Image source: Flickr/Valsts kanceleja/ State Chancellery

The upcoming 17+1 on-line summit to be held on February 9 is another example – after concluding RCEP and EU-China Comprehensive Agreement on Investment (CAI) – of China’s return from its downward diplomatic spiral in 2020 to an old track characterized by rather sophisticated and ultimately victorious diplomacy. As the 17+1 meeting is pending, it is worth looking at the CAI as the example of China’s successful diplomatic move that has an profound impact on EU-China and transatlantic relations. 

Differing End Goals

At the very close of 2020, the European Union and China unexpectedly concluded “in principle” a deal for the CAI after seven years of negotiation. This unexpected feat should have been hailed as a landmark event and breakthrough in the EU-China ties, especially after years of, at best, modest progress. In that sense, the end of talks on December 30 was an unexpected turning point in EU-China relations in 2020.  

When it comes to the EU’s long-term goals in achieving the agreement, one may distinguish between economic and political (or normative) aims. The former refers to achieving a fully-fledged economic reciprocity in the sense of market access and level playing field. In concrete terms this means lifting various barriers for European entrepreneurs in China such as joint venture requirements, equity caps, restrictions concerning access to selected sectors, etc. On the political level, the EU sought to confirm its normative power projection by convincing China to go beyond-economic issues and focus on issues like sustainable development, labor rights protections, and climate change. 

For China, on the other hand, the CAI could be perceived as a means to secure access to the European market, especially to high-tech and innovative industries, which are indispensable for the country’s ongoing economic recalibration. By offering greater access to the Chinese market, Beijing might use this as an argument in lobbying the EU not to introduce more defensive mechanisms. The PRC also tries to curb the shifting of supply chains that may lead to the partial withdrawal of the European companies from the Chinese market, affected by the lessons learned from the pandemic. There were political goals as well, such as confirming China’s agenda-setting power and its will to cooperate with the EU as a “pole” within the Chinese concept of a multipolar world. In that sense, the EU has long been seen as a potential partner in the geopolitical rivalry, balancing out the US influence on key geopolitical issues.

However, it seems apparent that in the end, it was the short-term goals that decided the real winner of concluding the CAI so quickly. 

In the case of the EU, the driving force was Germany and Angela Merkel personally. The country is overdependent on Chinese market – China accounts for 15% of overall exports outside the EU and German car industry is tightly tied to the PRC. What is more, there was the German Presidency of the EU Council in the second half of 2020 and Berlin desired to conclude it with a noticeable success.

China’s short-term goals were more sophisticated and comprehensive than the EU’s, in this case, motivated by a political rationale. Mainly, Beijing was seeking to offset and divert attention from its recent activities – growing US-China tensions, disinformation campaigns directed at Europe, a deteriorating situation in Xinjiang, a tightening grip on Hong Kong, etc. that resulted in growing negative views of China.

These political goals might be easily divided into domestic and externally-oriented categories. Domestically, China wanted to show its society that Xi Jinping is effective as foreign policy leader, and China still has friends in the EU – an important international player and a close US ally.

Diplomatically and externally, via concluding the CAI, China wanted to undermine or at least soften EU’s recently more assertive China policy and hamper the efforts to fully enable the transatlantic dialogue on China that was initiated by the EU and launched in October. The PRC was also prone to divide Europe as Chinese authorities were aware of German’s desire to conclude the investment deal and quell other member states’ qualms. 

Finally, China’s economic goals were to prevent the EU from working on new sets of defensive measures which may pave the way for limiting access for Chinese state-owned enterprises (SOE) or companies that receive state subsidies.

Achievements to Applaud?

In order to assess who has emerged as the bigger winner it is worth mentioning China’s concessions that have convinced the EU’s Commission to conclude negotiations.      

According to the CAI text, the Chinese commitments seem, at first glance, to be significant. Better market access in several sectors, removing and phasing out joint venture requirements, a more level playing field, rules against the forced transfer of technology, the institution of a dispute resolution mechanism, etc. Also, elements of sustainable development are part of the deal, such as China’s promises to work on ratification of International Labour Organization conventions, and counteraction of pressing climate problems. If all the promises are implemented, the CAI could be perceived as a breakthrough and even evidence of the EU’s power projection– its ability to convince China to change its longstanding economic and – to some extent – political and normative approach.

However, there are many doubts about whether Chinese promises are real or merely lip service. First of all, CAI offers “better” access and better level-playing field, which means the deal would not secure the fully-fledged reciprocity – which is the EU’s predominant goal – but only limited gains. Also a vague language such as “Party shall make continued and sustained efforts on its own initiative to pursue ratification of the fundamental ILO Conventions” makes this commitment very soft. Secondly, it seems that the sectorial openness of Chinese market is not entirely new (still several annexes have not been published yet) and tailored specifically for the EU. Furthermore, the CAI does not cover the investment protection mechanisms that includes an investor-state dispute settlement (ISDS). This issue should be concluded within two years after the finalization of the CAI. 

Finally, there is a question about the credibility of Chinese promises. China may still use its old tactics of offering concessions without convincing arguments that the pledges will be honored. This is a big question mark, especially now, when China promotes its own version of decoupling focusing on its internal market via the dual circulation concept, puts new investment rules in place and reinforces the Marxist political economy as the leading logic of its economic system. It is also difficult to imagine China’s substantial progress on ratifying ILO conventions that are presented by the EC as one of the conditions to finalize the CAI at the end of 2021. Still, even if China’s promises are real, by concluding CAI, the EU gave China a political victory in a year known for abrasive wolf-warrior diplomacy. In that sense, the EU has depoliticized the CAI and distanced from its own normative agenda on China.       

Growing Divide

Additionally, the surprising progress on the CAI and a non-transparent negotiations process, with member states not fully informed about the deal content, have made serious divisions in the EU. For example, doubts about the wisdom of concluding the negotiations were voiced e.g. by Poland, Italy, France and the Netherlands. The countries requested the EC to provide member states with the text of the deal for the screening before the conclusion of talks, expressed skepticism about the rush in talks without consulting this issue with the U.S., and underscored the deteriorating situation of human rights in China. As a result, the possibility of signing CAI and its ratification- a deal must be endorsed by the EU Council and the European Parliament, and this political process together with the legal scrubbing and finalizing of the text of the agreement is expected to take a whole year- is not certain.

Finally, the timing of the conclusion of CAI talks before Biden’s presidency inauguration – despite calls from Washington to consult this issue – complicates transatlantic cooperation on China initiated by the EU. Albeit EC has offered Biden’s transition team a briefing of the CAI – the offer was eventually rejected – this seems to be more a fig leaf than a real will to constructively cooperate with Washington on this matter. China is aware of its own diplomatic upper-hand, even if not all goals have been achieved – it seems, for example, the EU will not resign from introducing new defensive mechanisms. In op-eds and official statements from China, the CAI is seen as a victory over the US. Chinese experts also highlight that the EU’s determination to conclude negotiations means that the Union (mostly Germany) focuses on its own economic interests, rather than hurting China’s without considering the potential cost. China also praises and supports the EU’s strategic autonomy (understood narrowly as attempts to be independent of the US) as a driver for concluding the CAI and argues that via the agreement, the EU is taking sides.      

Even if the CAI is not signed in the near future, China’s political victory will remain. After a tumultuous 2020, in which China committed various diplomatic failures, eventually it ended up with victories such as RCEP and CAI that took place after Trump‘s defeat and before Biden’s inauguration. Problems with the CAI signature will be exploited by the PRC as an example of existing and/or deepening internal divisions in the EU and the overall Washington’s pressure on Brussels and the member states. 

To sum up, the real winner of the deal is China. The upcoming 17+1 summit could be seen as an effort to ride on the positive wave after the conclusion of the CAI and drive home that China’s diplomacy is successful. Beijing’s only goal is to hold the summit just to show off- to create an impression of having diplomatic friends and sending this message to the US. Tangible economic results for CEE are not on the agenda, and they have never really been the focus. Yet, CEE countries may not be interested in playing this game any longer.