Covid-19 has ravaged the globe, and political tensions have ratcheted up quicker than anyone could have imagined. Delivering on a comprehensive investment agreement between the EU and China would provide a welcome positive impetus.
In late 2019, we began looking forward to what was expected to be a pivotal year for the European Chamber of Commerce in China. In addition to celebrating the 20th anniversary of the founding of the Chamber, with festivities arranged throughout the year to commemorate how far our organisation has come, we also expected 2020 to be a golden year for European Union (EU)-China relations.
On top of regular annual meetings and dialogues, hallmark events were being planned, in particular the meeting between EU heads of state and President Xi Jinping in Leipzig. The centrepiece to this highly-anticipated summit was to be the successful conclusion of the negotiations for the EU-China Comprehensive Agreement on Investment (CAI).
Instead, we have observed a year of extraordinary challenges: Covid-19 has ravaged the globe and political tensions have ratcheted up quicker than anyone could have imagined.
The result is profound uncertainty about the future, with the economy now clinging to what few handholds it can find. Companies are left navigating a political mine field during a health crisis of truly overwhelming proportions, and this situation is becoming more precarious, with the previously isolated voices that were intent on sowing political discontent slowly building into a chorus.
The Chinese market remains one of the main rocks to which our members can cling, especially after the country managed to eventually suppress the initial Covid-19 outbreak. However, while European companies’ China-based operations have largely held fast, business prospects are increasingly overshadowed by other factors.
The politics of the pandemic notwithstanding, sensitive issues in Xinjiang and Hong Kong have come to a head in Europe and North America. People who two years ago could not be counted on to find either region on a map are now demanding that their democratically elected leaders take action against China to bring about a resolution to these issues.
China’s small but highly conspicuous army of «Wolf Warriors» in the Ministry of Foreign Affairs have done little to help this situation, instead preferring to fan the flames with decidedly undiplomatic rhetoric.
Fortunately, contrasting Chinese voices are still found in some diplomatic missions, such as the one to the EU. These embassies still prove that communication can be done in a constructive manner, which has long been the hallmark of China’s professional diplomacy, much to the benefit of companies in both the EU and China.
Friction over the enduring lack of reciprocity in trade and investment terms between the EU and China has been reflected in the movement of people. At the time of writing, a large proportion of foreign national residents in China that were abroad during the early days of the outbreak remain unable to return to their offices, schools, homes and communities after China’s borders shut and visas were suspended in late March with barely 24-hours’ notice.
The few that have returned had to navigate a labyrinth of approvals and ever-shifting requirements in order to do so. This stands in stark contrast to the fact that most European nations kept the doors open to Chinese nationals possessing respective member states’ residency permits. This asymmetric treatment has stirred feelings of resentment, and is doing nothing to improve EU-China relations at a time when greater alignment is required.
Nevertheless, China does have the opportunity to do its part to strengthen bonds with the EU and further solidify important economic ties with its largest trading partner. The European Chamber was founded 20 years ago to oversee China’s adherence to its World Trade Organization (WTO) accession agreement.
Two decades on, the Chamber is playing a critical role in advancing the CAI, by providing crucial business input to negotiators. Choosing to embrace the spirit of WTO membership in a time of potential decoupling and rising protectionism would be a very positive way for China to show that it means business.
At the same time, delivering on a CAI that is sufficiently robust and produces investment reciprocity would prove to other economic partners that engagement, even after seven years and 30+ rounds of negotiations, delivers results.
Closing the gulfs between rhetoric and reality, market potential and market access, and the positive progress in China’s private sector and the regression of the state-owned sector, is in China’s immediate and long-term interests.
Despite its undeniable economic clout, China continues to punch well below its weight, with total factor productivity – i.e. the contribution to economic growth made by managerial, technological, strategic and financial innovations – lagging well behind where it should be at this stage of the country’s development.
European companies and their technology and expertise are ready to act as the transition catalyst that China needs to continue down the development path to fulfil its huge potential.