China's emergence as a major economic force has fueled its rise as the dominant regional power in Asia, as well as a global political power. Rightly or wrongly, some have concluded that China may be even more important as a future partner and competitor for the United States and the European Union than either is for the other. Consequently, few nations will ignore or neglect China's rise, or fail to pursue a strategic relationship that extends well beyond trade and investment.

This is especially true for the European Union and its "big three" members: Germany, France, and the UK. Each of these three countries has its own foreign policy and frequently competes with the others, potentially undercutting EU cooperation and allowing China to take the "divide and rule" approach that Russia and the United States are sometimes accused of pursuing in their relations with the European Union.

In Embracing the Dragon, Katinka Barysch and her co-authors offer a brief, but wide-ranging survey of the current state of EU-Chinese relations, which, they write, "have been, and continue to be, driven by economics." They emphasize the importance for the European Union of moving beyond trade and investment, "the backbone of EU-China relations," toward a comprehensive strategic partnership with Beijing that will strengthen political ties and promote a closer working relationship in global politics.

Such a partnership depends on the European Union and China moving beyond a multitude of "dialogues" to conclude a new "framework agreement." That will involve long and arduous negotiations covering all the most potentially contentious issues.

A framework agreement, however, might exacerbate the very differences in values that make it difficult to achieve a genuine partnership. Although the authors believe that China and the European Union have much in common, there are striking differences: the importance China places on its national sovereignty strongly contrasts with the European Union's hybrid supranational model; China remains a one-party, autocratic state with serious human rights abuses; internationally, China is reluctant to engage in humanitarian interventions or multilateral activities that impinge on the internal affairs of other countries; and China does less than it could to control the proliferation of military technologies.

Nevertheless, the authors endorse the European Union's embrace of China and the Union's two key objectives: to support "China's internal transition towards market economics, the rule of law and democratic accountability" and "to help China become a responsible and reliable global player that respects international rules." The European Union also hopes to promote regional integration in Asia, and Barysch and her co-authors believe "the EU should wholeheartedly encourage China's ambitions in this regard."

Barysch's discussion of the impact of China's economic growth on the European Union is interesting, but too brief given the importance that she attaches to economics as the driver of the relationship. Unlike the earlier rise of Japan as an economic powerhouse, China's development has been open to foreign direct investment and depends on the exports that are produced by foreign companies there. China's continued success and its political and social stability are based on maintaining rapid GDP growth and creating millions of new jobs every year. Thus, China's stake in the global economy is already high and will continue to grow. But if China continues its rapid growth trajectory and integration into the global market, its success may generate a backlash in the European Union as it makes inroads into ever more complex industries.

From an American perspective, numerous tensions already exist in the trade relationship with China, including the size of the U.S. trade deficit and the loss of manufacturing jobs, China's failure to honor its WTO commitments and its undervalued currency. While this has provoked considerable debate in the United States about the challenge that China poses, China has not yet generated the same level of concern in the European Union.

The authors believe this is because (1) Europeans tend to be less aware of the impact of China's undervalued currency; (2) though not insignificant, the EU trade deficit with China is much lower than the U.S.-China trade deficit; (3) the Union's deficit with China is more than matched by the large surpluses it runs with other countries (in 2004, the European Union's trade surplus with the United States was £11 billion more than its trade deficit with China); and (4) Europeans care more about their national trade balances than they do about the EU trade balance.

When the more immediate impact of EU enlargement to 25 members is taken into account, it is not surprising that China does not currently loom as large for Europe as for the United States. It may, however, be only a matter of time before more Europeans start questioning whether they continue to compete with China in the future.

The U.S. approach differs substantially from that of the European Union and reflects a unique set of political and strategic interests. To the extent that China's rise is not accompanied by domestic and foreign policy measures that defuse tensions, the United States might, with some justification, see China as potentially upsetting the geopolitical and military balance. After several years in which U.S.-China relations have been relatively quiet, the Bush Administration and Congress began to take a tougher line in 2005.

Two particularly important issues for the United States are the recent efforts by European governments to lift the EU arms embargo on China, imposed in 1989 after the Tiananmen Square crackdown, and Taiwan. Both issues highlight key differences in the U.S. and European approaches to China and could, if not resolved, cause serious rifts in the Transatlantic alliance. At present, there is no high level dialogue between the United States and the European Union on China that might promote either common positions or a greater understanding of U.S.-EU differences.

The arms embargo is considered an impediment by the French, Germans, and some other EU members to the development of a strategic partnership with China - indeed Beijing has demanded the embargo's removal as a condition for agreeing to such a relationship. Barysch suggests a more cynical motivation by the French and Germans: they "probably hoped to gain big non-military contracts by promising China their support on this key issue." The United States is unyielding in its opposition to ending the EU embargo, citing China's unacceptable human rights record and the possible destabilization of the East Asian balance of power, especially with respect to Taiwan.

Notwithstanding U.S. opposition, the European Union appeared ready to lift the arms embargo during 2005. A hardening of the U.S. position in early 2005 was evident in bipartisan support in Congress for sanctions against European companies doing business with China, and stricter rules on the transfer of U.S. technology to Europe, if the embargo were lifted.

Barysch argues that Washington imposed a loyalty test that effectively split the European Union. Such a test may or may not have been sufficient to achieve U.S. aims. In March 2005, Beijing effectively scuttled any prospect of lifting the embargo by passing a new Taiwan "anti-secession" law stating that China may use "non-peaceful means and other necessary measures to protect China's sovereignty and territorial integrity." It appears that the moment for ending the arms embargo has, at least temporarily, passed.

The authors argue that, "in the long run," the embargo should be lifted as relations are normalized, in a way that ensures that the East Asian balance of power is not disrupted, that the United States is not "alarmed," and that human rights, non-proliferation and other EU objectives are advanced. If China had set out to drive a wedge between the United States and the European Union over lifting the arms embargo, its timing on the Taiwan anti-secession measure could not have been worse.

Nevertheless, the United States and the European Union are still heading down different paths in their approach to China. If they are unable to coordinate their China policies, Barysch argues that "the risk is that China could exploit these Transatlantic differences to its advantage and to the mutual detriment of the U.S. and Europe." The arms embargo will probably continue to be a divisive aspect of U.S.-EU relations as long as Taiwan remains the central issue in U.S.-China relations.

The EU has generally taken a low-key, hands-off approach to the question of Taiwan, although it called for a "peaceful resolution of the Taiwan issue" in 2003. In March 2005, it expressed concern over the anti-secession law. Unlike the United States, the European Union has no defense agreements with Taiwan and is not, in principle, committed to defending Taiwan in the event of a Chinese attack on the island. Never-theless, Barysch and her co-authors believe that "in a showdown over Taiwan, the Europeans might have to sacrifice their relationship with China in order to stand by their American allies in a conflict over which they had no control."

Unlike the European Union, which is not a Pacific power, China and the United States both tend to view their relations with each other through the prism of Taiwan, as well as broader regional interests. Thus, the stakes are high for the United States and China, and it is understandable that both would press the European Union and its member states to support their respective positions. The authors believe that "the EU cannot and should not try to rival America's role in the region." At the same time the EU is developing an independent China strategy that differs from the American strategy. Whether they are complementary may depend upon a successful U.S.-EU dialogue on China.

One of the strengths of Embracing the Dragon is its recognition of the value of helping China become a successful global partner while at the same time, admitting that the European Union "risks squandering its potential unless it starts thinking about China more strategically." Such an approach would prioritize objectives and attempt to ensure that the short-term commercial goals of member states do not undermine the European Union's long-term aims. The book is optimistic about the European Union's opportunity to effect positive change as China develops, and is realistic about the need for the European Union to insist on linkages that provide an incentive for Chinese cooperation in areas as diverse as human rights, the environment, export controls and illegal immigration.

Given China's size and importance, Europe will almost certainly try to pursue a strategy that helps make China's rise as smooth and steady as possible. The authors of this book encourage the Europeans to take more responsibility for, and to think more about, regional security in Asia. Their advice may be wise in terms of dealing with China and also for avoiding misunderstandings with the United States. Neither the European Union nor the United States can afford a Chinese catastrophe.