Why cooperation on the coronavirus epidemic won’t help upgrade the China-EU relationship

Beijing should consider offering Europe concessions in trade and investment, or risk seeing it join hands with the US. After all, China and the European Union share a common cause: to protect multilateralism from Trump’s approach to world affairs

Emanuele Scimia

Published: 1:00am, 25 Feb 2020

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Apart from issuing travel bans to and from China, the European Union and its member states have not hesitated to help the Chinese authorities tackle the spread of the coronavirus – something Beijing has publicly acknowledged.

But do not misunderstand, cooperation on the Covid-19 outbreak will not spark closer Sino-European relations. If anything, the EU could be tempted to seize on China’s difficulties to exact trade and investment concessions.

At the annual Munich Security Conference on February 15, Chinese Foreign Minister Wang Yi said China would deepen collaboration and upgrade the relationship with Europe. However, European leaders did not seem receptive to his message. Instead, they voiced concern about the challenge posed by a rising China, a position in line with that of the United States.

In a speech at the Brussels-based Centre for European Reform on February 4, EU Trade Commissioner Phil Hogan said: “There are few challenges more complex than China.” Given its economic growth, geopolitical ambition and distinct state capitalism model, Beijing is at once a strategic partner, a competitor and a systemic rival, according to the European bloc.

The recent US-China phase-one trade deal aimed at ending their trade war has irked the Europeans, who view Beijing’s commitment to buying US$200 billion of American goods and services over the next two years as market distortion.

In a February 8 opinion piece, EU foreign-policy chief Josep Borrell said bluntly that Europeans did not want to be the “losers” in the competition between China and the US, meaning that the EU must “relearn the language of power”.

The EU, which is China’s main trading partner, is a commercial powerhouse that runs a significant trade surplus with most countries. However, it continues to record external current account deficits with Beijing – US$34.4 billion in the third quarter of 2019, and US$127 billion in 2018, according to data compiled by Eurostat, the bloc’s statistics office.

The EU has always been critical of China’s unfair trade and investment practices. At a meeting in Washington last month, it agreed with the US and Japan to expand the list of state subsidies prohibited under the rules of the World Trade Organisation. The Chinese, which subsidises their state-run industries, were clearly the target of the trilateral initiative.

Europe has already enacted anti-dumping measures and rolled out an EU-wide mechanism to screen Chinese investment in sensitive industrial sectors. The bloc and China say they are working to finalise a comprehensive investment agreement by the end of this year, but talks seem to be moving forward sluggishly.

Furthermore, the battle against the coronavirus could delay the entire process, Hogan told the European Parliament last week.

The last round of negotiations was held in Brussels from January 16-21 and disagreements remain over investment liberalisation, sustainable development and rules applicable to state-owned enterprises. Europe wants more reciprocity in its investment engagement with China.

Amid Trump discord, China must deepen its friendship with Europe

That means Beijing must refrain from forcing technology transfers, ensure a level playing field between European companies and Chinese state-owned enterprises and improve transparency on export subsidies.

Huawei’s 5G technology and the Belt and Road Initiative are also on Europe’s radar. Although the EU has not imposed a full ban on the Chinese telecoms giant, it has pointed out that 5G components critical for national security will only be sourced from “trustworthy” parties.

Nonetheless, the bloc’s decision has drawn the ire of the administration of US President Donald Trump, which considers Huawei a Trojan horse of Beijing’s intelligence apparatus – and so a threat to the North Atlantic Treaty Organisation.

The EU has complained about China’s opaque handling of the belt and road scheme, Chinese President Xi Jinping’s plan to boost connectivity and trade integration across Eurasia and beyond. The Europeans say their companies are discriminated against, in favour of Chinese competitors, which continue to have the lion’s share.

The paradox is that belt and road projects would need an injection of fresh capital, particularly in Europe, where Chinese investment in the strategically important transport sector dipped to US$6 billion in 2019 from US$14.4 billion in the previous year, the China Global Investment Tracker reports.

The coronavirus is expected to harm the global economy if not contained, and the China-EU value chain will not be spared. That said, the epidemic may give the Europeans more leverage in negotiating the investment deal with Beijing.

China eyes new ‘starting point’ in relations with Europe

The growth of the Chinese economy is expected to slow to around 5 per cent in 2020. That could potentially undermine Xi’s leadership and the social pact between the regime and the Chinese people – the Communist Party’s commitment to promoting individual enrichment in return for political loyalty and stability.

Against this backdrop, China risks being caught in the grip of Europe and the US, which could put aside their trade friction to score points against China. To break the siege, Xi could take the path of least resistance and agree to some of Europe’s demands when he meets EU heads of states in Leipzig, Germany, in September.

After all, the two sides agree on the need to protect multilateralism against Trump’s unilateral approach to world affairs.

Emanuele Scimia is an independent journalist and foreign affairs analyst

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