Dangerous Liaisons; Europeans are swept up by 'Sinophoria.' But this love affair is double-edged.(Chinese relations)

Byline: Stefan Theil (With Eric Pape in Paris)

Jacques Chirac played the perfect guest. Touring Beijing with 30 French executives in October, the French president called for an end to Europe's arms embargo on China. He labeled Taiwan's moves toward independence as "irresponsible" and argued that Chinese human-rights violations should be discussed "discreetly" or not at all. China, he proclaimed, is "taking its full place--which is immense--on the global scene." Clearly appreciating the unctuous affirmations, Chinese officials showered the French with a record-setting 4 billion euros worth of business contracts.

Europe, these days, is besotted with Sino-euphoria. Its diplomats dream of a newly multipolar world--with China as an indispensable pole. German Chancellor Gerhard Schroder, who embarks on his sixth visit to China this week, enthuses over the new "strategic partnership." The burgeoning China trade, he hopes, will help Germany to trade its way out of economic stagnation--and himself into a third term as chancellor in 2006. This week's summit of European Union and Chinese leaders in The Hague will bring yet another lovefest, with new agreements ranging from research cooperation to tourism. Europe and China, business leaders agreed at a conference in Hamburg last week, are "a marriage made in heaven."

Hmm. That's not quite how the European Commission sees it in its recent 2004 Competitiveness Report. It devotes a whole chapter to the emerging China threat. Just as America's China craze a decade ago set the stage for wrenching industrial changes, so now will Europe's. It, too, will soon face massive competition from ever more powerful Chinese "national champions," the report warns, undermining entire industries and requiring a large-scale transformation of European economies. A study by the Boston Consulting Group predicts that Germany stands to lose a quarter of its 8 million manufacturing jobs during the next decade, many of them to China. Yes, economic opportunity beckons. But if not properly managed, Europe's embrace of China could hasten rather than arrest its own economic decline.

That would be a cruel twist. After all, it was Europe that originally opened the door to Beijing. French President Georges Pompidou, not Richard Nixon, was in 1973 the first Western head of state to visit Red China. Long before outsourcing became a dirty word, European companies were pioneers. Volkswagen entered the market as early as 1983; today the German automaker sells more cars in China than at home. But most European companies slept through the China frenzy of the 1990s, leaving the field to American, Japanese and Korean competitors who flooded in to cut costs and seize new markets. Thus Europe largely missed out on the consumer boom sparked by cheaper Chinese wares--one reason, say economists, for Europe's feeble growth.

Now Europe seems to be making up for lost time. From German machine makers that equip Chinese factories to French couturiers who dress the growing middle class, European companies have doubled their sales to China during the last four years. The European Union will soar past Japan and the United States this year to become China's biggest trading partner, creating or saving tens of thousands of European jobs. When Schroder inaugurates a new 1 billion euro Volkswagen plant in Changchun on Dec. 7, his advisers would do well to remind him that VW is not the only struggling German blue chip whose 2004 corporate profits would look ...