The seemingly stalled investment pact between the European Union and China has now been agreed “in principle”, according to a South China Morning Post report quoting unnamed sources in Brussels.
German Chancellor Angela Merkel and French President Emmanuel Macron, the two dominant voices within the bloc, agree on the matter, it added, as Beijing has offered up a number of additional concessions on equal access for European firms in the Chinese market.
“Now the negotiations are in the final stage,” Chinese Foreign Ministry spokesman Wang Wenbin said at a briefing on Friday. “I believe as long as… both sides can take care of each other’s concerns and walk towards each other, we will be able to achieve goals set by our leaders.”
Reuters reported on Friday that both sides hope to reach an accord over the EU-China Comprehensive Agreement on Investment before the end of 2020, six years after they first began.
As with all leaks to the media, the revelation could either reflect reality or be merely a way of signaling to certain positions to those involved. After all, in recent years both sides have talked up the proximity of concluding the deal in order to provide some spark to negotiations, only to stall again soon afterward.
That said, there has been a flurry of Europe-China activity in recent weeks. The 35th round of negotiations for the China-EU investment agreement was extended to this week, presumably because of new additions to the discussions.
Just this week, the controversial Chinese tech giant Huawei announced that it would invest €200 million (US$245 million) in a new mobile phone network equipment factory in the east of France, its first factory in Europe.
The previous day, the German government said that it wants to allow Huawei to partly develop the country’s 5G network, when several other European states have excluded the Chinese firm from their developments because of security fears hammered home by Washington.
From China’s perspective, talking up the investment deal’s near completion sows disunity between the US and EU, significantly at a time when there are suggestions that Brussels will seek to work far more closely with the incoming Joe Biden administration and re-patch the transatlantic relationship that frayed under Donald Trump.
That could include much closer cooperation in pushing back on China’s international actions and ambitions.
Beijing also has an interest in presenting itself as a trusted partner to Brussels, an ally in free-trade, multilateralism and environmentalism. In these three areas, the EU has clashed with the outgoing Trump administration since 2017, yet China’s reputation in Europe has also taken a battering this year.
Perceptions of China among the European public have deteriorated sharply this year, with the majority of respondents in most major European states now holding unfavorable views of Beijing, according to the latest Pew Research Center surveys.
Regional governments as well as Brussels have also been more coarse this year in their criticism of Beijing’s actions, from its imposition of national security laws over Hong Kong to its mass human rights abuses against the Uighur minority in its Xinjiang province.
Just this week, a motion was put forward by the European Parliament to apply targeted sanctions on Chinese officials over the abuses in Xinjiang, thanks to new powers afforded by the EU’s adoption of a Magnitsky-like sanctions regime earlier this month.
In a recent Bundestag session, German Chancellor Merkel said that whilst the Xinjiang situation was important it would not affect progress on the investment deal with China.
Germany and the Netherlands have this year published their own Indo-Pacific policies, as will the EU next year, which seek to further European influence in the region, particularly in areas of disputes involving China. Even the normally isolationist Germany has vowed to send a naval frigate to the Indian Ocean next year.
Beijing might therefore reckon that time bought under Trump will run out under Biden. China may feel it must rush to secure an investment pact with the EU before hostility towards China grows in Europe next year and Biden achieves a new transatlantic relationship, as well as before China losses key friends in Europe, not least Merkel, who will step down next year.
For the Europeans, hyping the investment deal also serves several purposes. It puts pressure on Chinese negotiators to be more flexible in what concessions they will offer, given that Beijing is known to be highly enthusiastic about this pact and is probably more desperate than the EU to get it done before 2021.
It also sends a signal to Washington that Brussels won’t be the weaker partner if proposed new transatlantic cooperation over China becomes a reality next year. Indeed, by suggesting that Beijing has already made the same concessions to Brussels that Washington also seeks, the EU may be seeking to aggrandize its negotiating capabilities.
At the same time, it could also be intended as a signal towards Biden that he would be wise to ditch the more extreme anti-China policies of his predecessor – especially Trump’s trade war, which the Biden camp appears split over whether to continue or drop – and instead adopt a more European approach towards Beijing, which sees it as both a rival and partner at the same time.
In Berlin’s view, often shared by Brussels, it is far easier to alter Beijing’s policies through diplomacy and engagement than competition and conflict. Critics, though, accuse Berlin of simply putting profit above geopolitics, especially considering that Germany’s vital car-manufacturing sector is heavily dependent on exports to China.
Indeed, unlike most of its major European partners, Germany is still heavily reliant on exports, which makes the maintenance of open Chinese markets far more of an economic necessity for Berlin than other European governments.
Commentators have questioned why the EU would rush to secure a deal with limited concessions from China, when it could wait until next year and when Brussels can then try to pursue something along the lines of a joint investment deal with China alongside the US, which wants the same economic concessions from Beijing.
However, Berlin is the most vocal of the European governments in not wanting to be dragged into the US-China rivalry, preferring instead to sit in the middle and not take sides.
Concluding the investment pact before Biden takes office would in many ways solidify the EU’s neutrality on trade issues and prevent it from being allied to the US in trade negotiations with Beijing.
“Although EU officials say that this deal would not preclude transatlantic cooperation on China, it does send a chill across the Atlantic and will be seen by many in Washington as a sign that the EU — and above all Berlin — cannot be relied upon as an ally in the US competition with China,” Noah Barkin, an expert on China-EU relations at the research firm Rhodium Group, tweeted on Friday.
Whatever Merkel and the European Commission negotiators may want, however, an “in principle” agreement of certain terms doesn’t denote that a negotiated deal will easily be ratified.
Britain and the EU have on several occasions agreed “in principle” to a new post-Brexit trade deal, but the chances of the UK leaving without a deal at the end of the month are still high.
Neither is there any certainty that an investment deal agreed between Chinese and European Commission negotiators will pass the European Parliament, where opposition to Beijing is much stronger than in the bloc’s executive branch.
Brussels has also previously intimated that the deal wouldn’t go ahead until China ratifies the remaining four of the eight main International Labor Organization (ILO) conventions, which include provisions over forced labor, a major concern now after reports of slavery-like conditions for Uighurs in Xinjiang.
Reports suggest that European and Chinese negotiators are still far apart on the issue of worker protection rights, given that Beijing refuses to allow independent trade unions and its woeful record on forced labor.
Reinhard Bütikofer, chair of the European Parliament’s China delegation, has stressed that Beijing’s ratification of the ILO conventions must come first before an investment pact.
“It would be an interesting development if EU would ignore concerns about forced labor in China and rush to conclude with China just before the Biden transition opens opportunities for better and stronger transatlantic cooperation on China,” he wrote on Twitter.
Neither has the EU intimated that it will drop its investment screening mechanisms, introduced in recent years to prevent the sale of Europe’s strategic and largest firms to outside investors, namely Chinese. Beijing, rather justifiably, claims that Brussels has now engaged in the same protectionism and restrictions to market access it accuses Beijing of.
As with all trade talks, smoke and mirrors play a major role in moving things along. As such, both sides could simply be blowing smoke about the chances of concluding the investment pact before the end of 2020 – and with other agendas in mind.