Wang Huiyao – Transcending “us vs them”: China-EU relations in a changing era

July 05 , 2019

By Wang Huiyao |

President of Center for China and Globalization(CCG) 

Events in 2019, from unfolding US-China trade frictions to recent EU visits by top Chinese leaders, have highlighted the evolving dynamic of China-EU-US relations. In particular, there seems a growing need for the EU to think about its stance between China and the US.

Some try to paint developments such as Washington’s opposition to Huawei and Italy’s support of the Belt and Road as evidence of Europe becoming a new arena for Sino-US competition. However, the deeply-entwined and multi-faceted relationship between China, the EU and the US defies any simplistic reduction to an us-or-them binary.

Much ink has been spilled over the EU’s recent strategic adjustment towards China. However, differences between the two sides are more than outweighed by shared interests. At a time when the international order is under strain and needs reinvigorating, a time when we face many transnational challenges, it is more important than ever for China and the EU to work together. Indeed, in an increasingly multipolar world, China-EU cooperation can be pivotal in providing the critical mass to overcome gridlock in global governance and reach joint solutions to our shared challenges.

This article starts by mapping out the current geopolitical context and deepening of China-EU relations in the diplomatic, economic and cultural spheres. This is followed by an overview of the China-EU-US “triangle” and factors influencing views towards China in Europe. Finally, the article highlights areas for deeper China-EU cooperation that can help to fully realize the potential of the Comprehensive Strategic Partnership.

Adapting to a changing world

The changing nature of China-EU-US relations comes amidst a larger context of major shifts in the global economy and geopolitics.

Over the last few decades, technology and globalization have contributed to waves of discontent among blue-collar workers in many OECD nations. Rather than compensating the losers of globalization, some opportunistic politicians have pointed the finger at free trade in general and China in particular. This has led to a rise of anti-globalization sentiment.

At the same time, the rise of emerging economies led by China has reconfigured the global economy and balance of power in the world. This increasingly multipolar world represents a decline in the relative influence of G7 powers led by the US.

These global shifts and the domestic changes they are intertwined with present a new reality and new challenges to which all nations and blocs must adjust. In particular, the three major poles of international influence – the US, China, and the EU – are in the process of recalibrating their positions in the world and their relations with each other.

Under President Trump, the US has opted for an “America First” path. This has seen Washington undermine the very international order it helped create, question traditional alliances including with European countries, and take a protectionist stance that wields tariffs against China, the EU, and others.

At the same time, a more hawkish view has prevailed in Washington that draws together national security, economics, geopolitics, and technology. This is most clearly seen in the case of the US campaign against Huawei at home and abroad.

While this “America First” trajectory may change somewhat under the next administration, it is clear that there has also been a fundamental shift in the US concerning its role in the world and China in particular.

America’s veer towards protectionism and unilateralism has significantly altered the external environment for China and the EU, which both remain committed to globalization.

For Beijing, America’s launch of trade hostilities and undermining of multilateralism comes as China strives to develop a high-quality economy that is more integrated with the rest of the word. While fully committed to the multilateral system that did much to support its rise, China sees a need to update and reinvigorate its structures of global governance. However, attempts to reinforce and supplement the system are often met with suspicion and resistance from established powers still adjusting to China’s rise.

Like China, the EU has also had to grapple with US trade attacks and Washington’s turn away from the established order and consensus on issues such as climate change and Iran. Indeed, the desire to show a unified front against Trump’s trade onslaught likely helped the EU and China forge consensus at the recent summit.

At the same time, like the US, many European countries have experienced their own upswing in anti-globalization sentiment. Along with underlying structural issues, this has fueled centrifugal forces within the EU and colored views of China’s economic rise.

In this period of flux and uncertainty, it is natural that the US, China, the EU are each reassessing their role in the world and relations to the other major powers.

China-EU: A broader, deeper relationship

The geopolitical shifts described above come alongside a long-term deepening and broadening of the China-EU relationship.

China attaches great importance to its relations with the EU, Italy and other EU members. This is evident in the diplomatic energy Beijing has invested in Europe in over the last 12 months.

After the previous China-EU summit in July 2018, Premier Li visited Bulgaria and Germany the same month and then the Netherlands and Belgium in October. This was followed by President Xi’s state visits to Spain and Portugal in November.

In 2019, President Xi made Italy his first overseas visit of the year, followed by stops in Monaco and France. Shortly after this, Premier Li again visited Europe for an EU-China summit that succeeded in establishing a consensus for bilateral ties and a map for future cooperation. After the summit, Premier Li went on to Croatia for the eight leaders’ meeting of China and Central and Eastern Countries (CEEC).

The breadth and consistency of China’s diplomatic engagement with Europe reflects and reinforces the multifaceted nature of China-EU relations.

Economic ties remain the bedrock. The EU is China’s largest trading partner, with two-way trade reaching $682.2 billion in 2018, up 10.6 percent year-on-year. President Xi’s EU trip saw a slew of major trade deals, including a $34 billion order for Airbus aircraft. The EU runs a healthy surplus in services with China and there is high demand for high-quality European products, driven by China’s robust economic growth, large population of nearly 1.4 billion population, and growing middleclass. These trends bring huge opportunities for local European farmers and producers.

Bilateral investment is also strong. This can be seen in German chemical giant BASF’s $10 billion planned investment in Guangdong, the largest foreign investment in China to date. Continuing major investments such as this reflect the continuing optimism of European investors for the potential of China’s vast market.

Investment is certainly a two-way street as Chinese firms continue to invest in Europe. Italy alone has received around $23 billion in investment from China in the last decade. Altogether, Chinese companies have invested over $80 billion in the EU in just the last three years. The recent commitment to conclude the China-EU Comprehensive Agreement on Investment by 2020 augers well for the future of two-way investment.

The deepening economic relationship, which inevitably involves some competitive aspects, has raised questions among some in Europe. China has passed a new foreign investment law that addresses some of these key concerns. This includes legal reinforcement prohibiting forced technology transfer and balancing the treatment of state-owned and private firms under the principle of competitive neutrality. At the April summit, China further vowed to provide a level playing field for EU businesses. EU firms stand to be major beneficiaries of China’s accelerated opening up, such as BMW which is the first majority investor in auto manufacturing in China.

Alongside economics, people-to-people ties are the second pillar of China-EU relations. Following in a long tradition of cultural exchange between opposite ends of the Eurasian landmass, today, growing flows of students, business people and tourists travel between China and the EU. These positive interactions strengthen cultural exchange and mutual understanding. Ctrip, which signed a partnership with Italy’s tourism board during Xi’s visit, estimates that Chinese tourists made over 12 million visits to European countries in 2017.

Contrasting roles of US and China in Europe

China’s recent flurry of agreements and activity in Europe coincided with US interventions to try and pressure EU members to be “with us, or against us” when it comes to dealing with China and Chinese companies.

This included the US criticizing Italy for supporting the Belt and Road Initiative and trying to threaten other EU members into banning Huawei from 5G networks. These interventions echo 2015 when the US opposed the UK joining the Asian Infrastructure Investment Bank.

Some have framed these actions as signs that Europe is becoming an arena for competition between China and the US, even speculating whether two separate spheres of influence will emerge. This view fails to recognize important realities in relations between the three blocs.

First, there are fundamental differences in the EU’s relations with US and China respectively.

While President Trump’s unilateralist posture has created rifts with the EU, the EU and US remain bound by deep, long-seated security and strategic ties through NATO and the ongoing US military presence in Europe.

China cannot and has no interest in interfering with this security role. Rather, its ties with the EU are based principally on economics and shared interests in providing key global public goods and promoting multilateralism.

Second, framing China-EU-US relations as a “strategic triangle” in which Beijing and Washington vie for influence in Europe suggests a zero-sum relationship between the participants. This framing was applied to Sino-Soviet-US relations at periods during the Cold War. However, it is not an accurate depiction of relations between China, the EU and US in the 21st century, when all three societies are deeply entwined with each other and there are many overlapping interests.

Having lived through the divisions of the Cold War, European nations know well the dangers and lose-lose outcomes that result from dividing into camps and adopting an us-vs-them mentality. The EU and its members are strong, independent players that will not be unduly coerced by either side. They enter into agreements with their eyes wide open and of their own volition.

To the extent that perceptions towards China do vary within the EU, this partly reflects different national situations and broader structural tensions within the EU project.

Dominant voices in the EU have long called for a unified position towards China and raise eyebrows at other member states exercising agency in dealing with China, either bilaterally or through platforms such as the 16+1 mechanism. However, such bilateral and multilateral fora can provide a useful supplement to EU-China interactions. It is notable that the same EU members who raise questions over these channels recognize the value of conducting their own bilateral dialogues with China and continue to do so.

At the same time, fiscal constraints imposed by dominant northern EU members have put downwards pressure on economies in other regions of Europe. It is natural, therefore, that countries in these regions should be open to external cooperation that can provide much-needed investment in infrastructure and other enablers of growth and job creation.

At a time when the EU faces challenges both internally and externally, it should seek to maintain a flexible, independent and forward-looking approach to working with China.

For its part, China should strive to further strengthen its relationship through mutually beneficial cooperation and working proactively to build trust and address concerns the EU has. The recently launched China Chamber of Commerce to the EU, which will facilitate business dialogue and engagement with stakeholders in Europe, is a useful step in this regard.

China fully supports and needs a united and strong EU as a valuable partner and a positive force in an increasingly multipolar world. This is particularly so when the White House is turning away from international responsibilities and the major challenges that we all face can only be overcome by international cooperation.

Fully realizing the China-EU comprehensive
strategic partnership

By working together, China and the EU can provide the critical mass to overcome gridlock in global governance and achieve progress on shared goals.

To fully realize this potential, we should accept that given the breadth and depth of the China-EU relationship, it is inevitable there will be aspects of competition and differences between the two sides at times. However, our shared interests more than outweigh these differences.

This is reflected in the EU’s evolving stance towards China. Much was made of the talk of competition and rivalry in the EU’s new strategy towards China. Less attention was paid to how the strategy equally identifies China as a partner for cooperation and negotiation. Indeed, most of the 10 action points raised in the document reflect shared interests and the need for China-EU cooperation to overcome the world’s challenges.

The commitment made at the recently concluded China-EU summit to adopt a new cooperation agenda by the next summit is a chance to re-assess opportunities and draw up road maps to fully realize the potential of the strategic partnership.

In particular, China and the EU can unlock huge synergies and lead the building of an open and inclusive global economy by cooperating in the following areas.

First, China and the EU should jointly strive to reinvigorate the WTO. This vital institution that underpins global trade needs updating to deal with key aspects of globalization 4.0 such as the rise of services and the digital economy. The WTO Appellate Body is in crisis and needs overhauling.

To date, progress has stalled due to differences between developed and developing countries. These are two groups that the EU and China can help to coordinate and galvanize into action, building on the China-EU WTO Reform Working Group created last year.

Second comes sustainability. At a time when the White House has turned away from green issues and the Paris Climate Change Agreement, it is all the more important that China and the EU lead in helping the world transition to a clean future.

European firms have made valuable contributions to China’s green development, from smart grids to pollution abatement technology and urban planning. There is still much to be gained from combining the EU’s experience and holistic approaches to environmental protection with China’s strengths as a supplier of low-carbon solutions. Illustrating this potential, during Xi’s trip a deal was signed between China National Building Materials Group and French industrial engineering group Fives to collaborate on energy savings in developing countries.

This agreement also exemplifies the third promising area for cooperation, namely collaborating in third markets. Africa, in particular, is a place where both sides can offer complementary strengths that can benefit both sides as well as local communities.

The final theme for enhanced China-EU cooperation is connectivity. Despite reservations that have been voiced by some in Europe, there are great potential synergies between the Belt and Road Initiative and the EU strategy on Connecting Europe and Asia as well as the EU Trans-European Transport Networks. It is encouraging to see this formally recognized in the recent joint communique with a commitment to work together under the framework of the EU-China Connectivity Platform. Viewing the BRI as a strategic opportunity rather than threat could have major benefits for both sides and China welcomes European involvement to help ensure the BRI delivers inclusive and sustainable growth for all.

Italy is just one of many EU states to formally support the BRI as a vehicle for connectivity cooperation. A long list of European companies are participating in the initiative, such as Siemens, Schneider Electric, and DHL, which has built an intermodal logistics network connecting cities in China and Europe.

These are just some of the promising areas for China-EU cooperation that can benefit not only both sides but the rest of the world.

Moving from history to a shared future

Over thousands of years, ties between Europe and China have had a major role in the diffusion of technology and ideas, as well as in shaping history.

Europe and China are shaped, but not bound, by this long, rich history. Just as Europe has had to adapt and reinvent itself, so too China is finding its way in the new world.

Under the old imperial system, China viewed the world through the lens of its assumed position as the “middle kingdom” (zhongguo) at the center of global affairs. After two centuries away from the core of global power, China has returned to the fray, feeling its way as a major power in a dramatically changed, multipolar world, seeking to forge connections with others through the Belt and Road Initiative.

It is hoped that the EU and other countries engage with China’s re-emergence and ensure that the initiative can benefit Europe, China and beyond. If the EU treats it as a strategic threat, this could turn into a self-fulfilling prophecy that ends up harming the interests of China, EU and beyond.

Today, some are drawn to apply Cold War analogies to the role of China and the US in Europe. However, the complex and interconnected reality of our 21st-century world transcends such simple dichotomies. Erecting barriers and choosing sides will only lead to isolation and stagnation.

Europe has to face and adapt to the new order. While the US may readjust its alliances or abandon the America First strategy in future, this will not turn back the clock and undo the power shift that has occurred. Therefore, it is the EU’s interests to stand firm independently and make decisions based on its own interests and principles as a coherent bloc in our multipolar community.

By following this path and maintaining an open approach to working together, the EU and China can not only attain major benefits but also help put the world on a more inclusive, sustainable path to peace and prosperity.

Keyword Wang Huiyao