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Watching China in Europe - January 2021

9 min read
Welcome to Watching China in Europe, a new monthly update from G

Welcome to Watching China in Europe, a new monthly update from GMF’s Asia Program. Now more than ever, the transatlantic partners need clarity and cohesion when it comes to China policy. In this monthly newsletter, Noah Barkin—a veteran journalist, managing editor at Rhodium Group and a senior visiting fellow at GMF—will provide his personal observations and analysis on the most pressing China-related developments and activities throughout Europe. Click here to subscribe

 

Santa Claus Delivers

Watching Europe’s policy towards China evolve over the past years has been an unnerving experience. One step forward can be followed by two steps backward. One day China is a systemic rival. The next day it’s a partner. The message diverges depending on which member state you are listening to. And even within European capitals, differences between political parties and coalition partners can make it challenging to discern the broader direction of travel.

The final weeks of 2020 were especially bewildering. The investment agreement between the European Union and China that many people—including yours truly—thought was dead in the water only a few weeks ago, miraculously came together after all, upsetting the geopolitical landscape only weeks before Joe Biden enters the White House. Matt Pottinger, the sanest voice on China in the outgoing Trump administration, declared Washington “perplexed and stunned” at the turn of events. In Brussels, there is shock of a different kind. EU officials cannot understand why anyone might be surprised by the sudden conclusion, behind closed doors over the Christmas holidays, of a negotiation that had gone nowhere for the better part of seven years. At the time of writing, we had heard nothing from Angela Merkel, the driving political force behind the deal, or Emmanuel Macron, who quietly backed it—reportedly after winning benefits for Airbus and assurances that it would be ceremoniously finalized during the French presidency of the EU in 2022. Instead, Berlin and Paris have left EU trade negotiators to defend the deal and its geopolitical implications. These off-record briefings have played out against a surreally dissonant flurry of tweets from the European External Action Service (EEAS) condemning the latest draconian sentences handed down to Hong Kong activists and Wuhan whistleblowers.

China seems to be the only country that is crystal clear about what just happened. After a year in which it showed a disturbing face to the world with its COVID-19 cover-up, its security crackdown in Hong Kong, its Xinjiang denial, and the bullying of too many countries to count, it has been given the biggest Christmas gift of all. There is a Santa Claus after all. He resides in Europe, and he doesn’t seem to care whether you’ve been naughty or nice. Chinese Foreign Minister Wang Yi, whose late-summer European charm offensive ended in disaster after he threatened a Czech politician for visiting Taiwan, was jubilant at the outcome. “China and the EU are comprehensive strategic partners, not systemic rivals,” he declared. The EU would contest that of course. After all, you can still find the words “systemic rival” in a document sitting somewhere in Brussels. But European capitals should accept that one of the messages coming out of this deal is precisely what Wang chose to highlight here. The agreement, and the way in which it was wrapped up in the week between Christmas and New Year’s, is a powerful geopolitical statement—regardless of how long these negotiations have been going on, and whether or not the EU set a goal two years ago to get this done in 2020.

A lot of good analysis has been written already about the Comprehensive Agreement on Investment (CAI). Not everyone in Washington believes it is grounds for alarm. Others argue that the EU has sacrificed its values and sunk into the abyss. The truth may be somewhere in between. But one week after Merkel, Macron, Ursula von der Leyen, and Charles Michel got on a videoconference with Xi Jinping to conclude this agreement “in principle,” there are some lingering questions which deserve closer examination.

 

What's the Big Deal?

Yes, Trump did his phase one deal with China. Yes, over a dozen countries in Asia, including China, just concluded their own free trade agreement. And yes, Europe has every right to do its deal with Beijing. But the reason why the CAI is such a big deal—and has caused consternation in Washington—is that it exposes the extent of the gulf in how Europe and the United States think about the China challenge. Some people have kidded themselves over the past years that this gulf was mainly about the man sitting in the White House. As Joe Biden is about to discover, Trump was only part of the story.

This deal exposes the transatlantic divide in three ways. First, it shows that the EU, with Germany leading the way, still believes that economic and broader strategic interests can be neatly separated—an idea that is no longer accepted in Washington. The Europeans see no contradiction in sitting down with Xi on Monday to secure better access for European firms, and then turning around and talking with Biden on Tuesday about—as the EU put it in its transatlantic agenda paper in early December—the “strategic challenge presented by China’s growing international assertiveness.” The EU’s strategy of calling China a partner, competitor, and systemic rival (all at once) looked like a big step forward in March 2019. But after China’s annus horribilis, it looks more like an outdated excuse to cherry pick. After clinching the CAI, the EU announced that it was pushing back a review of that strategy to 2022.

Second, the deal shows that European capitals still see value in Chinese promises, despite evidence in recent years—Hong Kong, the South China Sea, Xi in Davos—that they are often tactical and empty. This belief is what allows the EU to hail China’s language on SOEs, subsidies and forced labor (“continued and sustained efforts”!) as victories. In Washington, the days of trusting Beijing to stick to the rules, and deliver on its promises, are long gone. Third, after four years of Trump, the deal is a clear signal that the EU is embracing “strategic autonomy.” Europe won’t hesitate to chart its own path—even if it ruffles American feathers. As a former senior Obama official and current Biden adviser told me presciently back in 2019: “Our allies have been traumatized by Trump and we will be hearing about him for a long time. They won’t be saying: ‘Glad to have you back, now let’s get down to business.’”

 

Will it Doom Transatlantic Cooperation on China?

No, this deal will not derail transatlantic cooperation. As the European Commission and EEAS spelled out in their joint communication in December, there is a readiness to talk to the Biden administration on a range of issues, including China. The CAI does not change that, as numerous EU officials have emphasized in their briefings over the past weeks. Nor is “equidistance” between the United States and China the EU’s end game.

But the CAI does complicate the transatlantic discussion, no matter how you slice it. EU officials have been at pains to stress that the deal does not prevent them from using the defensive toolbox of measures against China that they have developed over the past years. These include a new FDI screening mechanism, a push to counter distortions from Chinese subsidies in the EU’s single market, and the use of a new Magnitsky-style sanctions tool for human rights violators. But it will take a year to finalize and ratify the CAI and it would be foolish to expect the Commission to deploy its full arsenal against Beijing at the same time that it is trying to sell the deal to a skeptical European Parliament. As one candid German official told me: “Of course it will slow the deployment of defensive measures. It will have consequences for how Europe behaves towards Beijing in the coming year.”

My expectation is that 2021 will be a lost year for EU-U.S. cooperation on China, as Europe finalizes its investment deal with Beijing and the Biden administration is consumed by daunting domestic challenges. Some EU officials are saying that one of the reasons for going ahead with the CAI despite the looming transition in Washington was that European capitals expect the Biden team to take the better part of a year to formulate its own China strategy. There was not much appetite for sitting tight while that process unfolded. Another reason not to expect much in 2021 is Germany. With a federal election looming in September and six state elections spread out over the course of the year, Berlin will be more inward-looking than ever. This is not a recipe for big leaps forward in the West’s strategy towards China.

 

Will CAI Really Happen?

One question I’ve been wrestling with since the agreement was clinched is why we did not see more pushback from European capitals, beyond a few tweets and expressions of unease by junior ministers. An internal summary of the European Commission’s first discussions with member states on the deal showed that some had serious reservations about the agreement, including this line about the Dutch: “Appearing particularly negative, NL argued that the agreement would cement in the current asymmetry in openness.” The summary also notes that Spain was “particularly concerned” about the EU’s offer to China on energy.

These are the two countries that Chinese Premier Li Keqiang called in a Christmas Eve push to get the deal done. According to Beijing’s readout from those calls, Spain’s Pedro Sanchez and Mark Rutte of the Netherlands both voiced support for an “early conclusion” of the deal. But I was told that the Dutch government was far from happy with the substance of the deal and its timing, and is lodging a complaint with the Commission. In the coming weeks, we may see more grumbling over the way Merkel pushed the agreement through. The internal summary shows that member states were told they had a short “window of opportunity” to back the deal because Beijing wanted it done before Biden took office. “China saw an advantage of concluding before the new administration takes over, and the EU would also need to consider this,” the summary reads.

With Germany, France, and the European Commission firmly behind the agreement, it is difficult to see it unravelling in 2021. Having embraced strategic autonomy, the EU will be determined not to bow to inevitable pressure from the Biden administration. But one thing is certain: China’s behavior over the course of the year will be seen through the prism of this agreement. If Beijing continues down its current path, opposition to the deal in the European Parliament is likely to harden. The debate over the CAI is not over. It may have just begun.