EU-China Round Table - Report by Mr Palmieri

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European Economic and Social Committee

Brussels, 13 June 2017

15th China-EU Round Table

28-29 June 2017

Beijing, China

China and the European Union:

Supporting equality and inclusion to improve the well-being of society

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Rapporteur:Stefano Palmieri

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1.Summary and conclusions

1.1While acknowledging the undoubted benefits of the globalisation of the economy, the EESC believes that this process needs to be managed, so as to rectify the imbalances that it has created thus far in the distribution of benefits, risks and related costs.

1.2While welcoming the progress made both in the EU and in China in reducing income inequalities, the EESC notes with concern the resurgence of these inequalities in recent years.

1.3The EESC would point out that this increase in inequalities in the last few decades has coincided with a labour crisis and a crisis in working conditions.

1.4The EESC notes that, both in the EU and in China, there are worrying regional disparities in terms of socio-economic development and working conditions, which:

a)in the EU, sixty years after it was founded, have rekindled populist reactions and nationalist demands that may jeopardise the very EU project itself; and

b)in China, risk halting and jeopardising the harmonious development strategy launched with the 12th Five-Year Plan.

1.5The EESC feels that decisive action is needed – both in the EU and in China – to reaffirm the role of work and working conditions by means of the guarantees linked to social rights and labour law, a need that is all the more pressing given the dynamics and challenges of this new millennium.

1.6In the new geopolitical climate, the EESC considers that the EU and China are required to play a fundamental leadership role with regard to the Paris climate change agreement, the implementation of the 2030 Agenda for sustainable development, the fostering of international trade, and in upholding social and labour rights.

1.7The EESC reiterates that the debate between the EU and China on social and labour rights should be carried out with mutual respect for the sovereignty of the EU and of China and due recognition of international standards and obligations.

1.8The EESC reiterates that social and labour rights, both in the EU and in China, should be protected more effectively[1].

1.9The EESC believes that the EU is seeing the rise of various forms of insecure work, both formal and informal, which is undermining social security standards and workers' rights, and triggering serious employment and wage discrimination with major repercussions on the competitiveness of the EU system.

1.10While acknowledging that over the last two decades the promotion of collective bargaining has been considerably stepped up in China, the EESC considers that, in the area of industrial relations, the law and practice are not yet up to ILO standards.

1.11The EESC considers that, under the Decent Work Country Programme 2016-2020 (DWCP), the conditions can and should be found for China to ratify and comply with the four ILO fundamental conventions, allow independent trade unions to exercise their trade union activities, ensure the freedom of choice and association in independent trade unions, and ensure the right to strike.

1.12Here, the EESC is available to initiate cooperation with the Chinese ESC aimed at disseminating best practices that can strengthen the industrial relations system.

1.13The EESC reaffirms its intention to organise a conference on social and labour rights in the EU and in China with the European Parliament, the European Commission and the European External Action Service, as well as academia. The conference could take place in conjunction with the next EU-China Round Table that is due to take place in Europe during the second half of 2017.

2.Equality and inclusion at the heart of the global agenda

2.1Managing globalisation to mitigate its risks

2.1.1It is now more than a decade since the notion of making the globalised economy and markets fair for all participants was made a priority on the global agenda[2]. This thinking emerged at the dawn of the millennium and was endorsed in 2008, just before the financial and economic crisis, when even the OECD – with the report Growing Unequal? – officially recognised that the ongoing process of globalisation was jeopardising the living and working conditions of millions of people in the advanced countries, in emerging nations and in less developed countries[3].

2.1.2We are currently witnessing what may be described as a "stalling" of globalisation, whether as a result of the slowdown in global economic growth, or following criticism of the process itself[4]. There is no doubt that globalisation has had positive effects (reducing poverty in many emerging and underdeveloped countries, economic growth, etc.) but it is equally clear that this process must be carefully managed in order to rectify the unequal distribution of the benefits, risks and related costs that come with it.

2.1.3This is the backdrop that frames the debate on the need to rebalance the ongoing globalisation of the economy in the EU and in China.

2.1.3.1In the EU, the European Commission recently published a reflection paper on Harnessing globalisation[5], which focuses on two main areas of action: external and internal. On the external front, it states the need to achieve a truly sustainable world order based on common standards and a joint programme, through the defence of strong and effective multilateral rules. Rules that can provide a level playing field, addressing unfair behaviours such as social dumping, tax evasion, the failure to uphold human and social rights and the failure to apply health and safety rules in the workplace and to products and services. On the internal front, the paper sets out the aim of strengthening social policies for EU citizens, supporting them in terms of education and lifelong learning, through social policies, progressive tax policies, and investment in innovation to enable a fairer redistribution of income and wealth.

2.1.3.2In China, the 13th Five-Year Plan for national economic and social development (2016-2020), adopted in March 2016 by the National People's Congress, pursues the goal set in the previous five-year plan (2011-2015), aiming to finish building a moderately prosperous society in all respects[6]. It thus sets out a strategy for achieving sustainable socio-economic development in six key areas: 1) maintaining a medium-high economic growth rate; 2) harnessing innovation as a driver for development; 3) enhancing fiscal policy and coordination; 4) improving people's living standards; 5) developing green economic models and consumption patterns; and 6) deepening institutional reforms. In his keynote speech in Davos on 17 January 2017, President Xi Jinping himself noted that uneven development was making it difficult to meet people's expectations for better lives and how important it was for States to focus their efforts on tackling these issues[7].

2.1.3.2.1For China too, as for the EU, there appear to be two areas of action. The internal action set out in the last two five-year plans[8] – the 12th and 13th – and in the document presented in May 2015: China Manufacturing 2025 outlining how the Chinese government intends to strengthen manufacturing by 2025 in ten strategic sectors. On the external front there is the One Belt One Road initiative, launched by the Chinese president Xi Jinping in September 2013 in Astana (Kazakhstan), which is the most important diplomatic awareness-raising initiative undertaken by Beijing in the last decade[9].

2.2Inequality and regional disparities in the EU and in China

2.2.1Over the last thirty years, we have witnessed a phenomenon that has affected economically-advanced countries, emerging countries and underdeveloped countries, albeit with different trends: the widening of the gap between the rich and the poor. This trend was seen both in the period before the crisis, when higher income earners benefited greatly from the advantages of globalisation (Figure 1), and during the crisis, when disparities increased and inequality reached particularly high levels.

2.2.1.1The Gini coefficient – the indicator commonly used to measure inequality in income and wealth, ranging from 0 to 1 to indicate the minimum and maximum levels of inequality – has now reached 0.315 for the average of the OECD countries, exceeds 0.4 in the US and Turkey, and is close to 0.5 for countries such as Mexico and Chile. Many countries have seen significant growth during the last decade, while others, such as China and Brazil, have seen their growth stall significantly (Figures 2, 3, 4, Table 1).

2.2.1.2A worrying trend emerges from Figure 4 and Table 1 (data for the OECD countries) whereby 40% of the population at the bottom of the income distribution benefited less from the economic growth during the first phase of globalisation (1990-2000), while during the crisis (2008-2012), they were more affected by its adverse effects[10].

2.2.2Inclusive growth was one of the priorities set by the EU in its Europe 2020 strategy, which says that in a changing world, we want the EU to become a smart, sustainable and inclusive economy[11]. Looking at the overall indicator for the EU in Figures 5, 6 and 7 and in Table 2, the following conclusions can be drawn:

i)the EU has a more egalitarian overall distribution of income, compared to the other major geopolitical areas;

ii)there was a particular phase of globalisation – 1990-1995 – in which the EU saw a considerable increase in inequality (one factor that undoubtedly contributed to this was the weight of the countries from eastern Europe that were going through a transition phase that produced major inequalities in distribution);

iii)from 1995 up to 2008, before the crisis, distribution inequalities declined significantly, due, in particular, to the redistributive social measures taken by the State, which have, in any case, always been crucial – including in times of crisis – in mitigating income and wealth inequality;

iv)with the onset of the crisis, from 2008, after 13 years, the decline of unequal distribution came to a halt;

v)within the EU, despite the overall positive achievements, there is still a significant regional disparity in the distribution of income, with particularly high levels of income inequality in the Mediterranean countries, the Baltic States and the UK, and low levels in the continental and Nordic countries[12].

2.2.2.1The maps in Figures 8-13 illustrate the unresolved problem of economic, social and regional disparities in the EU, which threaten its very existence by rekindling populist reactions and nationalist demands. It is as if the EU is struggling to rediscover what characterised it for so long, being considered a champion of economic and social cohesion, given the regional differences that exist within the EU and within the Member States themselves.

2.2.3The most recent socio-economic indicators for China suggest that the commitment set out in the12th and the 13th five-year plans to achieve a moderately prosperous society in all respects by 2020 is on target (Figures 14 to 18). Improvements in the social safety net have certainly contributed – over the last decade – to reducing poverty, mitigating income and wealth inequalities, and reducing the differences between the rural population and the urban population and between the eastern regions and the other (particularly western) regions[13].

2.2.3.1Despite recording a significant reduction, from 2008 onwards, in its inequality index, China nonetheless has a particularly high level of inequality, both in terms of income and wealth (high compared to most advanced economies but still lower than some emerging countries)[14]. The marked reduction of poverty in China has not been followed by a substantial rebalancing of income distribution and a resulting increase in income levels for those in the lower income classes. For a more detailed examination of the regional differences in income distribution between 2002-2013, see Tables 3 and 4[15].

2.2.3.2As regards the distribution of wealth in China, there are high levels of inequality. Table 5, which sets out wealth distribution by decile, reveals the following trends: in urban areas, the richest (poorest) 10% (decile) of the population possessed 32% (0.4%) of the wealth in 2002, and in 2013 this proportion rose to 42% (0.6%) with an increase of ten percentage points (2 tenths of a point); in rural areas, the richest decile's share of the wealth rose from 29% to 43%, while the poorest decile's share fell from 2.2% to 0.7%; at national level, the richest decile went from 37% to 48% and the poorest from 1.2% to 0.4%. It is interesting to note that, in the period from 2002 to 2016, only the wealthiest 10% of the population saw their share of the wealth increase, while all the other deciles saw their share fall.

2.2.3.3Thus, overall, while China has made significant progress in combating inequality, much remains to be done to try to close the gaps that exist between the provinces, between urban and rural areas, and between residents and temporary residents in urban areas. These will be the three areas on which China's efforts will focus in the near future – based on the indications in the 13th Five-Year Plan – to make economic growth in China more inclusive[16].

2.3From economic growth to sustainable well-being

2.3.1One of the main reasons why the existence of unsustainable levels of inequality is harmful can be seen in the fact that it hampers intergenerational social mobility. This state of affairs is illustrated in the "Great Gatsby Curve" (see Figure 19). If the State does not intervene, in the form of an effective system for progressive taxation, social transfers and working conditions, social mobility tends to break down with complicated economic, social and political repercussions[17].

2.3.2This is fundamentally why guaranteeing inclusive growth for their own citizens has become crucial for both the EU and China. According to the OECD's definition, inclusive growth is "economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society"[18]. The concept therefore goes beyond pure economic growth, touching upon what is defined as sustainable development, understood in a holistic sense, ensuring high levels of social and environmental standards and guaranteeing its citizens high levels of well-being[19]. This form of development is encapsulated in the 2030 Agenda for Sustainable Development and its 17 goals and no less than 169 targets[20].

2.3.3We believe that implementing the goals set out in the 2030 Agenda would enable the objectives now being established by the EU and China to be met.

2.3.3.1Within the EU, this would mean full implementation of Article 3 of the Treaty on European Union, which states that "The Union's aim is to promote peace, its values and the well-being of its peoples. (...) It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance. It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child (...)".

2.3.3.2At the same time, in China this would consolidate the commitments set out in the 13th Five-Year Plan for national economic and social development (2016-2020). Examples are the main objectives such as (i) improving living standards and quality of life and (ii) working to ensure a significant improvement in intellectual, moral, scientific and cultural spheres and in the health standards of the Chinese public, to be achieved by means of a new development philosophy.

3.Globalisation and the foundations of social rights and labour rights

3.1Work and working conditions take on a key role in this specific area, where globalisation needs to be managed.

3.1.1The increase in inequalities in the last few decades has coincided with a labour crisis and a crisis in working conditions. There has been a steady fall in the share of income from employment in both the advanced countries (from 54.5% to 50.5%) and in the emerging nations since the onset of the second oil crisis in the late 1970s (Figures 20-21)[21]. The same trend has also occurred in China (Figure 22): between 2002 and 2011 this share fell strongly (from 54% to 47%), with an upturn in the next two years (rising to 51%)[22].

3.1.2As part of this picture, it can be seen that wage growth has not matched that of productivity and that employment displays little elasticity (the ratio of employment growth over GDP growth), leading to economic growth without a positive impact on employment or wage trends[23].

3.1.3There are a number of reasons for this trend that have affected both areas, although to different extents and with specific features (e.g. the switch from farm to non-farm employment in China, continuing very extensive public sector employment in China, etc.): technological change, globalisation, the financialisation of the economy and weakening collective bargaining, etc.[24]

3.1.4In the light of these key issues, we consider it worth concentrating on the quality of employment and the ways in which they play out in the two areas, through the system of social and labour rights.

3.2Social rights and working conditions in the EU

3.2.1Although social aspects are the responsibility of each of the EU Member States, they are identified and enshrined in a number of fundamental EU documents. The first of these is Article 3 of the TEU, as mentioned above, together with Article 9 of the Treaty on the Functioning of the EU which sets out the "horizontal social clause", and Article 153 which empowers the European Parliament and the Council to adopt (a) measures designed to encourage cooperation between Member States; and (b) directives laying down minimum requirements for gradual implementation[25].

3.2.2The Treaty of Lisbon gave binding force to the Charter of Fundamental Rights, which recognises a range of personal, civic, political, economic and social rights to EU citizens and residents and enshrines them in EU legislation. The Charter contains 54 articles across seven titles (dignity, freedoms, equality, solidarity, citizens' rights, justice, and general provisions). Many articles of the Charter are of social import, influencing EU Member State legislation on employment and working conditions (decent pay, working hours, safety at work, etc.). In addition, there is the European Pillar of Social Rights set out in a communication from the European Commission[26].