Jun 28, 2018 02:46 PM

Opinion: China, EU Look for Balance in Trade Ties

Relations between China and the European Union have always followed a middle path, without extreme oscillations. There are lasting reasons for this. While a stated goal has always been to achieve a “strategic partnership,” there are very few hard-power interactions between China and the EU, and therefore little risk of direct conflict. The core relationship is still about trade and investment, and it has involved many agreements about standards, norms and what is today called connectivity. China’s huge trade surplus with Europe has not translated into massive Chinese holdings of European debt because Europe as a whole runs an overall current account surplus. Unlike the United States, it balances its books without massive Chinese lending.

Yet there is no hiding a sense of disappointment in Europe at the state of the relationship. In 2013, hopes were raised by the “EU-China 2020 Strategic Agenda for Cooperation,” which was described in 2014 by President Xi Jinping as comprising four pillars: peace, growth, reform and civilization. He also proposed a free trade agreement (FTA) with the EU.

But events have not lived up to European expectations. On the one hand, despite any agreement on market economy status for China, a new investment treaty, or an FTA, China’s exports to and investment in Europe have still grown quite a lot. China’s acquisitions in sensitive high-tech sectors and bids for ownership or management of major infrastructure (transportation, energy, telecommunications and now the financial sector and data centers) have put Europeans on alert. In many of these sectors, there is not enough reciprocity in China. Europe needs to talk China into adjusting its economic structures, as now befits the world’s largest industrial and exporting nation. But China has not engaged as much in these talks — for example, in high-level macroeconomic dialogues — and has not advanced many proposals on a new investment treaty. On China’s side, of course, there is an argument that the country is still a developing economy, and also that Europe is becoming too protective. One could sum up the situation by saying that China wants very broad agreements — the FTA being a good example. But Europe wants more concrete steps toward a level playing field.

These different perspectives have not prevented dialogue in other areas — arms proliferation, crisis management and, above all, climate and the environment — where Europe and China have appeared to be closer to each other. These issues are not areas of traditional disagreement, unlike human rights. Even so, a joint declaration on climate issues was not signed during the annual EU-China summit last year. Europeans are also looking for possible Sino-European cooperation in third countries. China’s development aid and its contribution to peacekeeping operations have increased, as has its lending for massive infrastructure projects associated with the Belt and Road Initiative. China must, undoubtedly, be disappointed that the important Belt and Road Initiative — whose end point is said to be Europe — has not met with a stronger response from Europe. The answer lies in three words: rules, norms and transparency.

Europeans were immediately attracted to the Asian Infrastructure Investment Bank (AIIB), one of China’s new international finance vehicles, because it promised to operate according to the best norms and practices of other financial institutions, such as the Asian Development Bank and World Bank. But the AIIB is only a small share of China’s investment, aid and developmental projects along the Silk Road. Europeans want to apply EU criteria for public tenders — including open public procurement, labor and environment standards — and to maintain financial transparency in projects involving third countries. China tends to regard these norms as very EU-specific. It is busy signing memorandums of understanding with individual countries, and also with the United Nations Development Program and the U.N. Economic Commission for Europe. In China’s view, EU rules are just that — European rules — not necessarily the most practical for the next stage of globalization, dominated by huge infrastructure investment and the remaking of global trade routes.

Today’s world is increasingly dangerous. The Middle East is going from one conflict to another, with increasing involvement by regional and global powers. Migration and refugee flows are also on the increase, including in Africa. Nuclear proliferation has reached a major crisis point in North Korea, and a welcome agreement with Iran suddenly appears fragile. International peace has rested on cooperation and compromise, but also on the promise of prosperity through trade. If multilateralism recedes in both areas, it is a threat to peace.

The EU wants China as a cooperating partner in these areas. China will surely argue that this requires an open mind to Chinese exports and investments, and that remains correct. President Xi Jinping’s recent speech at the Boao Forum for Asia Annual Conference carries a promise of more opening in China’s economy. This is important because the asymmetry of rules — a consequence of China’s 2001 admission process into the World Trade Organization — is less justifiable as China’s per capita gross domestic product nears $10,000.

But several observations should be made. First, disagreements in some areas of the relationship should not lead to escalation of disputes or be linked to other areas of the relationship. We have lived with divergences for a very long time. Second, given China’s vastly increased capacities in every aspect, it needs to do more. How about a larger contribution to international action on humanitarian and refugee issues? How about cooperation in third countries between China’s rising development aid and Europe’s very large action in the same area?

European views of China are split. It is not clear how much China will strengthen the international order through cooperation, and how much it will seek to change existing rules — or “complement” them, as Chinese viewpoints often put it. If this were a construction project, we’d say both sides need to pour more concrete into those four pillars that now support the relationship.

Francois Godement is director of the Asia program for the European Council on Foreign Relations.

The article was originally published in China Watch.

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