How should Europe respond to China's strident rise?

Until very recently, many western politicians, bankers and business people were broadly optimistic about the rise of China. They assumed that as China became more developed it would become more western. As it integrated into the global economy it would play a constructive role in multilateral institutions, help western governments sort out key foreign policy challenges and permit a more open society. China's leaders seemed to understand that the economic development of their country required friendly relations with the US and other major powers.

The EU's leaders shared this optimism. But over the past year China's behaviour has changed. Relatively hard-line and nationalist elements in the leadership appear to have sidelined those with liberal and internationalist instincts. This shift is spurring the EU's governments and institutions to reappraise their China strategies.

China's foreign policy has become more assertive. Its vocal claims to the Indian state of Arunachal Pradesh have upset India's leaders. It has become less helpful to the West on the Iranian nuclear problem. It threatens the commercial interests of EU countries whose leaders meet the Dalai Lama in an official setting. Western governments have suffered increasingly powerful cyber-attacks that have been traced to mainland China. And at the Copenhagen climate change conference, China worked hard behind the scenes to scupper the kind of deal that many western countries (and poor nations) wanted.

China's political system has become more repressive. Internet censorship is tighter (prompting Google to say that it may leave China). In December Liu Xiaobo was sentenced to 11 years in prison for organising a pro-democracy petition. Moves to introduce greater democracy into local government and the Communist Party have faltered.

China's economic policies have become more nationalist. Many foreign investors in China complain about being excluded from key markets and suffering from all sorts of discrimination. China's intervention to prevent its currency rising, designed to boost exports, is fuelling protectionist pressure in many continents.

Three factors may explain this increasingly hard line:

• China has come through the global recession better than any other large country, growing by 9 per cent in 2009. Its leaders view the western economic model as discredited. They are cocky about their success, and given that the West seems weaker they think they can assert China's interests more forcefully.
• Yet China's leaders feel insecure. The recent unrest in Tibet and Xinjiang caught them by surprise. Rapid economic growth and urbanisation are creating huge social tensions. Endemic corruption makes local party bureaucrats unpopular. The booming housing market – fuelled by the government selling land to property speculators – means that many young middle class people cannot afford to buy flats. Few Chinese people want western-style democracy, but the leaders know their legitimacy rests on thin foundations. Hence their reluctance to allow a more open society.
• The current leadership, led by Hu Jintao and Wen Xiabao, is due to hand over to the 'fifth generation' of leaders in 2012. There is much manoeuvring for position. Some key figures seem to be pushing a nationalist line in order to boost their support among party cadres. In China, as in most countries, nationalist policies can be popular.
  American attitudes to China are palpably hardening. At some point this year the US may declare China to be a 'currency manipulator' and then apply protectionist measures. And even in the EU – which finds it so hard to get tough with anyone – governments are rethinking their China policies. What line should the EU adopt?
  
  First, European leaders need to remind themselves of the obvious point that if they stand together they will have more clout. As an ultra-realist power, China respects strength. Too often, European states – and especially Britain, France and Germany – have sought to cultivate their own special relationships with Beijing, viewing each other as competitors. The Europeans need to agree on a single set of messages for China, so that it cannot play a game of divide and rule. And sometimes the Europeans should work with the Americans, who agree with them on issues like market access and human rights, in order to increase their leverage.
  
  Second, the Europeans should be more willing to criticise China for reneging on commitments it has signed up to. China is in breach of some World Trade Organisation (WTO) rules and the EU should be prepared to take China before WTO disciplinary panels more often. It should also scold China for failing to ratify the International Convention on Civil and Political Rights. And rather than merely lecturing the Chinese government on human rights, the Europeans should point out that it often breaches its own constitution and laws when acting against Chinese citizens. The Europeans have learned that when they treat China deferentially they achieve very little.
  
  Third, the Europeans should continue to engage China. But they should abandon the fiction of a 'strategic partnership', which cannot be meaningful when the values of the two sides are so different. The number of summits, 'executive to executive' meetings and 'high-level mechanisms' between the EU and China should be cut. Future summits should focus on a small number of issues on which China and the EU have mutual interests but conflicting views: the preservation of an open global trading system, China's mercantilist currency policy and climate change. If China ignores European views on these issues, the EU is less likely to keep its markets open and more likely to discourage some of the technology transfers that China wants (China's leaders say the Europeans currently transfer more useful technology than the Americans).
  
  China's leaders may have miscalculated by underestimating the impact of their harder line on Washington and European capitals. Undoubtedly, some of them stand by the premise of the 'peaceful rise' slogan – that China's economic development requires a degree of modesty in foreign policy and good relations with the West. When the most senior leaders see the negative impact of their tougher approach, they may choose to change course. But if they maintain the hard line for a prolonged period, protectionism will flourish and some powerful countries will start working together to contain China. Those outcomes would be bad for China.