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June 24, 2020

EU/CHINA: Gaining time

BY Antonio Barroso, Carsten Nickel

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( 4 mins)
  • While this week’s consultations between EU institutions and the Chinese government ended without any communique, the outlook for the big EU-China summit in H2 is still uncertain.
  • Despite the EU’s ‘awakening’ to China’s increasing global role, Europe’s ability to develop a unified position remains constrained by member states’ diverging interests.
  • The EU could end up applying a more forceful approach towards China on the trade front, but US-style sanctions or a full economic “decoupling” remain unlikely.

How we got here

The EU’s perception of China has noticeably changed over the last decade. This was exemplified last year by the European Commission’s much-debated decision to label the rising power as a “systemic rival.” Concerns have notably been rising about Chinese FDI, including the purchase of important technological assets. But the main trigger has been a convergence of views between France and Germany. Paris has long worried about its ability to protect core industries, a worry that has become ever more pressing under Emmanuel Macron’s presidency. Berlin took longer to realize the perils that China’s pursuit of technological supremacy might entail for Germany’s ability to maintain its competitive edge in the global economy.

Beyond the change in rhetoric, Brussels has pushed for a more concerted approach towards China, primarily on two fronts. Regarding trade, the Commission has been working on changes to counter the distorting effects of state subsidies by third countries. Legislative proposals are expected before the end of the year. It is also developing rules that would limit foreign companies’ access to the EU public tender market. At the same time, Brussels has been trying to negotiate a comprehensive investment agreement with Beijing that would pre-empt the use of these tools.

On the diplomatic front, member states in the Council have been trying to create a genuinely bilateral forum for discussion between the bloc and Beijing. In fact, 2020 was supposed to be the year of the first-ever EU-China summit between all EU leaders and the Chinese president. The summit has been canceled, but Berlin still hopes that it might be possible to hold it at a later day before the end of the German presidency of the Council of the EU, which runs from 1 July to 31 December.

Given the divisions that have traditionally characterized the EU’s positioning towards China, the efforts over the last 18 months are no small feat. Some member states which received sizable amounts of Chinese FDI during the Eurozone crisis want to guarantee that this door remains open, while other national capitals think they can derive particular trading advantages if they develop their own relationship with Beijing.

Going forward

The Covid-19 shock has only intensified the tensions underlying the bloc’s policy towards China. Beijing’s aggressive diplomacy efforts during the pandemic, including public criticism of European crisis responses, has soured the relationship with some EU capitals (most notably France). Disinformation and cyberattacks allegedly coming from Chinese quarters have only reassured some EU policy elites that the bloc needs to be much more assertive.

Beyond words, however, the EU will likely refrain from antagonizing Beijing too strongly. This week’s summit between EU institutions and the Chinese government ended with no joint communique. The EU press release instead voiced concerns regarding Beijing’s human rights record while urging Chinese authorities to conclude the ongoing trade negotiations. As the EU seems willing to continue negotiating on the trade front, it can have little interest in debates about sanctioning Beijing on the human rights front. Moreover, there is generally no consensus between members states on how to deal with China on such political issues.

While the EU is trying to gain time for now, this does not remove the medium-term risk of Brussels deploying more robust trade measures, however, especially if progress remains elusive on the investment agreement. The pandemic has only reinforced the view that the EU needs to gain ‘strategic autonomy’ via industrial policy and the protection of European firms from unfair global competition. A structural signpost to watch will, therefore, be whether the EU’s continued bet on talks and negotiations is seen to bear fruits in terms of managing the global economic recovery, or whether China will instead be seen as pursuing its own goals in a more combative manner, at Europe’s expense.

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