The European Union’s stance on China is hardening, and that should go down well in Washington.
Only four months after Beijing and Brussels concluded the principles of a landmark investment agreement, a high-level internal report seen by POLITICO shows the EU is now increasingly pessimistic about keeping business interests separate from political concerns over what it calls President Xi Jinping’s “authoritarian shift.” This tougher language reflects a new approach in the EU’s official communications on China.
The EU’s “progress report” on China also slams Beijing for “little progress” on economic promises made by the Communist leadership, particularly in regard to opening up digital and agricultural markets, addressing steel overcapacity and reining in industrial subsidies. It calls for “further, robust” measures to deal with the new challenges posed by China, whose economy is recovering from the coronavirus pandemic at a blistering pace.
“The reality is that the EU and China have fundamental divergences, be it about their economic systems and managing globalization, democracy and human rights, or on how to deal with third countries. These differences are set to remain for the foreseeable future and must not be brushed under the carpet,” European Commission President Ursula von der Leyen and Josep Borrell, the bloc’s foreign policy chief, said in a letter outlining the report to the European Council comprising leaders of the 27 EU countries, on April 21.
A spokesperson for Borrell on Sunday confirmed that a report on China had been sent to the Council.
“To be fully effective, the EU will also need to work closely with other partners. The new US administration confirmed its intention to re-engage with multilateral institutions and work closely with allies and partners, also as regards China … We must accept that open hand and work together, whilst asserting our own stance, and our own interests, on the world stage,” the two said.
The EU’s report seeks to assess the changing dynamics since the EU-China strategic outlook was published in 2019. The bloc’s acknowledgement that the environment is now “more challenging” reflects an unexpectedly rapid souring of diplomatic relations since December. Since then, there has been been heightened international concern about China’s military brinkmanship over Taiwan, its crackdown against Muslim Uyghurs in the region of Xinjiang, and against democracy activists in Hong Kong.
The European Commission’s decision to conclude the Comprehensive Agreement on Investment with China in December was contentious, and the incoming administration of U.S. President Joe Biden signaled that it would like Brussels to consult with Washington before pressing ahead. Brussels brushed off those concerns and plowed on with a deal that was supposed to give a big fillip to European carmakers with factories in China.
Europe’s attempt to keep business interests and human rights worries on separate tracks imploded in March, however. When the EU imposed seeming low-key sanctions against Chinese officials over a crackdown against Uyghur Muslims in the region of Xinjiang, Beijing escalated the conflict with retaliatory sanctions on diplomats, members of the European Parliament and academics working at European think-tanks. Many MEPs have made clear that they will never ratify the EU-China investment deal while their colleagues are sanctioned.
The EU report circulated in the past week noted that Beijing had taken a “more assertive line” over the past two years. “It has continued its authoritarian shift with further closure of the domestic political space, increased social controls and repression in Xinjiang and Tibet. China has also cracked down on fundamental freedoms in Hong Kong [which] … can only have a negative impact on EU-China relations,” it said. “The EU has clear interests at stake when it comes to peace and stability in the South China Sea. The recent rise in tensions across the Taiwan Strait should be closely followed.”
Bridging the Atlantic
This language is now falling more closely in step with that in Washington and comes as Biden plans to visit Brussels for an EU-U.S. summit in June, with China expected to be front and center.
In an attempt to hold onto the hope of some common ground, the EU still insisted it “remains fully relevant” to not just treat China as a strategic competitor and systemic rival, but also a “negotiating partner for cooperation,” including on climate change or on “the democratic transition … in Myanmar.”
But Europe is tilting towards a more confrontational stance than in previous reports, saying: “The multi-faceted approach … should remain as the preferred way for the EU to deal with China. At the same time, further, robust efforts are needed on the implementation of existing actions and to address a number of new challenges.”
Questioned on the report in March, Borrell said China’s sanctions on EU officials had created “a new atmosphere” and “a new situation.” “I am sure that when we present this report to the European Union Council, the leaders will discuss about it and will take into consideration the last events.”
Manfred Weber, who leads the European Parliament’s biggest faction, the European People’s Party, said: “When it comes to China, it is urgent and crucial that Europe actively works to unite our position with the U.S., to defend our common interests and firmly reject the aggression coming from Beijing against our allies around the world.”
Trade and technology
The EU has already set out a joint agenda with the Biden administration to address problems with China, especially in the areas of trade and technology. These two topics featured prominently in the internal report, which shed light on Beijing’s delaying tactics when it comes to delivering reform promises.
On the topic of Beijing unfairly pouring state cash into industry through subsidies, the EU said China “has so far not engaged on substance, claiming that the mandate of the [EU-China working group on WTO reform] was limited to exchange of information but not negotiations.”
An associated problem is overcapacity. “The pandemic-related crisis has further exacerbated the problem, as Chinese steel production continued to increase,” the report stated. “The EU is also concerned about other sectors that may already now or in the future suffer from overcapacity as a result of subsidization in China, for instance aluminium or high-tech sectors such as certain types of semi-conductors.”
After many years of inaction, Brussels is now threatening to move fast to put barriers up to Chinese companies from the EU’s public procurement market — large infrastructure tenders — noting in the report that there has been “new political momentum and member states’ growing awareness” of the difficulties faced by EU businesses to access China’s procurement markets.
“The work has intensified, with the objective to reach a common position in the Council before the end of the Portuguese Presidency in the first half of 2021,” it said. “Following that, trilateral discussions with the European Parliament and the Council would start, with a view to adopting the proposal by the co-legislators possibly by the end of 2021.”
The EU document also took a dig at Beijing’s market access promises — pointing to a serious setback to what the European Commission said was a historic achievement in the EU-China investment agreement. “Despite the reassurances that were provided by the Chinese leadership, including as regards EU market access concerns in the agri-food and digital sectors, there has been little progress, with the exception of some results achieved in the financial services area,” it said.
The Commission’s frustration is not limited to Beijing but is also directed at the lack of progress at home, as 10 member states still have not created investment screening mechanisms, amid concerns that Chinese-backed companies could take advantage of the post-pandemic economic downturn and snap up critical sectors in Europe, like they did, for example, to Greece’s Piraeus port during the financial crisis a decade ago.
“The EU competes with China for technological edge and does not share the same principles and values in terms of digital governance. Looking ahead, the EU will need to continue strengthening the security of its critical infrastructure and technological base,” the report said. “The Commission stands ready to work with member states to identify and address security risks and human rights concerns associated with trade in strategic and critical technologies, in particular with respect to cyber-surveillance technologies and other emerging technologies.”
The European Commission and the Chinese mission to the EU did not immediately reply Sunday to requests for comment on the report.
This article has been updated with comment from a spokesperson for Josep Borrell.