EU and China. Both sides also agreed to reinforce cooperation in regional and multilateral fora such as the UN, ASEM and ARF. Another useful step will be deepening cooperation on defence and security issues, especially maritime security, counter piracy and disaster relief. Other priority areas under the 2020 agenda include sustainable development, trade and investment, and people to people exchanges. There are encouraging signs of progress in all these fields and with the goodwill generated by the last summit the prospects for EU-China relations have never been better.

The Summit and the 2020 Agenda

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The challenge of changing china


By DUNCAN FREEMAN
Senior Research Fellow Brussels Institute of Contemporary China Studies

A man cycles past a demolished hotel in Beijing on 7 Jan. 2014. The hotel, after surviving years of state planning, once symbolized the hope of Chinas past market reforms.

AFP PHOTO / TOM HANCOCK

hina has laid out the map for the path of its future reform. Successfully implementing the reforms proposed at the 3rd Plenum of the 18th Central Committee of the Chinese Communist Party (CCP) will be a difficult and complex task for China, but they will also represent a challenge for Europe. The Decision on Major Issues Concerning Comprehensively Deepening Reforms adopted following the 3rd Plenum set out broad principles of reform as well as identifying specific areas that will be targeted. The challenge to achieve results will be considerable, and not just because Chinas leadership recognized that there are many areas that require urgent reform. The CCP has given itself a deadline of 2020 for achieving significant results in reform and it is already 2014. If that deadline is to be met, then there is little room for delay or mistakes. As is often the case with such policy documents in China, the details are left to be developed later. However, if the reforms outlined are successfully carried out, they will amount to a transformation of China in a number of important areas. They will potentially have an impact on the same scale as the reforms that have transformed China in the last 30 years. Indeed, from the point of view of the CCP, they are being portrayed as the launching of a new era of reform in the same way as happened at the 3rd Plenum of the 11th Central Commit-

While the reforms proposed may help positively change the relationship with the EU, they will not reduce the fundamental challenge that China represents
tee in1978. Though arguably this time there is greater clarity about the path forward, since in 1978, no such document was produced. A number of key points have been widely noted. The role in theory given to the market has been augmented. It is now should have a decisive role. In theory this has major implications, although in practice what this may really mean is still not clear. Two reforms that have already been enacted have received wide attention, the abolishment of the labour reeducation system and the reform of the family planning policy. This last, while attracting considerable press coverage outside China, will have only marginal economic impact. However, there are other areas, which have received much less attention, but are potentially more important. One of the questions the 3rd Plenum Decision raised is property rights. The issue of property rights is a fundamental and neglected issue in both the urban and rural economies. It is related to reform of state owned enterprises and expansion of the role of the market, but

also development of the agriculture sector. In each case the lack of clarity and certainty of property rights is a key impediment to development. Another fundamental question raised at several points in the Decision is the divide between urban and rural China. The 3rd Plenum Decision includes a commitment to reduce the barriers between the rural and urban economies in China. This touches on issues such as land ownership, real estate markets and movement of labour in the household registration system (hukou). The removal of this fundamental divide will have a huge impact on future development in both rural and urban China, especially on urbanization, which is intended to be a key driver of economic growth. A third area raised at several points is the tax and fiscal systems. Experiments are already occurring with property tax and reform of Business Tax and Value Added Tax, which if implemented will have major implications for government revenue raising and the role of real estate development, as well as the balance of industry and services in the economy. One key problem addressed is the sustainability of local government revenue and expenditure and the relationship between central and local government finance. This will have a huge impact on the government itself, but also on the economy, as this is at the heart of the political economy model that has driven the Chinas economic development at the local level for many years. Already details of some of the policies are emerging, as they have even prior to the Plenum, and the Chinese media are filled with discussions and debates on the next steps forward. Many of the reforms have already been previewed in experiments that were begun in

selected localities even before Xi Jinping and Li Keqiang came to power. The reforms outlined, if successful, will bring about considerable change in China. Since China now has an impact on the world, this will naturally affect Europe, and the relationship between the two. The Decision is probably the most important policy document produced by any government in the past year and is far more significant than any of the faltering steps produced in the EU to tackle its problems since 2008. Since the economy is at the core of the relationship between the EU and China, this is where Chinese reform will have the greatest impact. The cumulative impact of the reforms will be a more market driven Chinese economy, where the state will have a central but more circumscribed role. It will be more open, but also a more competitive economy, both domestically and internationally. It will be an economy with certainly slower, but possibly more stable and sustainable growth. For the EU, rapid reforms China will be a challenge. While the reforms proposed may help positively change the relationship with the EU, they will not reduce the fundamental challenge that China represents. The greatest challenge for the EU will be in Brussels. Even during the leadership of Hu Jintao and Wen Jiabao, when reform was much slower, the EU institutions have great difficulty in keeping up with the transformation of China, resulting in some cases in major policy failures. The EU will need to think seriously about how the reforms being proposed will change China and its relationship with Europe. There is of course a risk that reform will not be successfully implemented. If they fail, the challenge for Europe will be even greater.

08 FEBRUARY 2014

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A NeW ERA OF COOPeRATION AND UNDeRSTANDING

EU-CHINA

By PROF.LI PiNG & CAI YUEZHOU


Senior Research Fellow, Director-General , Institute of Quantitative and Technical Economics (IQTE), Chinese Academy of Social Sciences (CASS) Associate Senior Research Fellow, Institute of Quantitative and Technical Economics (IQTE), Chinese Academy of Social Sciences (CASS)

Balance government -market relationship


Make China an innovative country

Malfunction and absence of the government has become the institutional obstacle to the construction of an innovative country

eshaping the government-market relationship is an integral requirement to transform the economic development mode and to build an innovative country. Since technological innovation is featured by high profits, high risk and spill-over effects, we should give full play to the decisive role of market mechanism and the guiding role of the government control. Only by doing so can the quality of economic development be improved and the economic development mode transformed fundamentally.  . Building an Innovative Country I Requires Coordinating the Government-Market Relationship The purpose of building an innovative country is to enhance the capability of independent innovation and make innovative activities the fundamental support for upgrading the industrial structure and transformation of the development mode. Therefore, it is essential to coordinate the relationship between various players, such as enterprises, governments, colleges and universities, researchers, venture capital and technological intermediaries, and to build and improve the countrys innovative system and pool the resources of the whole society for the innovative activities. On the one hand, whether the innovative capacity can be enhanced and the innovative activities can be implemented is determined by enterprises and researchers. Full play shall be given to the role of the market in value discovery and the individual actors shall be encouraged to engage in the innovative activities by incentive motivation, so that more social resources can be pooled for innovative activities. On the other hand, the innovative activities tend to be influenced by market failure, which is represented by spill-over of the innovative products and high risk of the innovation process. For the sake of prudence and financial safety, enterprises and researchers choose to avoid the innovative activities in most cases. The risk and cost of the innovative activities cannot be compensated and the market failure

Investors watch stock prices at a securities exchange house in Shanghai, China on 02 February, 2009. Stocks around the world tumbled recently as the Chinese government has ordered a further clampdown on excessive bank lending to prevent hyper growth and inflation, signaling the importance of the Chinese economy on the world stage.  EPA/QiLai SHeN

cannot be offset unless we implement such policies as financial subsidies and tax breaks and strengthen the regulation on intellectual property protection. In addition, sometimes individual actors engage in the innovative activities solely because they are interested in these activities. Therefore, the government departments shall guide effectively to inspire them to be devoted to innovation.  I. The Malfunction and Absence of I the Constrains of the Building of an Innovative Country Malfunction and absence of the government has become the institutional obstacle to the construction of an innovative country. The malfunction and absence of government has seriously impacted the optimal allocation of science funds in basic and theoretical research and exploration. For one thing, the scientific management departments fully intervene in approval, implementation and evaluation of the scientific research projects. The complicated declaration and examination process will not only waste the researchers time and energy, but also create possibility for the rent-seeking and corruption of the project managerial personnel. For another, when guiding the direction of scientific exploration and promoting cooperation between colleges and universities and enterprises, governments at all levels cannot provide sufficient public services, so that a lot of scientific achievements cannot be applied in industrial production effectively and the supporting role of the science and technology in economic growth is weakened.

In terms of industrialising the scientific achievements, the industrial regulations and rules cannot be adjusted in time to adapt to the change in the development of emerging technologies, which constrains the supporting role of the emerging technologies in industrial development and economic growth. Take for instance the internet of things. Its final product (service) is to provide a comprehensive solution as required by the customer. According to the existing regulations, the enterprise which provides the solution shall have relevant qualifications, e.g. first-grade certification of the system integration and computer software standards. However, most companies of the internet of things have the advantage in research and development of radio frequency chip but do not have other qualifications required, therefore they cannot conduct businesses smoothly. Besides, innovative activities are severely constrained by overlapping mandates among different government agencies, lack of coordination between governmental departments and conflict of interests among them. III. Government Functions and Policy Choices in the Building of an Innovative Country In order to accelerate the building of an innovative country, efforts shall be made to properly define the government functions, remedy and offset market failure and create a good external environment for the market mechanism to play a decisive role. Firstly, efforts shall be made to share risks, compensate the cost and correct the market failure caused by high risk and spill-over of the

innovative activities. In terms of specific policy choices, we can offer financial subsidies and tax breaks and strengthen intellectual property protection. Besides, we can provide more public services for the innovative activities, such as organizing research and development of generic technology, enhancing building of the scientific infrastructure and facilitating operation of enterprises, especially the small and medium-sized enterprises. Secondly, efforts shall be made to perfect relevant systems and mechanisms and remove institutional obstacles in industrial access and factor mobility so as to create a better institutional environment for all social resources to be pooled for the innovative activities. Thirdly, efforts shall be made to encourage the individuals to engage in innovative activities by creating a good social environment. Peoples scientific literacy shall be raised by popularising scientific education and spreading the modern scientific knowledge. More efforts shall be made to stimulate the interest and enthusiasm of teenagers in scientific exploration and technological innovation. Fourthly, efforts shall be made to create more market demand for the promotion and application of the innovative products and new products. Niche markets shall be created for the innovative products at the early stage of development by government procurement and demonstration projects. The market barriers among regions caused by protectionism shall be eliminated. Enterprises shall also be provided with support in policies and information to expand the international market and participate in the international competition.

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Social sector reform in China: building an inclusive system


By GONg SEN
Deputy Director, Research Department of Social Development, Development Research Center of the State Council

FEBRUARY 2014

09

More attention is required to developing human capital, increasing efficiency in the use of human resources, and promoting economic growth, fiscal sustainability, social mobility and social justice

A Chinese bicycle mechanic sits by his stall on the roadside in a residential district in Beijing. 

EPA/HOW HWEE YOUNG

ince reforms and the process of opening up started in the late 1970s and early 1980s, Chinas social sector, including the labour market and social welfare, has undergone continuous institutional change. The Third Plenum of the 18th CPC Central Committee in November 2013 outlined a series of specific reform objectives for the next decade, which included major reforms touching upon vested interests. Social reforms can take many forms. From the perspective of Daron Acemoglu Azeri and James A. Robinsons notion of an inclusive society leading to increased prosperity, there are three critical stages of Chinas social reforms. The first two decades of reform and opening up saw social reforms aiming to gradually remove barriers to labour mobility, and maintain the competitiveness of the national economy while promoting full employment. At this stage, promoting efficiency lays at the heart of the governments reform effort, given the problems and lack of efficiency associated with excessive egalitarianism and iron rice bowl legacies of the planned economy. Although the system of household registration still exists, these early reforms addressed the main obstacles to labour mobility between regions, notably as regards mobility from rural to urban areas. However, labour and social protection laws and regulations were largely inexistent at this time. Those in place faced serious challenges to their implementation. Nevertheless, the new highly mobile labour force sustained the competitiveness of the Chinese economy to a large extent over the long-term, resulting in more

employment for rural migrant labour and consequent poverty alleviation. According to the World Bank, this increased mobility of the labour force has contributed at least 20% to the Chinese economic growth over the years, and decreased the number of rural dwellers living in absolute poverty by more than 60%. In the first decade of this century, the focus was on strengthening social protection to ensure the benefits of reform and opening up are shared across the population. Equality and efficiency were equal priorities for the government. In terms of human capital, the government increased its investment in education and health care. As for labour market regulation, there were continuous improvements in collective wage negotiations and minimum wage regulations. China also put in place at record speed a series of social protection measures. In less than two decades, China established a social protection system covering pensions and basic medical care for both urban and rural populations, unemployment benefits, maternity, health and hospitalisation insurance for urban employees, as well as a social relief system that provides basic food and shelter to more than 7 million people. According to the World Bank, the OECD countries spent decades on building comparable social welfare systems, while this achievement is still far off for most middleincome countries. In recent years, the focus has shifted to social investment and promoting equal opportunities. The new Chinese leadership has priori-

tised ensuring a basic level of social protection for all, while avoiding excessive dependence on welfare services. Although attention should be paid to economic transformation and the social needs of an ageing society, more attention is required to developing human capital, increasing efficiency in the use of human resources, and promoting economic growth, fiscal sustainability, social mobility and social justice. The current government is therefore committed to developing social services of supporting the aged and early childhood education, realising the full potential of the labour force, and increasing the employment rate. More importantly, the Third Plenum of the 18th CPC Central Committee outlined reforms to be deepened in the areas of education and healthcare based on increased financial investment, aiming at promoting equal opportunities in the development of human capital and social mobility. As for equal opportunities in education, China has already introduced four major reforms. The first was to abolish the differentiated categorisation of schools during the period of nine-year compulsory education, and to actively promote a regular exchange system amongst teachers and principals. A second reform was to move from recruiting students to elite high-schools from the city at large to introducing quota per junior high-school on an equal basis. The third major reform was to allow children of migrant workers to sit entrance exams in their city of residence rather than of household registrations under certain circumstances.

The fourth was to broaden university recruitment from poorer areas. In 2013, the quota for students from such areas will rise to 30,000, from 10,000 in 2012. With regards to promoting equal access to medical services, the Third Plenum introduced reform measures on the remuneration of medical staff, establishing a fixed salary system, and ending the artificial link between the prescription of treatment and doctors income, which led to cases of unnecessary or inappropriate treatment. The reforms aim to ensure that new investment in the healthcare system is duly reflected in improved public goods and welfare. It should be noted that the aforementioned reforms in education and healthcare systems will likely encounter considerable resistance from certain vested interest groups. In order to promote these reforms, the new leadership has ensured oversight by establishing a leading group for reform at the highest level, as well as several high-level working groups for social reforms. Daron Acemoglu and James A. Robinson pointed out that establishing an inclusive system is by no means an easy or natural process. They underestimated, however, the determination and capabilities of the current Chinese administration to promote an inclusive society. Over the last 30 years, starting with Deng Xiaoping, Chinas leadership has successfully led the Chinese people from poverty to prosperity. Over the coming two to three decades, the new leadership will overcome the existing obstacles, establish a prosperous, strong and civilised society, thereby realising the Chinese dream.

10 FEBRUARY 2014

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A NeW ERA OF COOPeRATION AND UNDeRSTANDING

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Chinas new urbanisation and its challenges

Rows of apartment buildings seen from the air on the approach to Shanghai, China on 01 July, 2011. While China rapidly urbanized from 20 percent in the 1980s to almost 50 percent today, further urbanization is likely to be slower as a myriad of problems from housing, pollution, to income gap is starting to show their effects.  EPA/QILAI SHEN

By LI JUNRU
Member of the 11th CPPCC (Chinese Peoples Political Consultative Conference) Standing Committee and the former Vice President of the Central Party School.

he Third Plenary Meeting of the 18th Congress of the Chinese Communist Party noted that the main obstacle to Chinas balanced urban and rural development is the dual structure of town and countryside. The Congress concluded that, to overcome this problem, integrated structures and mechanisms are needed, as are efforts to shape new types of industry-agriculture and urban-rural relationships. In this vision, industry will stimulate agriculture, cities will stimulate the countryside, and rural dwellers will participate equally in the process of modernisation and share its fruits. It is therefore imperative to accelerate the development of new types of agricultural management systems, increase property rights for farmers, ensure the equal value of urban and rural production and a balanced allocation of public resources, and perfect healthy urban development systems. Urbanisation in China bears on the countrys sustainable development and its growth engine. The Nobel Prize-winning economist and former World Bank Vice President Joseph Stiglitz once noted that Chinas urbanisation and the United States high-tech development will be the two key phenomena that shape the world in the 21st Century. Chinas rural surplus labour force currently accounts for between 170 and 200 million people. In 2011, Chinas urbanisation rate surpassed 50% for the first time, reaching 51.27%.

In this scenario, Chinas urbanization rate will increase by 1% annually, which means approximately 13 million people will move to cities each year
It is estimated that by 2020, Chinas urbanisation level will reach 60%. In this scenario, Chinas urbanisation rate will increase by 1% annually, which means approximately 13 million people will move to cities each year. Such mass migration of rural surplus labour force into the cities is hardly realistic, not only because land and water resources are scarce; the financial resources of the State are also under formidable strain as the quality of urban transport, environment, health, and security, among others, are deteriorating. Thus, it is argued that the urbanisation of the rural population should be encouraged at the prefecture level, into small to medium-size cities and towns rather than into big cities. The Chinese governments notion of new people-cantered urbanisation emphasises the interests and welfare of farmers throughout Chinas industrialisation and agricultural modernisation process. On the one hand, the farmers should be able to increase their disposable income through the modernisation of agriculture as well as new rural developments. On the other hand, once adapted to urban liv-

ing and integrated into urban communities, farmers can also be the driving force behind new consumption patterns. Instead of massconstructing new cities and developing the real estate industry, new urbanisation should reform the existing household registration system, abolish its urban-rural divide, so that migrant farmers can make a decent livelihood as new urban citizens. For many people, household registration reform and abolishing the division between urban and rural dwellers are preconditions for realising the notion of new urbanisation However, it is not so simple. Research shows that two-thirds of migrant workers do not want to give up their rural household registration. Once they give up their land and homestead, they lose benefits from the preferential policies to which they are entitled. Instead, farmers want to have access to better education and healthcare as urban citizens, while keeping the basic benefits based on their agricultural and residential land registration. This is the problem facing policy-makers dealing with urbanisation, highlighting Chinas characteristics as a developing country. In order to promote the new urbanisation, the implementation of the land transfer system should be comprehensive, allowing farmers who work in cities to legally transfer their land contract to others. This transfer method can take the form of subletting, mortgaging, transferring the contract rights or dividing the rights into shares, all of which must be conducted on a voluntary basis. In 2012, a large-scale rights authentication exercise was conducted across rural China confirming the contractual status of all agricultural land, and that the conditions are in place for the implementation of such a land transfer system. As a result, rural land ownership contract rights and management

rights can be clearly divided and migrant farmers can become urban citizens, who no longer run businesses on their contracted land, but can still benefit from their ownership of the land and the income it generates. In conclusion, in order to promote new urbanisation, the household registration system not only requires reforming, but the land system reform needs deepening. In future, Chinas urbanisation process will develop at three levels. The first level centres around Chinas three mega-cities: Beijing as the centre of Bohai Rim, Shanghai as the centre of Yangzi River Delta and Guangzhou as the centre of the Pearl River Delta city clusters. The second level encompasses the medium-sized capital cities at the provincial level. These cities will be the growth engines for the development of their provinces. Given that a province in China is comparable in terms of population and area to a country by European standards, it is imperative to allow the provinces to take the initiative in promoting urban development, absorbing rural labour and providing impetus to industrialisation. The third level is that of the township, centred on local counties. Local counties are the principle destination of migrant workers, and this local employment will be a key feature of Chinas new urbanisation. This new pattern of Chinas urbanisation reflects a consensus reached in the process of Chinas reform and opening-up, as well as how urbanisation has developed in practice over the past decades. It also represents a major policy decision by the Chinese government, to make urbanisation the growth engine for Chinas sustainable and healthy economic development, but also a major channel for Chinas social transformation, and have invaluable influence on Chinas modernisation process.

A NEW ERa OF COOPERaTIOn anD UnDERSTanDInG

EU-CHINA
By HOU YONG ZhI
Research Department of Development Strategy and Regional Economy, Development Research Centre of the State Council

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FEBRUARY 2014

11

The past and future of chinas urbanisation

ince the founding of the Peoples Republic, Chinas urban landscape has undergone an extraordinary, albeit uneasy, process of change. In the age of planned economy, urbanisation in China experienced long-term stagnation, due to the low level of agricultural productivity and the endurance of traditional rural mindsets. Between 1952 and 1978, the rate of urbanisation increased from 12.5% to 17.9%, growing by just under 6% over a period of 26 years. Since China began its process of reform and opening-up, urbanisation has accelerated with rapid industrialisation and increases in labour productivity. Between 1978 and 2012, the urban population grew from 170 million to 710 million increasing by 540 million, and overtaking the combined population of the United States, the UK, Germany and France together by 2 million. In 2012, Chinas urban population reached the world average of 52.6%. Of course, Chinas process of urbanisation has not completed. This figure is still well below the 80.5% of urbanisation rate which is the average of high-income countries; the average rate for middle-income countries at a comparable stage of development to China is still 60.6%. Taking away those who are calculated as city-dwellers, but actually do not enjoy full public services in By LI LIN
Director for Institute of Law at the Chinese Academy of Social Sciences

the cities, the real level of urbanisation in China could be lower than 50%. In this case, the gap between Chinas urbanisation and the world average is even greater than it seems at first sight. Nevertheless, such a gap can represent a great opportunity. Continuing to advance the rate of urbanisation will create a huge demand for economic growth. This will require considerable investment. Urban population growth will inevitably call for the development of infrastructure, including factories, office buildings and residential housing. Urbanisation also brings tremendous consumer demand. Thus, population increases and income growth will be key to strengthening overall purchasing power. However, such potential should not be taken for granted. Opportunities do not automatically translate into fruitful harvests. To reap the benefits of urbanisation, its development must be modelled to ensure economic prosperity, social harmony and environmental sustainability. Economic development is fundamental. It is the creation of employment opportunities that underpins sustained urban growth; without it, local governments would not have the financial capacity to provide the required increased public services. Social harmony is another premise of urbanisation, without which infrastructure construction and development projects risk opposition. Last but not least, ensuring a clean environment is an end goal of urbanisation. Without this, cities will slowly reverse their growth, suffering in particular from brain drain, and eventually lose their dynamism. The path of Chinas urbanisation has not been smooth. In some places, it has gone too fast,

neglecting industrial development and leaving many newly-constructed districts uninhabited. A second issue is that large numbers of new city residents do not enjoy the same public service rights as other urban citizens. Third, some cities have implemented models of growth which have been proven excessively polluting. Due to slow progress in the capacity of cities to manage pollution, cities are becoming less liveable. Fourth, urban management and governance is lagging behind growth. As a result, urban development is advancing in a legal void without scientific design. Cultural identity is too often neglected, and cities are losing their character.

Human-centered urbanization should be promoted in order to enhance the quality of life of urban citizens
The Chinese Communist Partys Central Urbanisation Conference held in December 2013 was therefore timely, discussing the planning and implementation of Chinas future urbanisation. The outcome of this meeting will put Chinas urbanisation on a healthier path. First of all, the process of urbanisation needs a more solid financial foundation. The Central Urbanisation Work Conference stressed that urbanisation is a historic process and should be left to follow its natural course. Indeed, urbanisation should be based on economic growth, lead-

ing to a matching growth in population, urban economic development, job creation and the development of public services. Cities in China should therefore prioritise industrial development, which can sustain the growth of the urban population. Secondly, urbanisation should reflect and address the need for social integration. At the conference, it was noted that urbanisation should be people-oriented. Human-centred urbanisation should be promoted in order to enhance the quality of life of urban citizens. In particular, giving full urban residency rights to those with stable employment should be prioritised. This will no doubt enhance social harmony across urban communities. Third, environmental protection should be given more attention, with nature and culture both being taken into account when planning urban development. The Central Work Conference also emphasised the need to improve energy efficiency, reduce energy consumption and carbon dioxide emissions. Bio-security should be made a priority. Forests, lakes, wetland areas and other green spaces should be preserved and further developed. Space should also be left for cities to exhibit and nurture their historic, regional and ethnic characteristics. This will undoubtedly increase their liveability. Forth, urbanisation requires more sophisticated urban management. The Central Urbanisation Work Conference concluded that the focus of urban planning should shift from the expansion of cities to their delimitation, giving more consideration to structure and consistency of urban design. Following this new path, urbanisation in China will register new growth and development.

Promoting the rule of law in China


Reform of the Committee of Juries is also needed, and accountability and coordination should be improved between presiding judges and court investigators
procedures, while establishing a mature legal system that ensures respect of the Constitution. Equality before the law should be insisted upon, and all violations of the Constitution subject to investigation. A comprehensive legal advisory system should be established, along with a scientific evaluation index system and standards by which the rule of law can be measured. The filing and consultation system for rules, regulations and regulatory documents also requires improvement. Thirdly, administrative law enforcement reform needs further deepening. The focus should be on centralising enforcement powers to a certain extent, while promoting comprehensive legal enforcement. Authority needs to be matched by legal responsibility, and the strength and efficiency of the enforcement mechanism enhanced. Law enforcement administration should be streamlined while the administration at local level should be strengthened for the key areas of food and drug safety, labour safety, environmental protection, labour protection, and sea and island territories. Administrative procedures, and the use and supervision of enforcement discretion, should also be improved and standardised. Authorities need to take on comprehensive responsibility for law enforcement, with the support of public finance instruments. Last but not least, the coordination and coherence between the administrative law enforcement and criminal justice mechanisms needs to be improved. Fourth, judicial reforms must go further. The exercise of judicial and prosecution powers must be independent and impartial, as required by law. For this, reforms should promote the centralised administration of local courts and prosecutors by unifying financial and human resource management. The practical possibility of separating legal jurisdictions from local administrative divisions should also be explored. The sector would also benefit from professional personnel management, with a centralised recruitment and handover system for judges and prosecutors, improved personnel classification, and sound social security benefits. Reform of the Committee of Juries is also needed, and accountability and coordination should be improved between presiding judges and court investigators. Furthermore, the different functions of the various levels of court need to be clarified, and the supervisory relations between high and lower courts standardised. Courtrooms should be opened as much as possible to be public, all court proceedings and materials should be archived, and court judgement should be published as they enter into force. Commutation, parole and medical parole procedures should be strictly specified and overseen by strengthened supervision processes. The use of public juries and people supervisors should be widely promoted. Finally, the law and judiciary should protect human rights. Seizure, freezing and other processes related to financial cases should be standardised and the review system needs to enhance its accountability. Other key reforms should prohibit torture, strictly implement rules on the inadmissibility of illegally-obtained evidence, gradually reduce the scope of offences subject to the death penalty, and abolish re-education through labour. A community-based review system needs to be developed and the national justice and legal aid system strengthened. Last but not least, the rights of lawyers need to be ensured while developing disciplinary measures for illegal practices, thus allowing rights lawyers to play their full role within the scope of the law.

he recent Third Plenum of the Chinese Communist Party issued The Decision on Major Issues Concerning Comprehensively Deepening Reforms. In this decision, the CCP outlined its strategic target of promoting the rule of law in China, by means of five reform priorities. The first reform priority is to promote a scientific approach to legislation. This implies developing a legal system with Chinese characteristics: improving the coordination of legislative drafting and argumentation review mechanisms; enhancing the quality of legislation; and preventing local protectionism and legalisation of sectoral interests. The way the National Peoples Congress functions also needs improvement, including expanding citizen participation in legislative procedures through public hearings and evaluations, responding to social concerns through questionnaires and reviews, and incrementally expanding the number of cities with enhanced legislative powers. The second is to uphold the legal authority of the Constitution. For this, it will be key to implement sound constitutional mechanisms and

12 FEBRUARY 2014

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Shanghai pilot free trade zone: leading the upgrade of the Chinese economy
By LONG GUOQIANG
Director General & Senior Research Fellow, Development Research Centre of the State Council

hirty years ago, launching reforms that opened the country to the world, China set up four special economic zones including the city of Shenzhen. Upon taking office in 2013, the new Chinese government established a new zone: the Shanghai Pilot Free Trade Zone, marking the launch of a new round of reforms. Three decades ago, the special economic zones helped integrate the Chinese economy with the rest of the world; the new zone will drive the Chinese economy further forward. Striving for new advantages in international competition Thirty years of opening up have successfully transformed China from a small trading nation relying primarily on commodity exports into the worlds largest manufacturing and trading power. However, Chinas foreign trade today faces two major challenges: first, the advantage of low labour costs, which has sustained Chinas status as a major trading power, is weakening. China needs to gain a competitive edge by climbing up the global value chain, from labour-intensive to capital-value and technologically-driven production. Second, Chinas service industry is seriously lagging behind and needs to be bolstered to strengthen Chinas international competitiveness in this field. The liberalisation of trade in services is central to the rationale of the Shanghai Pilot Free Trade Zone. Chinas lack of openness to foreign trade and excessive internal market control have been hampered the development of the service industry. Approving the Shanghai Pilot Free Trade Zone, the State Council responded to 18 sectors covering 6 major areas including finance, shipping, trade, professional services, cultural and social services, which declared themselves ready for a more open market. Entry barriers for foreign investors are also set to be significantly

A motorcycle rider delivers goods in Shanghai on January 10, 2014. Chinas annual trade in goods passed the USD 4 trillion mark for the first time in 2013, official data showed, confirming its position as the worlds biggest trading nation.  CREdIT: AFP PHOTO/PETER PARKS

to explore further how to construct an external services trade facilitation system. China is not only a major recipient of international investment; it is also an important source of outgoing international investment. In 2012, Chinese foreign investment excluding in the financial sector reached 87.8 billion US dollars, putting China amongst the top global investors. Nevertheless, Chinas investment management system still bears the imprints of an era of foreign currency shortage, with the government more focused on exercising authority with regards to the approval procedure for foreign investment, rather than on providing services to investors. In order to adapt to rapid developments in the foreign investment environment, the Shanghai Pilot Free Trade Zone will explore how to provide both effective supervision of foreign investment and high-quality services. Exploring new paths to financial openness The experience of many emerging economies has been that financial openness is often accompanied by financial risks. In the past, China has been cautious with the liberalisation of its finance sector. As Chinas position in the global market changes, such liberalisation becomes inevitable. Striking the right balance between promoting financial liberalisation and effectively avoiding financial risks, however, will be important. In the Shanghai Pilot Free Trade Zone, such liberalisation will first touch upon RMB capital account convertibility, facilitation of international exchange, foreign exchange management system reform, the use of RMB for cross-border transaction and cross-border financing. This process will provide China with valuable experience for further steps in promoting greater financial openness. The Shanghai Pilot Free Trade Zone has already attracted global attention. Three months since its establishment, the Pilot Zone has already received 3,600 company registrations, with an average capital of over 20 million RMB, a clear indicator of investor confidence. We therefore are confident that the development of the Shanghai Pilot Free Trade Zone will provide a boost to the Chinese economy.

reduced, with the exception of banking and telecommunication services. Other measures include the suspension or abolition of requirements on investors, equity ratio restrictions, and restrictions on business operation range. More importantly, the pilot free trade zone will ensure equal access and fair competition between domestic and foreign investors. As this Pilot Zone develops, we trust that more service sectors will join the liberalisation process. Upgrading trade facilities is key to branding Shanghai as an international shipping centre. Adapting to the latest developments in international trade and logistics industry, the Pilot Zone will introduce a series of reforms making full use of electronic technology to improve the efficiency of custom clearance and supervision. In response to rapid developments in international e-commerce, the Pilot Zone will also establish suitable customs supervision, inspection, logistics and other support systems for this trade.  xploring reforms in cross-border E investment systems Most developed economies apply negative inventory balance to foreign nationals investing in the country. Besides the ongoing Sino-

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US negotiations on a bilateral investment treaty (BIT), China is also working towards free trade agreements with a number of other countries and groups, where the issue of management models for foreign direct investors is in each case up for discussion. The Chinese government has so far adopted a positive list-based approach to inventory management. Implementing negative inventory management implies a change of management philosophy, but also further reforms in a governments managerial approach. Indeed, the government is required to give up the greater part of its investment approval authority, and exploring innovative business models will greatly stimulate the dynamism of enterprises. The communiqu of the recent Third Plenum Session of the 18th CPC Central Committee explicitly concluded that a negative inventory management should be implemented. The Shanghai Pilot Free Trade Zone is pioneering the implementation of such a system, whereby the governments investment approval authority will be abolished in favour of a more efficient investment service and supervision system. Such a step will also be a valuable experience for Chinas future investment management reforms. The Shanghai Pilot Free Trade Zone needs

02 03 04

EU China cooperation - A new ambition for a knowledge-based agriculture


Dacian Ciolo, EU Commissioner for Agriculture and Rural Development

The third plenum: a boost for the EU-China relations?

Balance government -market relationship

05 06 07

Gustaaf Geeraerts, Director, Brussels Institute of Contemporary China Studies (BICCS), Vrije Universiteit Brussel (VUB)

08 09 10

Reforms in China and the EU offer new opportunities of cooperation


Yang Yanyi, Ambassador of Peoples Republic of China

Prospects for EU-China relations


Fraser Cameron, A former British diplomat and senior EU official, is Director of the EU-Asia Centre in Brussels.

Prof.LI Ping & CAI Yuezhou, Senior Research Fellow, Director-General and Associate Senior Research Fellow, Institute of Quantitative and Technical Economics (IQTE)

The past and future of chinas urbanisation

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Hou Yong Zhi, Research Department of Development Strategy and Regional Economy, Development Research Centre of the State Council

Social sector reform in China: building an inclusive system


Gong Sen, Deputy Director, Research Department of Social Development, Development Research Center of the State Council

Promoting the rule of law in China


Li Lin, Director for Institute of Law at the Chinese Academy of Social Sciences

Chinese dream and Sino-Europe relationship


Wang Xiaochu, Vice Chairman of the Foreign Affairs Committee of the National Peoples Congress of China

The challenge of changing china


Duncan Freeman, Senior Research Fellow Brussels Institute of Contemporary China Studies

Chinas new urbanisation and its challenges


LI Junru, Member of the 11th CPPCC Standing Committee and the former Vice President of the Central Party School.

Shanghai pilot free trade zone: leading the upgrade of the Chinese economy
Director General & Senior Research Fellow, Development Research Centre of the State Council

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