The Wedge Between the EU and China

On the eve of 2021, the E.U. and China agreed on a preliminary Comprehensive Agreement on Investment (CAI) that paves the way for a greater European presence in the Chinese market.

The deal may mark a China-first foreign policy for the E.U., even as the new American administration under U.S. President Biden has called for multilateralism and cooperation in containing China.

While foreign direct investment flows are comparable, the backdrop to this deal is an unequal one. China has considerable access to European markets while reciprocity is absent. While the CAI addresses some of the concerns regarding market access, it is difficult to argue that the deck is not still skewed in favor of China.

China has a long history of making statements on the opening of its markets, and yet practically, regulation makes it difficult for western companies to compete with Chinese incumbents.

Like many agreements with China, the devil is not in the details of the agreements that tend to be light on substance but in the practical implementation.

For me, the prospect of a more inward-looking China remains entrenched, and while the CAI appears to contradict this notion, China will only accept competition and capital as and when it suits their agenda. 

The public perception within the EU is that the deal was rushed through at the end of the year, and while the E.U. continues to promote European values, it has also struck a deal that is quite unbalanced and still may gain little market access to China. Couple this with concerns amongst the E.U.'s left, especially the Greens in Germany, over human rights, forced labor, and the environment, and the deal's passage is not assured.

 I have been concerned that the decline of American influence will continue into the Biden Administration. All in all, it remains to be seen how the CAI will be finalized by all the countries and the European parliament in the next two years.

In the meantime, the current U.S. administration is trying to define its own China policy, which will emerge in the next few weeks and months. The door will not be closed between Brussels and Washington. That said, E.U. criticism of China will be difficult in the shadow of the CAI, and this could leave the US remaining out in the cold.

While military might remains America's key strategic advantage, without the moral authority to justify its use, the United States will continue to find itself more and more isolated. Even America's most ardent supporters, such as the European Union, are looking towards China, firstly for its economic future but increasingly for the great challenges facing the globe.

While China remains unpopular with the citizens of the E.U., the fast-tracking of the E.U./China Investment Treaty has shown that countries around the world will focus on a "China First" foreign policy. Increasingly, U.S. allies will prioritize the economic advantage of aligning with China. The prospect of placating China and ignoring U.S. criticism of human rights, unfair trade practices, and anti-democratic values will be standard procedure for G20 and emerging economies as they pivot to Asia.

 With the CAI unlikely ratified by the European Parliaments until late 2022 at the earliest, the investment narratives around the agreement are hardly urgent.

That said, divide and rule has always been part of the Chinese strategy, and it is difficult not the see the CAI as a wedge between the U.S. and the E.U. regarding multilateral cooperation against China.