A leap year, many predict 2012 will be “transformative”, “highly energetic” and “full of changes”. Public affairs experts at Ogilvy believe China will figure prominently in the world in 2012, in particular within the context of the future leadership transition and the 2012 annual Communist Party Congress.

The Year of the Dragon will mark the high-point for activity and drama in a leadership transition which began one year ago. This year’s transition is particularly significant as it is the first leadership handover conducted without the guiding hand of Deng Xiaoping.

From an economic perspective, price inflation, growth of private sector vs. state-owned enterprises and Chinese Foreign Direct Investment will remain a priority for China’s leaders. With a growing wealth gap between rich and poor, 2012 is likely to feature an increasing number of wealthy Chinese seeking investment opportunities outside of China, Europe being one of the target region.

Another interesting fact, with a global impact, is the fasting changing media landscape: China saw a 38% increase of internet users from the end of 2010, social media is exploding in terms of users of social networking sites, and other media platforms are growing, such as online video sharing.

Lastly, the 12th 'Five-Year Plan' will prioritise environmental issues, which is a growing concern for Chinese citizens.

The analysis also covers China’s relations with its neighbors and key trade partners: the US and the EU.

On 5 January, the China Air Transport Association (CATA) announced that Chinese airlines, including flag carrier Air China, would not abide by the EU Emissions Trading Scheme for aviation, which entered into effect on 1 January.

Answering to the European Commission (EC), which stated that an operating ban could be imposed on airlines breaching EU law, Chai Haibo, CATA’s Deputy Secretary General responded that the China’s government was considering counter-measures against the EU.

A few days later, the European steel producers’ association, Eurofer, filed an anti-subsidy complaint with the EC against Chinese state support for exports of organic-coated steel to Europe. "Clearly the miracle of the Chinese steel industry which now counts for almost 50%of global steel production is not the result of free market forces," Eurofer's Director-General Gordon Moffat said in a statement.

Do these early developments suggest that in 2012 EU-China relations will reach “maturity”, as called for by Business Europe, the main horizontal business association at EU level?

The association defines maturity of the relationship in terms that would seemingly put the EU-China relationship on par with EU-US relations, with, “both sides having the right to defend their interest strongly, but also deal with disagreement in a spirit of cooperation and transparency”.

Despite the headline-grabbing trade battles, comments by EU leaders and the Chinese government indicate concurrence on one key point – their economies will become more interdependent. They agree there is a need to enhance dialogue in order to uplift trust and mutual understanding, thus potentially boosting cooperation.

The year provides myriad opportunities for diplomatic discourse via the regular EU-China Summits, the EU-China High Level Economic and Trade Dialogue, the High Level Political Party Forum, the High Level Strategic Dialogue and the existing 50 plus sectoral EU-China exchange and dialogue mechanisms.

Corporate Europe’s wish-list

European corporations hope that during those policy meetings, issues problematic in their eyes - the strong Chinese apparatus influence on the market, weak IPR and certification enforcement, discriminatory treatment or forced technology transfer - will be tackled. European industry will continue to urge EU leaders to grasp every opportunity to push China to bring to an end its subsidy policy, e.g. by advocating for stricter multilateral rules on state aid and subsidies and/or by amending the EU public procurement legislation so that third-country bidders benefitting from subsidies are excluded.

They also call for the EU and China to negotiate a bilateral investment agreement providing legal certainty for industry on both sides. Above all, European corporations demand that the 27 member states show a greater European solidarity when China is at odds with one of them; contrary to China, the EU is not a fully-centralised political bloc and its member states do not always speak in unison.

Strengthening EU-China 'soft ties'
EU and Chinese leaders also agree there is a need to enhance communication at citizen level to further promote better understanding and consolidate popular support for EU-China relations. As such, both leaderships will work at maximising the impact of the EU-China 2012 Year of Intercultural Dialogue. In the EU, the aim is, inter alia, to counter some recent negative narratives on China taking advantage of the European sovereign debt crisis to buy out Europe.

These narratives may very well be used as political arguments during the electoral campaigns, which will take place in some member states (notably France, Greece, and Romania) in 2012. This may add temporary turbulence to EU-China relations over the year as rhetoric heats up and candidates look to gain support by playing up nationalist and protectionist themes.

A weaker Europe=turbulence for China?
The European zeitgeist is defined by the economic crisis; all issues are translated through its filter. Listening to the two leaders at the forefront of the Eurozone’s efforts to turn the tide, one does not get a sense of ease about the prospects for 2012. In their New Year messages, German Chancellor Angela Merkel and French President Nicolas Sarkozy warned of danger and risks at every turn.

The concern of a failed Euro this year, however unlikely, will colour all of the bloc’s bilateral relationships. Protectionism, lack of consumer spending due to higher taxes and fewer jobs and stagnant wage growth in China’s largest trade partner (in aggregate) will increase pressure on China’s economy to look domestically and at emerging growth markets to replace lost volume.

Let us nevertheless conclude on a positive note with Chinese Ambassador to the EU Song Zhe’s (self-fulfilling) prophecy for 2012: “I strongly believe that as China and Europe join hands together, our relations will exhibit the overwhelming strength of a dragon, as they attain higher and more impressive breakthroughs”.