China's economic shift 'could spark European revival'

Economist sees move as a happy development

A shift by China from an investment and export-driven economy to a consumption-led model is viewed by a European economist as a move that could help revive the continent.

"I think this would be a happy development for Europe, not only for China," said Paul De Grauwe, former economic policy adviser to the European Commission and professor at the London School of Economics and Political Science.

Rebalancing the Chinese economy to make it more consumption-based would also create more opportunities for European business to export more to China, the Belgian told China Daily in an exclusive interview.

The financial crisis in 2008 and 2009 and the European sovereign debt crisis have shown the Chinese government the risks of being overly dependent on exports, De Grauwe said.

As the National People's Congress, the nation's top legislative body, and members of the Chinese People's Political Consultative Conference, the top political advisory body, hold their annual meetings, they are expected to draw up measures on how to rebalance the economy, a decision made by the country's leaders at the 18th National Congress of the Communist Party of China in November.

"That would certainly be something Europeans would be happy to have," said De Grauwe, also professor of international economics at the University of Leuven in Belgium.

De Grauwe said China's continuing urbanization and industrialization will create more export opportunities for Europeans. Meanwhile, the country's expanding middle class will consume more European goods, and Chinese are increasingly showing an interest in Europe as tourists or as investors.

But De Grauwe believes trade between China and Europe is not balanced, leading Europeans to fear many of their industries will fall victim to this imbalance.

"If you move in the direction of rebalancing it will certainly reduce this fear and create a potentially more balanced relationship," he said.

But China is not entirely to blame for the imbalance, De Grauwe added.

"We have to do our homework as well. If we keep the euro too strong it will also make it more difficult for China to rebalance."

De Grauwe said finding a correct balance between the euro and the renminbi will allow the European Union to discover more markets in China. A weak euro will help rebalance China's economy by boosting European exports.

"We should take away the fear factor about China, and see it as bringing more opportunities and chances to Europeans so that we can develop a mature relationship," he said.

De Grauwe added: "Basically, the policy of the US Federal Reserve has been very aggressive. Weakening the dollar will result in the Japanese weakening their currency, and as a result we have got a strong currency as we don't do that."

A strong euro has made it more difficult for European businesses to export to China and the US, he said.

"We should go to a more balanced relationship, otherwise people will start reacting like Americans in the past - with protectionist measures against China."

De Grauwe said the internationalization of the renminbi is an important development.

"I do believe we should not have the dollar dominating everything. Why not have another currency bringing more competition? I think it is good for China, which is good for Europe, too."

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