EU is taking a cautious approach to US-led 'de-risking' from China. Photo: Xinhua

Political feuds between China and Europe are ripping up economic and trade ties and threaten to scupper a comprehensive investment accord that has been seven years in the making. 

Yet there appears to be far less worry in Beijing about the fate of the landmark deal than in some European countries and conglomerates that may be bigger beneficiaries. 

Beijing’s sanctions against European lawmakers and other political outfits over their words and deeds regarding Xinjiang suggests political toughness now trumps economic gains. 

China made its move in March, fully aware of the blowback from the European Parliament which was about to scrutinize and ratify the deal. 

The tit-for-tat goes on when the five parliament members targeted by Beijing, together with the three dominant political coalitions, have predictably vowed to sink the well-meant deal designed to level the playing field for more access to the Chinese market. 

Dr Yen Huashao, a European studies specialist with Shanghai Fudan University’s International Relations Institute, told Asia Times that Beijing’s message was clear that a big business deal could go but China would no longer stay stoical amid the political row simply for the sake of economic ties, especially when Europe could likely reap more benefit from the investment pact. 

During a pre-arranged phone call on Wednesday, Chinese President Xi Jinping urged German Chancellor Angela Merkel and Europe at large to make “right, independent judgments” on geopolitics and uphold “strategic autonomy” for the continent to protect ties with China from “distractions.”

Other than quoting Xi’s pointed remarks that all alluded to America’s sway, Xinhua also revealed that the call was proposed and set up by the German side.   

Merkel told Xi that the European Union had always been and would remain independent with its approach to China, but she then pivoted to discuss economic and trade flows as well as the prospect of more opportunities arising from China’s 14th Five-year Plan, vowing Berlin’s active role to step up cooperation, according to Xinhua and the People’s Daily. Merkel also said she looked forward to the golden jubilee celebrations next year to mark the 50 years of diplomatic exchanges between Berlin and Beijing.

China’s Xi urged the EU to be more independent of America but Merkel stressed the importance of economy and trade during their latest phone call. Photo: Xinhua
European Commission President Ursula von der Leyen, European Council President Charles Michel, German Chancellor Angela Merkel, French President Emmanuel Macron and Chinese President Xi Jinping are seen on a screen during a videoconference to approve an investment pact between China and the European Union on December 30, 2020, in Brussels. Photo: AFP / Dursun Aydemir / Anadolu Agency

Last month, Merkel also told reporters following the conclusion of an EU leaders virtual summit that despite China having a competing version of social and political systems and values, the EU should still find ways to dovetail values with interests to work out its own holistic China policies.

“It seems Germany is more distraught over the stalled approval of the high-stakes investment accord, when Xi mainly touched upon political issues in the call while Merkel talked more about trade and cooperation,” said the Fudan University scholar.

For five years running, China has been Germany’s largest trading partner with 2020’s volume hitting €212.1 billion (US$252 billion). 

The expert also said leading German firms already amassing huge fortunes in China had every stake in the success and speedy implementation of the accord, since China made “huge concessions” and even agreed to yield more than it had originally planned during its marathon talks with Europe. 

Volkswagen’s plant in eastern China’s Ningbo, a JV co-invested by Shanghai Automotive Industry Corp. VW has aggressive plans to roll out more models, including electric ones, in China. Photo: Xinhua

Known clauses of the deal set out goals for Beijing to pull down regulatory hurdles for European firms to run wholly-owned subsidiaries and plants in sectors ranging from automobile, telecommunications, manufacturing to finance. Previous reports in Chinese media said German auto giants Volkswagen, BMW and Mercedes had all drafted sole proprietorship proposals to ditch their Chinese partners or at least dilute the shares controlled by other stakeholders in existing joint ventures. 

VW said this week that it may rake out billions of euros for a new electric car plant in Shanghai that would rival Tesla’s base in the city if the investment agreement could be approved on the double. 

Fearing their profitability would take a big hit, state-owned Shanghai Automotive Industry Corp (SAIC) and First Auto Works (FAW) in Changchun in Jilin province, both VW’s major production partners and technology transfer recipients, reputedly lobbied against provisos allowing European firms to go solo in China. Now, with the prospect of the accord being passed by European lawmakers dimming, SAIC and FAW find a longer buffer period to grow their indigenous brands.

State-owned enterprises and private firms with vested interests in other key sectors covered by Beijing’s sweeping pledge of more access and fair competition are also heaving a sigh of relief. Many of them once complained that hastened opening up would be unfair and land them in an existential crisis but their preoccupation around the drastic changes was once brushed aside by Beijing, who was keen to wrap up the seven years of talks with Europe at the end of last year. 

“Back then perhaps Beijing hoped the deal, with significant concessions from China over major irritants during talks like market access, could win the EU over to its side before the new Biden administration moves to reset ties with allies in Europe. 

“But politics is still a thorn between China and the EU, when, despite these concessions on offer, the bloc chose to side with the United States to close ranks against China over Xinjiang, Hong Kong and Taiwan. Since the deal is never welcomed at home and European companies may benefit more, Beijing won’t mind too much if it is put on ice when China-EU relations have already become so frayed,” said the Fudan University scholar.