China and France set to deepen trade and political ties as Paris emerges as a possible offshore settlement center for the yuan

French President Francois Hollande's state visit to China on April 25-26 assumes special significance because, among other things, Paris and Beijing both pursue independent foreign policies.

In 1964, under the presidency of Charles de Gaulle, France became one of the first Western countries to establish diplomatic relations with the People's Republic of China.In 1973, Georges Pompidou became the first French president and the first head of state of a Western country to pay an official visit to China (former US president Richard Nixon's visit to China more than a year earlier was not an official one).

Bilateral relations have developed by leaps and bounds since the establishment of diplomatic ties between China and France, which is also the first Western power to establish comprehensive partnership followed by comprehensive strategic partnership with China. In 2010, Sino-French ties reached a historic high when Beijing and Paris decided to "build a new, mature and stable comprehensive strategic partnership based on mutual trust and mutual benefit and with a global perspective".

Since Hollande is the first head of a Western state to visit China after the new leadership assumed office in Beijing, he has focused on deepening Sino-French friendship to take bilateral cooperation to a new level.

China and France both have always advocated and promoted multi-polarization and are committed to maintaining regional and global peace and stability. France with its unique influence across the globe and China with its rising soft power will work together to realize the theme of our times, "peace and development".

The establishment and development of the new Sino-French comprehensive strategic partnership will further improve the mechanism of high-level meetings and people-to-people exchanges between the two countries, enhance political mutual trust and strengthen strategic coordination. This will help expand the political influence of the two countries across the globe, especially because China and France will play an increasingly important role in implementing global strategies.

China and France both are major economies: China is the world's second-largest economy and France the fifth-largest. But China is only the eighth-largest export market and eighth-largest source of imports for France, and the two countries' economic and trade ties have not developed in proportion to their ever-deepening political relations.

The French economy is facing a number of difficulties because of the eurozone debt crisis. The International Monetary Fund's latest forecast says the French economy will shrink by 0.2 percent this year. China's growth rate, too, slowed down to 7.7 percent in this year's first quarter. Therefore, the two countries have huge bilateral trade potential to inject fresh vitality into their comprehensive strategic partnership.

Given the above facts, China and France will focus on four areas of cooperation. First, they are likely to deepen cooperation in areas that have complementary effect. France enjoys traditional advantage in aerospace, nuclear energy and the auto industry, making it "an indispensable trade partner" of China, which should continue to use France's technological advantages.

Airbus SAS has developed rapidly after entering the Chinese market, with its narrow-body jets accounting for nearly half and wide-body jets up to 60 percent of China's civil aviation market. Two of the four European Pressurized Reactor power plants being constructed by France are in China, which has also become the largest market for major French automakers.

Second, the two countries are expected to chart a number of new growth paths. Both want to consolidate and create new fields of cooperation and, hence, may expedite the establishment of "special, high-quality partnership" in some fields such as food exports, because China has become the third-largest overseas market for French wine. French cheese, too, has the potential of establishing a large market in China.

Total S.A. and other French enterprises have already started discussing the prospects of shale gas development with China. Joint efforts to develop the sector will not only help upgrade the technology, but also give more French energy companies the opportunity to enter the Chinese market. In addition, France's experience in advanced ecological agriculture can provide China with the technology, methods and other valuable experience to ensure its sustainable development.

Third, Beijing and Paris may encourage Chinese enterprises to invest in France, which should not be difficult considering that Europe remains the first choice for China's overseas investors. Chinese enterprises respect local customs, abide by environmental protection rules and strictly fulfill their social responsibilities. They have also made valuable contributions to the development of Sino-French economic and trade ties.

So it is likely that the two countries will consider introducing a series of preferential measures to streamline the visa granting procedure and other processes, including tax reduction for Chinese investors in France.

Fourth, China and France are also expected to promote monetary cooperation. The international economic landscape has changed significantly after the global financial crisis. Major currencies, especially the euro, have suffered severe blows, while the yuan has remained stable and is likely to become an international currency in the near future.

If Paris becomes an offshore settlement center for the yuan, it will strengthen France's economic position in Europe and help reduce the impact of other countries' quantitative easings on it.

Compared with London, Paris has some added advantages as an offshore yuan settlement center. For example, the United Kingdom pays more attention to financial products, whereas France focuses more on the role of the offshore yuan market to provide more finance for the real economy, especially small and medium-sized enterprises.

Besides, France is part of the eurozone and yuan deposits in the Paris market have crossed the 10-billion-yuan ($1.62 billion) mark, making it Continental Europe's largest center for yuan funds. France's special relationship with African countries, too, is conducive to the internationalization of the yuan.

The world will be waiting to see how the results of the intensified economic exchanges and stronger political relations between China and France help chart a new path of economic and mutually beneficial development.

The author is a researcher with the Institute of European Studies, affiliated to the China Institutes of Cotemporary International Relations.

(China Daily 04/27/2013 page5)