At the beginning of this century, the European Union introduced the euro, the single currency used in the eurozone, which marked a historical milestone for European integration and helped soften US dollar hegemony.

At about the same time, China launched its "going out" strategy, through which Chinese companies have been encouraged to go abroad and invest in foreign markets. This came as, in 2001, China gained membership to the World Trade Organization, a magnificent step in the opening-up process of this populous country.

Then China began its moves toward foreign exchange reform and launched its internationalization of renminbi. This happened as the world was pummeled by the world financial crisis and eurozone debt crisis. The opening-up was further accelerated, though the yuan has not yet attained the same status as the euro or the US dollar.

I think that given this initial progress, the renminbi and the euro will enjoy sound development in the coming decade if some "great potentials" are explored.

Chief among these is the realization of the trade and investment potential found in the combined EU-China market, consisting of 1.8 billion consumers, which could trigger favorable movement of both currencies. The renminbi could be further internationalized and the euro could be stabilized.

China has been the second-largest trading partner for the EU for consecutive years, and the EU is presently China's top partner in trade, the biggest source of imports and the second-biggest export market.

But there is still plenty of room for the European Union and China to map out a more ambitious blueprint in terms of bilateral collaboration on trade and investment.

China's domestic economy has been upgrading its development model gradually, including industrial transformation, urbanization of its population and changes in its consumption patterns. There also has been movement toward creation of a giant services sector.

In the next five years, China will transition into an even more services-driven economy. The services proportion of China's total GDP was expected to rise from 48.2 percent last year to 55-60 percent in 2020.

The country's services-led economic transformation is expected to unleash consumption worth as much as 50 trillion yuan ($8 trillion; 7.6 trillion euros) a year. Consequently, the enormous potential of Chinese household consumption and the rapid expansion of service industries will create an immense market space for European industries and businesses.

Also, despite the industrial competition in each other's markets, the high degree of complementarity existing between Chinese and European industries should remove hurdles hindering the extension of investment and trade in services sector.

In the coming years, the EU and China are likely to achieve a breakthrough in the construction of an EU-China comprehensive free trade area, in which the opening-up of services sectors will be key. That is to say, the scope of investment and trade collaboration should continue expanding.

Undoubtedly, such progress will be significant for the recovery of the European economy and its currency stability, in addition to giving a further push to renminbi internationalization through increasing trade.

Think tanks in Europe and China have important roles to play in the development of closer cooperation. A joint study on an EU-China free trade agreement is expected to take place soon with the aim of providing governmental stakeholders with independent recommendations based on objective analysis. The studies may cover a wide range of ideas, including the strategic significance of a comprehensive FTA and the practical benefits for both parties.

Structural reform is needed in both regions given that reform will have a vital influence on the future development of both European and Chinese economies. Structural reforms in Europe could refer to labor market reforms, especially in southern EU countries such as Greece that have heavy debts on their shoulders.

It is vital for EU member states to push forward reforms in their home markets. But apart from domestic reforms in individual European countries, how member states work with each other at the EU level will have a direct impact on the future of the European economy, and especially that of the eurozone.

On the Chinese side, one challenging issue is comprised of restrictions caused by domestic structural reform lagging behind the pace of renminbi internationalization.

For instance, the liberalization of capital accounts is directly related to the internationalization of the renminbi. But structural reforms within China's financial system have not yet made significant progress.

There are still a number of issues in the financial market such as persistence of state-owned monopolies, the needs of the real economy and the struggles of small and medium-sized enterprises.

Before making further steps in the internationalization of the renminbi, China is in need of a financial market able to react effectively to the negative impacts of opening capital accounts. More fundamentally, the yuan's move in the medium to long term will depend on the prospects for Chinese economic growth.

From a global perspective, the Chinese government has proposed the One Belt, One Road initiative to connect Asia, the Middle East, Africa and Europe, which will bring more economic opportunities for China and Europe. The initiative, comprised of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, is based on ancient trade routes. Countries in these areas are responding favorably to China's initiative.

European countries have also shown great interest in the China-led Asia Infrastructure Investment Bank, accounting for 18 of the bank's 57 prospective founding member states, among which 14 are EU member nations.

Infrastructure construction stimulated by the bank will not only bring in a large amount of investment but also a wider scope for the euro and renminbi in terms of cross-border settlements. AIIB will serve a platform for the EU and China to deepen their currency cooperation. It will play a significant role in promoting innovation in financial mechanisms.

Europe and China can jointly work on a currency cooperation platform where financial collaboration can be strengthened. While aiming at an enhanced world financial system through fulfillment of the international functions of the euro and renminbi, they can confront global and regional financial risks together and push forward reforms of the international monetary system.

The author is president of the China Institute for Reform and Development.

(China Daily European Weekly 05/01/2015 page8)