Chances looked good for the resolution of a years-in-the-making investment agreement between China and the European Commission before the end of the year. This week, that changed.
In the span of days, reports of an emerging consensus gave way to news that negotiators had hit snags, as European officials voiced concern about forced labor in China and a senior aide to President-elect Joe Biden appeared to urge Europe to pump the brakes.
China and Germany are pushing the deal, which would make it easier for European and Chinese companies to invest in each other’s economies. But voices on both sides of the Atlantic are questioning whether this is the right time for Europe to deepen ties with Beijing.
The back and forth says much about how central – and how fraught – the issue of relations with China has become, both within the European Union and between Europe and the United States.
Within the E.U., there is growing unease about Beijing’s human rights record and role in international affairs, but little agreement on what to do about it.
Biden has promised to re-engage with Europe and to rally allies to respond to an increasingly assertive China. The timing and terms of that effort are not yet clear.
Against this backdrop, the fate of the investment pact is seen as an early signal of tensions set to play out in years to come, on issues ranging from trade to tech regulation to climate change.
“This is going to be a jumping-off point for a lot of these questions,” said Andrew Small, senior transatlantic fellow at the German Marshall Fund of the United States.
In some ways, the investment agreement, known as the Comprehensive Agreement on Investment, or CAI, seems straightforward.
For years, Europe has been pressing for greater access to China’s tightly controlled market. Europe contends that Chinese companies have more access to Europe than vice versa – and they want to change that.
Negotiations started in 2014. Progress has been slow, but picked up in the second half of 2020, as Germany began a six-month E.U. presidency and a push to get the deal done.
Biden’s election win, meanwhile, gave China a new sense of urgency. With Trump on the way out, Beijing sees a window to act before Biden, who is set to take office in January, seeks European cooperation to counter China.
It is not clear Beijing’s strategy will work. Early last week, Chinese diplomats touted progress, playing up the idea an agreement could be reached before the new year.
On Monday, Chinese Foreign Minister Wang Yi met with ambassadors from E.U. nations in Beijing. “China and Europe are hopefully reaching consensus on the comprehensive investment agreement,” he told the ambassadors, according to the South China Morning Post.
But the same day, Jake Sullivan, a top aide to Biden, responded to a news story about the potential deal with a tweet suggesting Europe ought to wait. “The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China’s economic practices,” he wrote.
On Tuesday, Poland expressed concern about the timing. “Europe should seek a fair, mutually beneficial Comprehensive Agreement on Investment with China. We need more consultations and transparency bringing our transatlantic allies on board,” Polish Foreign Minister Zbigniew Rau tweeted. “A good, balanced deal is better than a premature one.”
On Wednesday, France added its voice. Franck Riester, a French trade minister, told Le Monde his country will not sign an agreement unless China addresses the issues of forced labor in Xinjiang.
By Thursday, Christmas Eve, the South China Morning Post was reporting that Li was scrambling to salvage the deal, calling up Spain and the Netherlands to try to secure support.
If the agreement comes together, it will be a major diplomatic victory for China. But the stalled progress is revealing – and could signal trouble ahead for China-E. U. ties.
A central challenge is that much has changed since the E.U. and China entered talks in 2014. Under President Xi Jinping, the most powerful Chinese leader since Mao Zedong, China has become more authoritarian at home and more aggressive abroad.
In the United States, this has led to fundamental reconsideration of the practice of engaging China at all. For a while, Europe seemed to take a softer line. But China’s initial cover-up of the coronavirus outbreak, repression in Xinjiang and the crackdown on Hong Kong may well change that.
“This [agreement] feels like it comes from when it was first negotiated,” said Small of the German Marshall Fund. “The overall political consensus is that the moment has passed, it fees like a tail end of the old, legacy agenda.”
Those who support the deal are trying to cast it as a practical, if imperfect step – not an endpoint for a new era in China-E. U. relations. Those who oppose it argue that it would be unwise to reward Beijing right now, especially with U.S. ties on the line.
“After this year, with China’s terrible behavior around the world, it would send a weird signal,” said Janka Oertel, director of the Asia program at the European Council on Foreign Relations.
“This is not about pragmatic, everyday business – it’s not something that we are just getting done,” she said. “At this critical moment, to do something like this with China, is not business as usual.”