China's Now-or-Never Moment with Brussels
This week, a high level virtual summit between the leaders of the European Union and China could produce a Comprehensive Agreement on Investment. But the ball is in China's court. The window of opportunity will not remain open for much longer.
As the US-China dispute has escalated, creating global economic disorder, both sides seem to have lost sight of the fact that even the fiercest of rivals do not need to be enemies. America is intent on further destabilising China’s economy by encouraging its companies to decouple, while China remains resolutely uncoupled from the world in many crucial sectors.
China is also hedging against the potential damage decoupling would cause through Beijing’s favourite new buzzword, the «dual circulation strategy». This concept essentially calls for foreign trade and investment to be welcomed in the areas China most needs it, while it invests heavily in its capacity to become self-sufficient, both in terms of technology and consumer demand.
Many are wondering where Europe stands in all this.
While the EU recognises China as a systemic rival, the bloc views its own asymmetric arrangements with the world’s second largest economy as an opportunity to deepen engagement and write a new rulebook.
On September 14th a pivotal meeting will take place between European Council President Charles Michel, European Commission President Ursula von der Leyen and Chancellor Angela Merkel representing the German presidency of the Council of the EU on one side, and President Xi Jinping on the other.
At the centre of the discussion will be the EU-China Comprehensive Agreement on Investment (CAI), the investment treaty that, if concluded, will be only the second significant bilateral economic deal between the EU and China, following the agreement on Geographical Indications that was authorised in July 2020.
The ideal CAI should increase European companies’ access to the world’s fastest growing market, and provide a framework that allows them to compete on a level playing field while safeguarding the same for Chinese companies in their largest market, the EU – hardly a revolutionary accord between fellow economic powers.
But it is now or never.
The will among many of Europe’s business and political leaders may largely be in favour of a strong CAI, but voters and political parties are becoming increasingly vocal about the political and social direction that China is heading. Many Europeans that previously may not have had a deep understanding of China have spent the last year reading about things like «17+1», «wolf warriors», the allegations of forced labour in Xinjiang and the impact of the Hong Kong National Security Law. Even the recent European tour by China’s top diplomat, Wang Yi, left a sour taste after his attack on the Czech Republic, a nation that hosted President Xi Jinping just four years ago in Prague and bonded with him over his love of football and beer.
In a continent where public opinion matters a great deal, these issues have the potential to derail any chance of successfully concluding an agreement.
While the patience of European leaders has been stretched to the limit, with negotiations that began in February 2012 having dragged on for more than 30 rounds, this does not mean that Europe should overlook its principles for the sake of any deal. Substance must take precedence over speed, and a half-baked agreement that ignores the most pressing issues in our unbalanced economic relationship – like the US-China phase one deal, and its focus on managed trade – should not be entertained.
A truly comprehensive agreement is needed, particularly with the US undermining the World Trade Organization by not approving new appellate judges, which has diminished the relevance of this long-standing multilateral platform.
The EU’s experience and will to deliver is evident, having concluded far-reaching free trade agreements and investment deals since 2012 with many economies, including Canada, Japan, Korea, Mexico, MERCOSUR and Vietnam.
Aside from providing access to each other’s market that is as close to reciprocal as possible, potential sticking points to reaching a similar agreement with China include state-owned enterprises, subsidies and the issue of labour rights. With Europe’s market already extensively open to Chinese investors it is also simply not feasible for the EU to meet China half-way on the deal, as has been called for by Chinese diplomats.
This puts the ball very much in China’s court. The window of opportunity is not likely to remain open for much longer. Economic ties are the foundation of the EU-China relationship, and Europe is ready to see them strengthened this year, while it can.
Whether China feels the same will be seen at next week’s virtual summit.
