This may not be terrible relevant to the topics I normally cover in my blog, but French Foreign Minister Kouchner is in town today to prepare for the visit later in November of President Sarkozy.I assume that since Sarkozy has made it clear in Europe that he thinks monetary and currency questions are within his purview, an important topic of conversation when he is here will be the RMB.The value of the RMB has dropped sharply against the euro, one of which consequences is that China’s trade surplus with Europe has recently soared, much to Europe’s dismay.There is an increasing amount of unhappiness there about trade relations with China, and two nights ago I had dinner with a very knowledgeable reporter from Italy who said that in Italy anti-China feelings have become very strong.
Although I believe that Kouchner will have a brief meeting with Premier Wen Jiaobao, who is reportedly one of the key figures on the currency issue, nonetheless I don’t expect Kouchner is here to discuss the RMB.That is not really his area of expertise.From what I gather the talks are likely to be dominated by human-rights-related issues – Myanmar, the Dalai Lama, press freedom in China.This is not going to be an easy discussion and, apparently, President Sarkozy is also expected to discuss human rights issues “frankly” in his meetings here.
I wonder how much of this is bargaining and how much genuine.If France begins to take a tough line on political issues, is that to make it easier to back off in exchange for flexibility on the subject of the RMB, or is France serious and will that only make China more reluctant to give ground on the issue of the currency?
As a French citizen, may I comment a bit on the subject. The Southern part of the Euro league is heading for serious problems. Both France and Italy have vital interests in getting a softer Euro. It is now clear that they won't get it from the ECB. But European-wise nothing formallly prevents Sarkozy to meet Chinese Authorities and discuss any issue including monetary ones.
Sarkozy is an interesting case. And a fearless person. He definitely wants to support our local industry with a view to revive our suffering champions (names he knows are Alstom, Areva, Airbus).
I would not bet on Koushner and him to get anything sizable from China. However he will make sure the dominant European point of view is understood.
We do not want our industry, old in Western Europe, or new in Eastern Europe to die... And will just not accept it. Even the German have a lot to lose with their recent investments in the East of Europe.
Of course this problem has a significant monetary face since China is just not playing the exchange game properly.
This may end up with state-to-state commercial bargaining. Let us call it the positive outcome. Or sour and backfire badly on "human rights".
I'm not an optimist on all this.
By Francis - 10/31/2007 5:29 PM
Considering the huge cheap labor pool and much looser environmental protection constraint in China, it's really very hard for many European industries to compete face to face with their Chinese counterparts. Of course Europe has much better education system, rule of law and protection for property. But in order to build up a powerful knowledge-based economy, you have to pay "knowledge workers" much more than low-skilled workers. Also, a reform to bring more flexible labor market has yet to be done in Europe. Too much has been heard from the European bignames, so now just do it. My friend told me that in Italy, a PhD usually starts his career from a researcher in the university and gets around 1200 euro per month while a shop assistant got 800 euro and sometimes more. Oops! I now regard Italy a real socialist country with an income difference regarding not so much for employee's knowledge and skills. For China, maybe it needs to bring more socialist measures to bring potential mass scale riot risk to a lower level. However, in Europe, more capitalist should be re-ejected into the society rather than finding some scapegoat and making cheapshots.
By Smallfish - 10/31/2007 9:01 PM
What I am more interested is the micro side of Mr. Sarkozy\'s visit. Will he bring any pratical negotiations, other than RMB re-valuation? There should be more co-operation on the corporate layer between China and France. It reminds me about the debateful acquisitions in China by the French enterprise, the failed acquisition of Guangdong Development Bank by the French bank, and also the divestment in Changjiang Securities by the other French bank.
In my opinion the French should be more positive in investing China. Their corporate movement is meeting political barriers here, and that is what concerns me. I do not believe Mr. Sarkozy should turn a deaf ear on Danone, Societe Generale, BNP Paribas, and lots of other French enterprises.
Another good news, although there are anti-US and anti-Japanese tide in China, so far I do not see any real anti-France tide. If Mr. Sarkozy talks too much about human rights or Dalai Lama, the government will of course try to make a mind-attack in people against France. It is not smart to mention it now. France must be patient, and things will turn better.
Why do those guys want to mention Dalai or meet him publicly? There must be many other ways to boost your domestic political image without insulting someone important to your policy. Furthermore, meeting Dalai is not going to change anything.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (4) for "Sarkozy in China"
- 10/31/2007 9:41 PM
October, 2007