The Formation of Greater China and the Future of EU-China Relations

Greater China comprising the PR China, Hong Kong and Taiwan 1 does not exist as an entity, neither as a trading arrangement nor as a monetary arrangement or political grouping. Yet, both the reminiscence of a common history and the ethnical homogeneities have always stimulated fantasies of how such an entity could look like and how it would act in world economic relations. Pragmatic behaviour of trading without institutional backing and recent ice-breaking initiatives at the political level between the PR China and Taiwan have supported perceptions of market-driven integration between the three entities in addition to the 1997 political merger of Hong Kong with the PR China (PRC). Such perceptions depart from impressive economic performance of all three economies during the last fifteen years and from the sheer economic size measured in terms of total purchasing power parity (PPP) GDP. The latter indicator would place Greater China at No. 3 in the world far behind the US (41 per cent of the US PPP GDP) but close to No. 2, Japan, with 95 per cent of the Japanese PPP GDP 2 and far ahead of No. 4, Germany, with 144 per cent of the German PPP GDP. The paper intends to discuss the economic and institutional background of emerging Greater China (GC) in Section II and to highlight the two dynamic elements of intra-GC economic relations, first between Hong Kong and the PRC but in particular between Taiwan and the PR China as the most recent driving force in trade and capital transactions (Section III). Inevitably, GC attracts the interest of one of the most important global players in the international trading system, the European Union. EU-GC relations are characterised by startling discrepancies between institutional "low profile" and intensive economic transactions. On the one hand, the EU has no formal bilateral or multilateral economic relationship with Taiwan and denies preferential treatment under the Generalised System of Preferences (GSP). Towards China (and Taiwan), the EU concedes most- favoured nation treat