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The China-EU Investment Deal Is a Mistake

The China-EU Investment Deal Is a Mistake

Thursday, 31 December, 2020 - 04:45

The European Union is about to announce a breakthrough in a sweeping mutual investment agreement with China. If this happens, Beijing and Brussels — and Berlin, which still holds the rotating EU presidency until Thursday — will declare victory in talks that began in 2013 but had long been bogged down, largely by Chinese stalling. But this deal isn’t a triumph. It’s a mistake.

The sudden Sino-European rapprochement snubs the incoming US administration of Joe Biden, just three weeks before his inauguration. After four years of Trumpist nationalism, Biden was just getting ready to distinguish again between strategic allies like Europe and rivals like China, and to coordinate more closely with the former to better contain the latter.

Europeans are generally delighted by the change in Washington. Some, such as the Germans, have been talking about offering Biden a “new transatlantic deal” to rejuvenate the alliance. Others, including French President Emmanuel Macron, still emphasize the goal of making Europe “autonomous” and “sovereign” in geopolitics, while acknowledging the need to work more closely with the US to resist Chinese authoritarianism.

This prospect of the EU and US ganging up is what Chinese President Xi Jinping urgently wants to forestall. That’s the best explanation of why he intervened personally this month in the negotiations over the EU-China Comprehensive Agreement on Investment (CAI), jumpstarting talks that had looked dead.

Thinking small, the Europeans seem to have welcomed Xi’s overture. Realizing that Beijing is in a hurry before Biden’s inauguration, they tactically pocketed a few token concessions by China — still to be clarified — and proclaimed success. In doing so, they may have jeopardized what should be their bigger strategic goal: a united Western front to compel China to genuinely accept a liberal and rules-based international economic model.

The background to the investment agreement is the totally lopsided approach to business taken by the EU and China. Although it’s recently begun screening sensitive transactions, Europe has largely been open to investments by Chinese firms, including state-owned ones controlled directly by the Communist party. China, by contrast, restricts access to its market with onerous rules on foreign ownership and rapacious terms on technology transfer.

Europe has also been relatively transparent and restrained about subsidizing its own companies whereas China is opaque about state aid and is believed to give its champions unfair advantages. The EU is far more liberal than China about procurement and licensing rules.

Above all, Europe insists on international labor standards, which China has so far rejected. In particular, the EU wants assurances that China will stop using forced labor at camps in its Xinjiang region, where it detains about a million members of the Muslim Uighur minority. China denies any wrongdoing.

For most of this year, the trend pointed to a hardening of the European position. This was in part a response to China’s crackdown in Hong Kong, its bullying in the South China Sea and the Taiwan Strait, and its arrogant “wolf warrior” diplomacy in Europe itself.

It’s enough to make Xi worry that a more skillful adversary in the White House combined with stiffer resistance from Europe would ruin his plans for China’s rise. So he’s redoubled efforts for alternative international pacts that exclude the US.

His biggest success was the Regional Comprehensive Economic Partnership, a trade agreement with 14 other Asian and Pacific countries. It could only come about because President Donald Trump had earlier nixed a different Asia-Pacific trade alliance that would have included the US but excluded China.

The Sino-European CAI is not a trade deal, but clearly intended to be the precursor to one. It’s therefore part of Beijing’s attempt to build a triangular geopolitical architecture between North America, Asia and Europe that leaves China stronger in the coming struggle with the US.

That in itself shouldn’t be a reason against sensible agreements with China in business, trade or anything else. If Beijing really did agree, for example, to verifiably use no forced labor and to level the playing field for European firms in China, then this is a good deal.

If it turns out, however, that Beijing only held a few fig leaves over sensitive disputes in order to get closer to Europe before Biden can orchestrate a common Western stance, this deal was a blunder. Europe has been waiting since 2013 for China to come around in the CAI. It could have waited a few more months to make sure that happens properly.


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