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Foreign Policy

China-EU at Crossroads

Jun 17, 2020
  • Cui Hongjian

    Director of the Department of European Studies, China Institute of International Studies

The novel coronavirus has dealt a severe blow to international relations, including those between China and the European Union. Whether the two can stay on track and continue to adapt to new realities with resilience and energy, depends on their ability to tap potential cooperation and cope with the repercussions of the tensions and turbulence in relations between China and the United States and continue to cultivate mutual trust. 

I. COVID-19’s impact on set diplomatic agenda 

This year was planned as a pivotal one that would see enhanced cooperation and mutual trust between China and the EU. First, high level leaders’ meetings: In addition to the annual China-EU leaders’ summit, EU27-China will be held in Berlin for the first time, and the 17-plus-1, or China-CEEC Summit will remain a highlight of China’s home-field diplomatic agenda. Second, thanks to enthusiastic expectations, the highly anticipated China-EU Bilateral Investment Treaty is on track to be signed after seven years of extensive negotiations.

Cooperation in other important areas is set to begin this year, including better alignment between the Belt and Road Initiative and the Euro Asian Connectivity Strategy.

The onslaught of COVID-19 has cast a shadow on key bilateral and multilateral diplomatic agendas in China-EU cooperation for the following reasons:

First, both sides need to focus on anti-pandemic efforts at home. Multiple agenda items have been delayed, and the format remains undecided.

Second, with anti-pandemic efforts becoming the new normal and the public health emergency gaining prominence, China-EU cooperation will adapt and reflect those changing dynamics.

Third, as the containment situation gradually eases up both in China and the EU, the focus will shift to ensure the safety of the industrial and supply chains in both areas, which will increase the urgency and concern for cooperation.  

II. Impact on economic and trade cooperation 

The pandemic will have massive negative consequences for China-EU economic development.

First, it undermines economic fundamentals, so stabilizing economic growth and ensuring basic livelihoods have become top priorities. In the first quarter, China’s GDP shrank by 6.8 percent; the EU27 (without the United Kingdom) was down by almost 3.3 percent; and the EU19 was down by 3.8 percent. Italy, Spain and France were the hardest hit, with GDP falling 5 percent.

As Europe is behind China regarding where it is at the outbreak curve, a steeper GDP decline in the second quarter is expected in the EU.

In light of the situation, China has not set a specific growth target for this year. The EU forecasts economic recession. Apparently, both sides will prioritize efforts to fight the pandemic, restore economic fundamentals and maintain social order, which will in some ways lead to inward-looking policies.

For instance, while in the depths of fighting the pandemic, the EU passed a law that shields strategic industries in EU member states from foreign acquisitions, with an unmistakable overtone against China. Internal factors will also suppress the parties’ ability to make compromises regarding the BIT and other issues.  

Second, containment and quarantine measures taken by both sides, along with different paces of work resumption and border control relaxation, have led to disruptions of trade and industrial supply chains. According to Chinese data, merchandise trade volume with the EU dropped by 10.4 percent in the first quarter, a decline second only to that between China and the United States. With Brexit taken into consideration, EU trade with China (minus Britain) is lower, thus terminating the 16-year-long top trading partner status, which will be taken by ASEAN, whose trade with China increased by 6.1 percent.

Last, the EU has been leveraging massive economic relief efforts to promote internal reform and a future industrial strategic layout, heralding far-reaching impacts on economic and trade relations between China and the EU.

The EU released a recovery fund to the tune of 750 billion euros, with the core mandate to tie financial grants for economic recovery with industrial strategies. The recovery fund is meant to align with industrial strategies and the domestic reform agenda in EU member states, and promote a green and digital economic transition.

It remains to be seen how the recovery will come through, but the direction regarding industrial and supply chain transformation in emerging and strategic industries is clear. This will pose challenges for the deeply integrated industrial chains between China and the EU.  

III. A test of political trust 

The pandemic not only poses a threat to human life but also has made a significant impact on mental health and public opinions. Because of the social sentiments and media reporting pattern during the pandemic, public opinion in China and the EU has manifested complex dynamics, reflecting the competitive dimensions of international politics. It has to some extent undermined political trust between China and the EU.  

When COVID-19 was first emerging in China and the EU was largely immune, the EU and some European countries provided material supplies and moral support to China.

However, as the EU was spared at that time, media reporting was patronizing, with a flavor of cultural or institutional superiority and ideological bias from a bystander’s perspective. Later, the pandemic was largely brought under control in China but began to surge in Europe, China in turn provided support to Europe. The respective diplomatic roles shifted, which the EU didn’t take well. When China and the U.S. were enmeshed in heated debate over the origin of COVID-19, some governments, media and civil organizations in Europe followed the U.S. tune.

No matter what the EU’s rationale behind its perception of China, diplomatic frictions have worked against trust at the official level between the two parties, and the jarring notes in media reports are not helpful for developing rational, objective and positive understanding and recognition among the people.    

VI. Rebooting China-EU relations  

The ongoing pandemic is a double-edged sword for China-EU relations. It has laid bare the existing differences between the two but also revealed where they need each other on the path of future development.

The commitment to ensure cooperation outweighs differences, but the contribution to global stability and prosperity all depends on whether China and the EU can agree on a diplomatic agenda and reboot their cooperation when the outbreak begins to ease up.

The two sides must first unlock energy for cooperation through a balancing of interests. Recent years saw significant changes in the balance of interests and mutual perceptions. In particular, the EU is not as confident as before about securing continued benefits from Chinese markets, while China has grown more concerned about the EU’s tightened trade and investment policies.

In addition, economic and trade cooperation, as the fundamental driver of China-EU relations, has slowed, or even reversed course. With the balance of economic power between China and the EU continuing to evolve, both sides need to reach a new understanding on the need to adjust the configuration of interests.

While the outbreak laid bare the vulnerabilities in the industrial and supply chains between the two sides, it could also serve as a new starting point for new resilience in economic cooperation. New areas of cooperation such as public health and other related sectors could also be explored. Negotiations on the BIT are still in progress, and both sides should show more political wisdom and courage to promote two-way open cooperation on an equal footing.  

Second, China and the EU must uphold multilateralism to cope with global turbulence in a sensible and effective way. The outbreak brings home the fact that an absence of international mechanisms, raging unilateralism and inadequate global governance could result in more troubles for both China and the EU, as well as the international community.

Against this backdrop, China and the EU have to defend and practice multilateralism with more resolve to safeguard their respective interests and enhance shared interests in a time of shifting dynamics and turbulence. They must work together to reform multilateral institutions such as the United Nations, G20, WTO and WHO — which must be the direction for safeguarding multilateral cooperation — and reject unilateralism.

In the meantime, China and the EU must carry out proactive and pragmatic cooperation in public health in Africa as well as third-party cooperation in trade, to provide more public goods for regional and international communities.

Last, China and the EU must work actively to cultivate mutual trust on the basis of mutual respect. Both sides must recognize their different systems and roots of culture and strive to develop new and active mutual recognition with that in mind, establish a mutually acceptable way of engagement on the basis of “trade reciprocity” advocated by the EU and “political equality” advocated by China.

Both sides should make sure they work to reach a new contract for cooperation on condition that such cooperation is not premised on changing the fundamental political system of the other party. China and the EU have enough wisdom to avoid interpreting the other’s behaviors in an overly political manner. They should harness measures to turn political confrontation into technical competition and foster the concept of competition-for-cooperation, rather than competition-instead-of-cooperation, which is the way to go to keep abreast of the altered balance of interests in a time of seismic change.

 

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