For Charles Gordon – who was later to have his head paraded on a spike around the streets of Khartoum – the looting of the Summer Palace in Beijing by Anglo-French forces in 1860 was disturbingly frenetic.
“You can scarcely imagine the beauty and magnificence of the places we burnt,” he wrote in a letter to his mother afterwards. “It made one’s heart sore to burn them; in fact these palaces were so large, and we were so pressed for time, that we could not plunder them carefully.”
Even at the time, the destruction of the palaces stirred criticism in the European press. Resentment has festered in China for much longer. So when a new group of Frenchmen arrived in the Chinese capital last week, they sought to strike a very different tone.
The large delegation of ministers and businessmen led by French president Francois Hollande was only in town for two days. But one of the travelling party – François-Henri Pinault, the chief executive of luxury retailer PPR – seized the moment to try to make amends, promising to return two bronze heads seized by those same invading forces more than 150 years ago.
It was the first time that a foreign owner of any of the looted heads has been willing to give them back rather than sell them, in a move that may also have helped Pinault’s auction house Christie’s get a licence to operate in China (see page 15 for a fuller story).
But it was also a sign of a new charm offensive from the French, desperate to reduce a trade deficit with China that hit $34 billion last year, France’s largest with any other single country.
Aren’t Sino-French relations better than most?
The two governments have a history of cordial ties, something covered by newspapers in both countries during Hollande’s visit. In 1964, under the presidency of Charles de Gaulle, France established full diplomatic relations with Mao Zedong’s government – a pioneering move at a time when Washington did not yet recognise the People’s Republic. And the China Daily points out that in 1973 Georges Pompidou became the first head of state from Europe to make an official visit to China.
It helps that both countries share a distrust of American superpower status. Another French president Jacques Chirac, who admired China as a “grande puissance”, led calls for a ‘multi-polar’ world of reduced American influence during his own period in office. Hollande returned to the theme last week, knowing it would find a receptive audience in Beijing.
“China and France want a multi-polar world. We want there to be a balance. We refuse a world of powers, and of superpowers,” Hollande told reporters rather grandly, before concluding that Beijing and Paris could “drive the world” between them.
Hollande has also been anxious to repair ties with Beijing after a fractious period in which his predecessor Nicolas Sarkozy threatened to boycott the Beijing Olympics (he later turned up) and then riled the Chinese further by meeting the Dalai Lama.
Beijing responded by pulling out of an EU-China summit in France and memories of the ill feeling linger. In fact some Chinese newspapers were far from flattering about Hollande’s lofty statements. The ever-feisty Global Times warned that Europeans remain “yes-men for Washington’s policies”, and that ties with China were shaped by “quickly-changing attitudes and insincerity”.
It wasn’t clear that Hollande impressed at a personal level either. “It is hard to believe that these politicians can lead Europe out of its predicaments,” the Global Times concluded, clearly immune to Gallic charm.
But Hollande wasn’t shunned like David Cameron?
Yes, at least the French delegation was greeted with a handshake rather than getting the cold shoulder. Hollande’s trip was the first from a Western leader to Beijing since Xi Jinping formally took power and reportedly was a visit that British Prime Minister David Cameron had hoped to make first.
But when Cameron pushed for a meeting earlier this year, it became clear that he would be denied contact with senior-level figures, so he abandoned the idea. Once again it looks like a punishment for meeting the Dalai Lama, in Cameron’s case in May last year, and the snub is a setback for the British leader, who has made much of his desire to see UK exporters grab share in BRICS markets (for more on this, see WiC’s latest Focus edition, The China Trade, Spring 2013).
The refusal to host Cameron also shows Beijing’s readiness to play diplomatic hardball, buoyed by the knowledge that Europe’s leaders are desperate for exports to revive their moribund economies. Chinese consumers play a large part in these plans, giving Beijing more leeway to make its political point.
“The Chinese are very bluntly testing the Europeans in a way they never did in the past,” Kerry Brown, an academic at the China Studies Centre at Sydney University, told the Financial Times last week. “Given how Britain has been treated this time I doubt whether any European head of state or government will meet the Dalai Lama any more.”
Did Hollande’s trip pay off in trade terms?
Trade delegations to China are always keen to trumpet the billions of dollars worth of new contracts signed during their visits, even if celebrations about national ‘wins’ are getting less convincing, because of the increasingly international nature of industrial supply chains.
Orders for Airbus are a good example. As we noted in WiC’s Focus edition, British trade heads complain that Paris is too quick to laud an Airbus deal with the Chinese as if the full contract value is going to be captured on French soil.
It isn’t. The UK builds Airbus wings and sends them to France for final assembly before the aircraft is exported to China. But the plane shows up as an export to China from France, downplaying Britain’s own export contribution to China.
Nevertheless, WiC wonders whether Hollande will have been a little disappointed with the goodies tally signed during his trip. The main headline was an $8 billion Airbus deal. However, this was not the boon for French workers it first appeared. For instance, a number of the A320 aircraft in the arrangement will be manufactured in Tianjin rather than in France itself (although there will be new business for French-based suppliers and technical consultants).
Further, some of the aircraft orders don’t look that new – quite a few are a legacy of an order frozen last year in protest at the EU’s airline emission scheme (see WiC155).
Although neither side mentioned it directly, the EU has agreed to hold back the scheme for foreign airlines for a year, pending international negotiations. The suspension took formal effect in the same week as Hollande’s visit and was officially published just before the signing ceremony for the aircraft in Beijing.
Nor was the other big announcement – an Areva nuclear deal – breaking entirely new ground. Yes, there was an agreement to build a new facility with China Guangdong Nuclear Power in Taishan to recycle nuclear fuel.
But Areva hasn’t managed to sell a new reactor to a Chinese customer since 2007 when the Taishan plant bought two of them. And according to the China Daily, the meetings during Hollande’s trip were largely focused on Beijing recommitting to Areva finishing construction of these two reactors in Guangdong.
Yet the trip shows that France is competing for business?
Despite the intermittent talk of finding a common line for the EU’s China policy, European heads of state tend to put the interests of their own economies first when they touch down in Beijing. Hollande was no exception and made clear on his visit his priority was to bat for French industry and win a bigger share of the Chinese pie.
That competitive spirit is also apparent in the battle to benefit from the internationalisation of the renminbi, where France is trying to challenge London’s claim to pre-eminent status for transactions in the Chinese currency in Europe. Yuan deposits in Paris are up to Rmb10 billion ($1.62 billion), according to the China Daily, second only to London in Europe. Still, French lobby group Paris Europlace has been trying to reframe the debate, pointing out that more French companies including Air Liquide, Lafarge and Renault have issued dim sum bonds (debt configured in Chinese currency but issued outside China) and for twice the amount of their British rivals.
Similarly, when the Bank of England announced that it was discussing a three-year currency swap line with its Chinese counterpart in February, French sources hinted that they would be making a similar move, with speculation that a swap would be announced during Hollande’s visit.
If that was the hope, it was to be disappointed. But it’s not as if the French really see the British as their peers in trade terms, as they already export significantly more to China. Instead, the aspiration is to close the gap on Germany, whom France has trailed by an increasing margin over the last 10 years. France now accounts for just 1.3% of China’s foreign trade compared with around 5% for Germany.
Why? Many French businesses blame high tax rates, as well as increases in labour costs stemming from policies like the 35-hour working week. But others query France’s tactical approach. In the past its businesses have relied on winning big contracts – often inked during a presidential visit. The approach may have helped in championing French expertise in heavy-duty industrial sectors like Airbus in aerospace, Peugeot Citroën in cars, Areva in nuclear power and Alstom in high-speed rail. But other French businesses express similar frustrations to the British in how to close the gap on the mid-sized German companies that have embedded themselves in so many other areas of the Chinese supply chain.
France has multinationals that do well in emerging markets. But its export engine lacks the Mittelstand momentum that has steered German success, a trend that the Chinese are now trying to mimic by looking to Mittelstand firms for inspiration themselves (see WiC181 for a fuller discussion of the phenomenon).
But Chinese consumption trends could favour France in future?
The more positive perspective is that French products in areas such as luxury goods and cosmetics occupy a sweet spot set to benefit from rapidly growing Chinese demand.
Much of this is linked to the domestic consumption story and the view that sales of consumer goods and services will become more significant contributors to Chinese growth.
There is also a sense that commercial success in this new era is more likely to be driven by the private sector and the power of brands, rather than the billion-dollar business-to-business contracts pursued by French policymakers in the past.
Many French companies are already performing well in winning over Chinese consumers, especially at the luxury level. Brands from France regularly top the polls as Chinese favourites: this year’s Hurun Chinese Luxury Consumer Survey cited six French labels including Hermès and Cartier in the leading list of gifts preferred by men, while the three top brands for women – Chanel, Louis Vuitton and Cartier – all originated in France too.
Such has been the demand for French luxury that companies like LVMH and PPR (renamed as Kering next month) have been able to charge hefty premiums for goods sold in China. The differential has been shrinking, although it is still a weighty one: at Louis Vuitton the price gap for the same product sold in Beijing and Paris is still about 30% this year, down from 50% in 2012, the company said.
Could the decline be an early sign that the days of massive margins are over? LVMH reported its lowest quarterly sales growth since 2009 last month, admitting that demand in China had been “flattish“ and blaming weaker economic growth and a crackdown on gift-giving among officialdom.
Yet other firms sound confident that there is scope for sales to continue to grow, especially as brands extend their reach to millions more middle-class Chinese.
Among this group is L’Oréal, which announced a new push for its cosmetics brands in China last month, especially for products in its Luxe division. Much of L’Oréal’s early growth in China was centred on middle-market products like Garnier shampoo and Maybelline mascara. But L’Oréal is now enjoying fastest growth in its luxury segment, particularly in skincare products, some of which are being developed specifically for the Asian market. Company bosses believe sales will grow in future too, as L’Oréal reaches out to more customers. Lancôme is the bestselling brand for L’Oréal’s Luxe division, for instance, but it is only sold in 170 outlets in China, compared to 2,000 in the United States.
The hope is that L’Oréal will tap into similar demand as it begins to sell more of its other luxury brands like Kiehl’s and Clarisonic around the country, in many cases away from the locations in which it previously focused.
“Three-quarters of China’s urban population live outside tier one and two cities and they account for two-thirds of retail sales,” Stéphane Rinderknech, vice president of L’Oréal Luxe in China, told the Financial Times. She gave the example of Zhenjiang, a regional city of three million bordering Nanjing in Jiangsu province. There, the wives of textile bosses are spending Rmb2,000 each time they shop for Lancôme goods, L’Oréal reports.
Hence her hopes for sales growth in some of the 250 or so urban areas similar to Zhenjiang. “There will be 260 million more middle class people in China over the next 10 years”, Rinderknech told the FT, suggesting that the lower cost of living in many of these towns means that shoppers often have disposable incomes higher than those in the largest cities.
Hollande and his team will be hoping that L’Oréal’s plans are emblematic of the prospects for French firms in China. If so that new era could see hundreds of cities like Zhenjiang help France reverse its multi-billion trade deficit with the Chinese.
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