ROME–The annual summit between China and the European Union (EU) survived the ordeal of the South China Sea ruling, which on July 12 had seen the Permanent Court of Arbitration in the Hague to reject Beijing’s territorial claims to large part of the waters and natural features in the region. During a two-day of talks, wrapped up on July 13, EU and Chinese leaders apparently reached a basic consensus on a string of pending issues ranging from trade relations to infrastructure investments, underlining that the EU and China moved their comprehensive strategic partnership forward.

Sino-European relations hinge on sound economic ties. The EU is China’s largest trading partner, accounting for about 15% of Chinese total trade, and many members of the EU have joined the China-led Asian Infrastructure Investment Bank (AIIB), despite Washington’s disapproval. The AIIB is part of China’s multi-billion dollar financial superstructure and is intended to prop up Chinese strategy for Eurasian integration.

Chinese President Xi Jinping welcomed the EU’s intention to connect the European Fund for Strategic Investments with the “One Belt, One Road.” The EU investment fund is expected to use seed capital to trigger as much as $349 billion in public and private funding for infrastructure projects. China’s Silk Road Economic Belt and Maritime Silk Road project, also known as the “Belt and Road,” is instead a proposed land-and sea-based transport system designed to connect eastern China with Western Europe.

China's Premier Li Keqiang (C), European Commission President Jean-Claude Juncker (2nd R) and European Council President Donald Tusk attend a signing ceremony during the China-EU summit at the Great Hall of the People in Beijing, China, July 12, 2016. REUTERS/Jason Lee
China’s Premier Li Keqiang (C), European Commission President Jean-Claude Juncker (2nd R) and European Council President Donald Tusk attend a signing ceremony during the China-EU summit at the Great Hall of the People in Beijing, China, July 12, 2016. REUTERS/Jason Lee

Infrastructure play

China is expected to initially invest $2.21 billion in the EU infrastructure fund. Beijing will have no control over this financial vehicle but can expect to secure strong returns on its loans. It is worth noting that China’s possible sway over the European investment fund was the bone of contention in months of negotiations.

Both China and the EU aim to boost the EU-China Connectivity Platform as a tool to integrate Europe’s infrastructure projects and China’s Silk Road plan. This interoperable cooperation would translate into the integration of the Eurasian landmass from the Pacific to the Atlantic.

In its dialogue with China, the EU’s priority is to conclude a bilateral investment agreement. By European lights, this is a necessary step before starting negotiations on a possible free trade agreement. During the summit, Chinese Premier Li Keqiang remarked that his country was very interested in a high-level investment agreement at an early stage and a feasibility study on a Sino-European free trade arrangement.

The EU wants reciprocity of conditions in its investment relationship with China, not least that European companies investing in China receive the same fair treatment of Chinese enterprises in Europe. Chinese Premier Li maintained that Beijing would ensure a level-playing field for foreign enterprises investing and operating in China.

It seems that no progress has been done with regard to the EU’s decision on market economy status for Beijing. The Chinese government contends that the recognition from Brussels should be automatic according to the rules of the World Trade Organisation (WTO), which Beijing joined 15 years ago.

The EU’s internal debate on whether to grant China a market status economy is heated and member states are divided on the issue. In May, the EU Parliament passed through a non-binding resolution with which it opposed the recognition of market economy status for China.

The EU Council and the European Parliament have the final say on the matter, as large part of the industrial complex in the Old Continent pushes for the EU’s denial, claiming that Chinese dumping would cost further jobs in Europe. Brexit, i.e. Britain’s decision to leave the European bloc, and the rise of euroskeptic forces across Europe prompt the EU institutions to take a more cautious stance on the problem.

On the eve of the summit, EU Commissioner for Trade Cecilia Malmström stated that China was still not doing enough to eliminate distortions in its industrial system and unfair trade practices.

The EU is skeptical about market opening and rule of law reforms in China. Beijing’s policy of dumping, trade subsidies, industrial overcapacity – particularly in the steel sector – and lack of transparency in safeguarding intellectual property to a large extent runs against the much-trumpeted approach of “win-win cooperation,” the cornerstone of Beijing’s economic diplomacy.

EU Commission President Jean-Claude Juncker clearly declared that there was a direct link between China’s steel overcapacity and the market economy status for Beijing. In this regard both sides agreed on setting up a common working group dealing with the problem.

The EU’s manifest goal is to achieve a level-playing field, economically and politically, in its relation with China. The European bloc knows well that in this specific historical moment, as Beijing is going global and grappling with mounting (geo)political and economic troubles, Chinese and Europeans need one another.

China fears EU implosion

It is no coincidence that both parties reiterated that Brexit would not affect their ties; the possible implosion of the EU in the wake of Brexit poses a systemic danger to China as much as Beijing’s economic hard-landing and military adventures in East Asia pose a threat to European stability.

And in light of the converging trajectory of the political and economic strategies in Beijing and Brussels, it is not a surprise that European objections to China’s record on human rights remained in the back seat during the talks. Suffice to say that the EU Commission has taken a harder position on Poland’s controversial reform of its constitutional court and public media system than on China’s respect of human rights.

Emanuele Scimia is a journalist and foreign policy analyst. He is a contributing writer to the South China Morning Post and the Jamestown Foundation’s Eurasia Daily Monitor. In the past, his articles have also appeared in The National Interest, Deutsche Welle, World Politics Review, The Jerusalem Post and the EUobserver, among others.

Emanuele Scimia is a journalist and foreign policy analyst. He has written for Asia Times since 2011. His articles have also appeared in the South China Morning Post, the Jamestown Foundation’s Eurasia Daily Monitor, The National Interest, Deutsche Welle, World Politics Review and The Jerusalem Post, among others.

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