Eva Perea
Professor of Business and Economics at the Universitat Abat Oliba CEU
The buzzword VICA (for Volatile, Uncertain, Complex and Ambiguous environment) is perfect to describe EU-China relations. While the Asian giant is an important trading partner, it is also a competitor, and an enemy, in many respects. China is the world’s second largest economy, behind the United States, moving full speed ahead to reach the top position.
China also has the world’s largest online market and the largest middle class, with nearly 500 million people eager to consume and travel, and a purchasing power already close to that of developed countries. For example, China has the largest number of tourists in the world, sending 100 million tourists abroad every year. Incidentally, only half a million of them visit Spain, so the potential is enormous.
In January of this year, Ursula von der Leyen, president of the European Commission, admitted that China is a “systematic rival” in the way it views people and human rights. She added that the relationship will always be “an ambiguous one.”
The EU-China comprehensive investment agreement
The European Union and China approved in late December 2020 an investment agreement after seven years of marathon negotiations, an agreement that would ensure a stable framework of conditions for trade and investment. If ratified, it could lead Beijing to relax some of its strict rules for foreign companies, such as the need to operate through joint ventures with local partners.
The pact would also offer European companies access to the Chinese market and facilitate Chinese investment in Europe. It also sets out provisions on fair competition and sustainable development.
The signed agreement is probably favorable for China from a political point of view, as the country has suffered some political isolation since COVID. It is a way to gain legitimacy with one of the world’s best partners, the EU. This is why it has been considered a diplomatic victory for the Chinese leader, Xi Jinping.
Although the agreement aims to eliminate trade barriers, many fear that this agreement will favor Germany above all: the Chinese market is especially important for automakers and Germans have a large presence in the country. Merkel has been the European leader who has visited China the most times in the last 15 years. In fact, it was she, the German chancellor, who made the final push for the talks.
For it to enter into force, it still needs to be ratified by EU member states and the European Parliament, where it faces massive opposition.
Will the agreement ever be ratified? Deterioration in Brussels-Beijing relations
However, for a few weeks now, the EU-China investment agreement has been frozen. In March this year, the EU imposed sanctions on China for its treatment of the Uighur Muslim minority in the Xinjiang region. These were the first human rights sanctions against China since the 1989 Tiananmen Square massacre. In response, Beijing immediately announced sanctions against several members of the European Parliament.
Diplomatic tensions have made the terms of the agreement “unfavorable”. European Commission Vice-President Valdis Dombrovskis himself has stated that efforts to get the agreement approved are frozen.
“It is clear that, in the current situation, with EU sanctions against China and Chinese counter-sanctions, the environment is not conducive to the ratification of the agreement,” Dombrovskis said.
Therefore, the ratification process is on hold.
Maybe the agreement will be good, maybe it will never be implemented, we don’t know. But, in any case, who would benefit from it? Not most companies or countries. China is a market full of obstacles and entering it has proven to be extremely tough.
China no longer wants to be the world’s factory. Rather, China does not just want to be the world’s factory: it wants to be the world’s bank, investing in traditionally European geographical areas such as Greece or the Balkans, it wants to be the world’s leading economic and technological power, the global 5G, in other words, to impose itself at all levels.
Europe, weakened by Brexit and by the management of the pandemic, must be able to create national champions, large companies that can compete with China, especially in strategic and technological sectors. The fact that the United States is led by Biden sheds some light: after Trump’s trade war, his successor’s style will be more negotiating.
In conclusion, we can state that, in this VICA environment, greater anticipation, flexibility and stronger leadership will be required from Europe.
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