China and the EU: A Tale of Two Summits

Initially planned for March 2020, the 22nd annual EU-China Summit was held by video-link on June 22 due to the COVID-19 pandemic. This was the second EU-China summit after the March 2019 publication of the European Commission’s paper “EU-China – A strategic outlook,” which labeled China as a “systemic rival.” The paper recognized that “the balance of challenges and opportunities presented by China has shifted” and pointed out that China promoted “alternative models of governance” to those of the EU. The paper also listed a number of other concerns including, inter alia, trade issues and cybersecurity.

Shortly after the publication of the paper, in April 2019, the EU’s foreign direct investment (FDI) screening mechanism (proposed in 2017) entered into force to investigate foreign takeovers of strategic assets including key infrastructure and high technology. Although applicable to investment from all foreign countries, the mechanism is mainly directed at China. This is even more relevant in the wake of the coronavirus crisis, when many EU member states are in need of cash and tempted to sell off strategic assets. Decisions on FDI under the mechanism are ultimately left to member states, but the mechanism nevertheless represents a clear step forward in this area.

When the EU and China held their annual summit in July 2019, they managed after much negotiation to agree on a joint statement including Chinese commitments on investment rules and market reciprocity, which China did not deliver upon as the EU had expected. Since the 2019 joint statement was agreed to there has also been backsliding on human rights in China, including the arbitrary detention of foreigners and deeply concerning reports on the treatment of ethnic minorities.

The 2020 summit was colored by those developments, as well as the consequences of the COVID-19 pandemic and events in Hong Kong. When the pandemic hit Europe, individual EU member states initially refused to share medical supplies. China promptly stepped in to furnish them. However, China’s rather clunky propaganda left a bad taste, especially since European leaders were asked to be discreet about the aid they sent to Wuhan at the beginning of the COVID-19 pandemic. By contrast, China has trumpeted its “mask diplomacy,” often conflating sales with aid and suggesting that the EU was not there to help. Beijing’s propaganda drew concern in Brussels, as seen in a blog post by EU High Representative Josep Borrell on a “battle of narratives” between the EU and China. China’s Ministry of Foreign Affairs and state-controlled media even created fake news suggesting the virus did not originate in Wuhan.

But the paradox of propaganda, as exposed by Pew Research polling, is that the more Europeans were exposed to China the less they liked it. European public opinion thus turned against China. In early 2020, the EU published reports denouncing Chinese disinformation; one report in April attracted particular attention because its wording was massaged following Chinese complaints.

On top of the already souring perceptions of China came new worries about Beijing’s tightening grip over Hong Kong. The EU made a statement on May 29 to the effect that they were “gravely concerned” over China’s new national security law for the former British colony, but did not put any sanctions on the table. On June 23, the day after the summit, European Commission President Ursula von der Leyen threatened China with “very negative” but unspecified consequences if it proceeded to impose the security law. Beijing did so anyway on June 30. Of the 27 EU member states, only one, Sweden, made the suggestion of tabling sanctions on Hong Kong, while Britain took a tougher stance and also offered citizenship to 3 million Hong Kong citizens.

China’s Divide and Conquer Approach

EU member states remain divided about China and often unable to speak with one voice. In a recent interview with Der Spiegel, Borrell, the EU foreign policy chief, admitted: “Wherever there are problems, be it with China, Turkey or Israel, the EU countries often have different views. We then look for the lowest common denominator, and unfortunately this is often quite small.”

Through the “17+1” initiative directed at Central and Eastern Europe, Beijing has carefully cultivated relationships with EU member states and candidate countries without needing to spend much money. For instance, Hungary and Greece have opposed statements unfavorable to Beijing or effectively watered them down.

Italy signed a Memorandum of Understanding on participation in China’s Belt and Road Initiative last year. China has influence also with other EU countries, including France and Germany, thanks to its economic weight and the multibillion euro contracts it can offer to a country’s companies. This leads to some notable examples of cognitive dissonance, as when French President Emmanual Macron declared “The period of European naivety [on China] is over,” days before he signed contracts worth 40 billion euros with Beijing in March 2019.

Beijing has focused its lobbying efforts particularly on Germany, for which China has become the largest single trade partner, overtaking the United States in 2016. China-Germany trade was worth $229 billion in 2019. Germany alone accounts for over 40 percent of EU exports to China.

When it comes to relations with China, it is clear that Germany sets the agenda within the EU. The head of the European Chamber of Commerce in China is German, as are the chair of the European Parliament delegation for relations with China and the official in charge of the Asia-Pacific region in the EU foreign policy service. Beijing prefers to go through Berlin rather than Brussels and deal directly with the Germans, thus also contributing to the weakening of the EU. Policymakers in the Berlin bubble seem to be oblivious to the resentment this creates in other EU countries.

Similarly, German business representatives have been given special privileges to fly to China without quarantine (this was first proposed for all European business representatives, but then Beijing decided to favor only business leaders from Germany). German business leaders have seized these opportunities, without too much concern for European solidarity.

The Tale of Two Summits

The 2020 EU-China summit did not produce any joint statement, nor did the Chinese government agree to any sort of joint news conference. The EU issued its own press statement and held its own press conference after the summit. In the press statement, the EU stressed the need for China to fulfil the commitments made in 2019. It also raised the need for China to respect civil liberties in Hong Kong. In addition, it denounced the “deteriorating human rights situation, including the treatment of minorities in Xinjiang and of human rights defenders,” and the continued arbitrary detention of Swedish and Canadian citizens. In the press conference, von der Leyen referred to China as a “systemic rival” and complained about Chinese cyberattacks, including hacking hospitals, which was seen by some as a watershed moment in the EU official perception of China.

By contrast, the Chinese official account, in the form of a Xinhua article, played down differences and highlighted consensus between the two sides. It stressed that China is a “partner, not a rival” of the EU and that the meeting “enhanced mutual understanding and trust, and injected new impetus into the further growth of China-EU comprehensive strategic partnership.” It stated that “both sides hope to send a positive signal of China and the EU working together to fight COVID-19, advance cooperation and promote global economic recovery, with the view to bringing more stability and positive energy to the world.” The word “cooperation” occurs 16 times in the article.

Thus the EU and the Chinese accounts of the outcomes of the event appeared to reflect two very different summits. In that sense they are reminiscent of official records of the meeting of Britain’s Ambassador George Macartney with China’s Emperor Qianlong in 1793.

Although expectations for the 2020 summit were rather low, it nevertheless left a feeling of disappointment and frustration. In retrospect, it was an odd choice to hold the summit at all, since bureaucrats often desire deliverables before an event takes place and there were none apparently on offer. Instead, sources in Brussels told me, the summit was held at the behest of European Council President Charles Michel. Since the summit produced no outcomes, no joint statement, and not even a joint press conference, one may wonder whether it would have been better postponed. On the bright side, the deliverable-free summit held by video-link helped save the environment by reducing carbon emissions — a stated goal of the von der Leyen Commission. Perhaps this will be a model for future events where no outcomes are expected.

Given that there were no deliverables, the focus turned to appearances. In a city often obsessed with style over substance, the immediate impression of the released footage from the video summit in Brussels was that Michel appeared as an eager student seated before a great leader. Xi Jinping looked serene and detached on the monitor high on the wall, which inadvertently let Michel appear like a supplicant as Xi looked down on him. Von der Leyen fared better, perhaps because of her previous experience with media advisers and their understanding that optics do matter.

It really was a “virtual” summit — with each party having their speaking points, the two sides did not meet during the event, physically or even rhetorically.

More Money, More Problems

The summit left some key issues unsolved, particularly in the areas of trade and investment. On trade, China and the EU disagreed on reform of the World Trade Organization. But the EU was particularly concerned that China was treating the United States preferentially at the expense of the EU.

Under the “phase one” trade deal between China and the U.S., in January 2020 Beijing promised to buy $200 billion more goods from the United States in the coming two years compared to 2017. This includes $77.7 billion in manufactured products, including aircraft, cars, steel, machinery, pharmaceuticals, and more, as well as $52.4 billion in energy products and $32 billion in farm goods, including oilseeds, meats, grains, and seafood. The deal also includes the opening of China’s financial services sector to U.S. companies and other measures. The EU criticized this “managed trade” deal, which sidelines the EU and also strengthens the U.S. negotiating position vis-à-vis the EU in trade matters.

On investment, the Chinese have been dragging their feet for seven years on a new agreement to create a level playing field between European and Chinese companies, called the Comprehensive Agreement on Investment (CAI) by the EU and Bilateral Investment Treaty (BIT) by China. With the CAI, the EU aims to “create new investment opportunities for European companies by opening China’s market and eliminating discriminatory laws and practices.” In particular, the EU seeks to eliminate quantitative restrictions, equity caps, joint venture requirements, and forced technology transfers. European companies would be able to invest in China under the same conditions as Chinese companies and companies from other countries.

At the press conference after the summit on June 22, von der Leyen pleaded with her Chinese counterparts: “We continue to have an unbalanced trade and investment relationship. We need to follow up on these commitments urgently and we also need to have more ambition on the Chinese side in order to conclude negotiations on an investment agreement.”

Europe wants the investment agreement desperately, and Beijing will continue to dangle the promise of an agreement, as this will help keep Europe on its best behavior. The EU continues to ask for the same thing, year after year, hoping that Beijing will finally deliver. However, more and more this is starting to resemble Nietzsche’s eternal return of the same. Beijing is clearly not going to deliver on this agreement – unless they get something major and game-changing in return.

Last year it was in Beijing’s interest to make the Europeans believe that there would be progress on an investment treaty as they wanted to demonstrate to the United States that they had other trade allies during the tense Sino-U.S. trade negotiation. This year, not so much. Beijing’s transactional approach clashes with Europe’s vision of itself as a good and open free trader. One Asian diplomat I interviewed in Brussels suggested that Beijing could use the CAI as a bargaining chip to buy Europe’s support on a major issue in the future. For the time being Beijing has clearly decided not to use this card and to keep the promise of it as useful leverage, perhaps forever.

In light of the China economic challenge, the EU is improving trade defense instruments in order to preserve fair competition in the European Single Market. The annual survey from the European Union Chamber of Commerce in China published in September 2019 stated that China “had not only fallen short of state-owned enterprise reform hopes, but had actually regressed considerably.” The European Commission adopted a white paper in June and called for a public consultation from stakeholders on how to deal with the distortive effects caused by foreign subsidies in the single market in order to craft an appropriate legislative response.

In February 2020, the EU opened an anti-dumping investigation into Chinese aluminum and in August they expanded it. In the words of European Aluminium Director General Gerald Goetz: “It’s obvious that Chinese firms aren’t respecting the global rules of free and fair trade and the numbers show they are dumping more and more products on our market. The volumes of excess capacity they have built up are so massive, they could replace the entire European aluminum production.” In June 2020, before the EU-China Summit, in a landmark case the EU targeted Chinese subsidies to Egypt-based exporters of glass fiber fabrics (an industrial good used for sports equipment and wind turbines, among other things).

China’s ambassador to the EU, Zhang Ming, has warned against any proposed policies that may limit Chinese companies’ access to Europe. Meanwhile, Xi published an article on August 20 stating: “The foundation of China’s political economy can only be a Marxist political economy, and not be based on other economic theories,” which should truly bury any wishful thinking on convergence.

China Went From “Indispensable” to Indefensible on Climate

Another sticky issue in EU-China relations is climate change. The EU’s Borrell has grown accustomed to saying that China is an indispensable partner on climate change. China helped bring about the 2015 Paris Agreement on climate change and ostensibly takes action to reduce emissions, including increased use of renewable sources of energy, but in practice China keeps building highly polluting coal-fired plants.

The EU, meanwhile, is a champion of climate action. In many negotiations with Beijing, the EU remains the “demandeur,” asking China to change its behavior. However, the EU is usually unsuccessful because it has no bargaining chip to leverage with China. China already has what it wants. Unfortunately, the EU stating over and over again that China is a “systemic rival” and recognizing that they were “naïve on China” is not sufficient as a policy tool.

Better Together?: EU-U.S. Bilateral Dialogue on China

Just before the EU-China summit, Borrell proposed launching a new EU-U.S. “bilateral dialogue focusing on China and the challenges its actions and ambitions mean for us,” which the United States accepted. In July, Borrell argued for “strong cooperation with like-minded democracies” given the rise of “authoritarian powers” in the world. He proposed that the EU and U.S. should be at the heart of this effort, working closely with Japan, India, South Korea, Australia, New Zealand, Canada, and others.

In addition, European countries will need to make some tough decisions in the area of cybersecurity, namely on whether to allow China’s Huawei to participate in their 5G network systems or not. The United States is putting pressure on its European allies to exclude Huawei and prevent any possible security hazards, as Huawei would be obliged by law to allow access to data to the Chinese authorities. After the U.K., France has put in place measures that would in fact exclude Huawei, while a discussion is still ongoing in Germany and elsewhere.

Looking Ahead to the Next EU-China Summit

A special summit meeting with Xi Jinping was planned to take place in Leipzig, Germany in September in the presence of all 27 EU leaders as the crowning event of Chancellor Angela Merkel’s six month rotating European presidency. The meeting was postponed, with COVID-19 as the official reason. However, the meeting is unlikely to be held unless there is real progress made on the CAI. The lack of progress at the 22nd EU-China summit, combined with the pandemic and the imposition of the national security law in Hong Kong, means that the special meeting in the presence of the leaders of all 27 EU member states is likely to remain postponed indefinitely. However, a meeting by video conference between Xi, Michel, von der Leyen, and Merkel (representing the rotating EU presidency) is scheduled to take place on September 14.

For now, the EU and China await the outcome of the U.S. election in November to feed into their future calculations. A Biden administration is likely to expect the EU to be more closely aligned with the United States on China. As this issue went to press, Chinese Foreign Minister Wang Yi was on a five city European “fire-fighting” tour trying to staunch accelerating anti-China sentiment in an attempt to prevent growing U.S.-Europe convergence on China, part of Beijing’s longer term transatlantic wedge strategy.

In any case, EU-China relations will continue to be awkward. Increased mistrust after the pandemic and human rights abuses in Hong Kong, Tibet, and Xinjiang, magnified by public opinion pressure in Europe, will need to be reconciled with the need for economic and trade cooperation to relaunch economic growth after the COVID-19 pandemic.