Opinion

An EU – China investment deal: a second look

For the moment, it does not look like we have the basis for greater and deeper economic relations with China. However, dismissing China and the opportunities that it creates for global cooperation would also be a mistake.

By: Date: January 19, 2021 Topic: Global economy and trade

This piece was originally published in the Money Review section of Kathimerini.

A few weeks after the signing of the Comprehensive Agreement on Investment (CAI) with China, we take another look at the debate that has ensued. Initial reaction was of surprise at best, and disbelief at worst. Assessments of the deal ranged from a massive diplomatic win for China (implying a massive diplomatic loss for the EU), even by some EU policy makers policy themselves, to a kick in the teeth for Joe Biden or rather cynically, a rushed attempt to defend country interests by a German trio.

What do these assessments tell us?

Is this agreement a narrow German “deal”? The EU and China have been in talks for seven years trying to reach an agreement on investment. Germany has by far the greatest commercial interests in China among EU countries. But as my colleague Alicia Garcia-Herrero, a scholar specialising in China argues here, this agreement deals with the long-standing issue of subsidies in services and not in manufacturing, where Germany’s overwhelming commercial interests lie. In any case, it would be a mistake to consider this a zero-sum game, whereby defending German commercial interests necessarily negates benefits to the rest of the EU.

…and a kick in the teeth for Joe Biden? One can be forgiven for worrying about the timing of such a deal. Just as the US is about to turn friendly and cooperative again, the EU acts unilaterally, having spent the past four years seeking US cooperation. I cannot help but wonder about this myself. However, it would be naive for the US to assume that Europe will behave as if the last four years didn’t happen and that the EU discussions on strategic autonomy and geopolitics in the EU will not have changed its approach to global engagement. Moreover, we should be under no illusion that cooperative or not, the US will pursue its own interests first and foremost. The attempt to engage with China unilaterally, is at least in part also an attempt by the EU to exercise this geopolitical independence.

A massive diplomatic win for China then? Possibly yes, and at different levels. As long as the US and the EU do not agree, there is always scope for China to play the two against each other, and at the very least, prevent them from uniting against her.

But the CAI is also a vote of approval that demonstrates that China is a global player capable of cutting deals with the developed world, a fact that legitimises what it does also at home. No sooner had the agreement been signed and China arrested 53 elected pro-democracy officials in Hong Kong. This is a simple reminder for those who believe that engaging with China will edge it to reform, very much like the motivation for including it in the global multilateral system (WTO), only to discover 20 years later, that it has not really helped.

So, what is the end game here? Can we imagine a world with one global multilateral system, in which trade and financial flows benefit from free and open trade? Or is the world de facto moving towards two poles of attraction, one based on the western way, and one on the eastern? A world in which there are two multilateral systems in which trade within members of each group is seamless but with limited interaction between them?

For the moment, it does not look like we have the basis for greater and deeper economic relations with China. There are too many grievances, too many differences in the way that we actually do business.

However, dismissing China and the opportunities that it creates for global cooperation would also be a mistake. Our efforts should aim to identify the minimum that is acceptable for relations to be conducted in a sustainable manner. But if the EU ever has a chance of being a credible counterweight to China, it would need to nurture alliances with old and new partners starting with its oldest partner, the United States.

In the meantime, it would be important to understand the economic significance of the CAI and whether it stands a chance of being enforceable. We will need to have a third look when the text becomes available.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Opinion

How Chinese competition helps western conglomerates

Firms like GE and Siemens may well find that their decision to split their businesses into multiple companies leads to increased profits and higher stock prices. But recent research indicates that this is not the only way conglomerates can boost efficiency.

By: Dalia Marin Topic: Global economy and trade Date: January 17, 2022
Read article More on this topic More by this author
 

Podcast

Podcast

Understanding Japan’s economic relations with China

What can Europe learn?

By: The Sound of Economics Topic: Global economy and trade Date: January 12, 2022
Read about event More on this topic
 

Past Event

Past Event

Global Gateway vs. Belt and Road Initiative

How does the EU's Global Gateway plan compare to China's Belt and Road initiative?

Speakers: Alicia García-Herrero, Guntram B. Wolff and Reinhard Bütikofer Topic: Global economy and trade Date: January 11, 2022
Read article
 

Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
Read about event More on this topic
 

Past Event

Past Event

The EU’s new foreign investment screening mechanism

At this members-only event we will discuss the European Commission's new foreign investment screening mechanism

Speakers: Damien Levie and Nicolas Véron Topic: Banking and capital markets Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 17, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

What to watch in 2022: China's economic outlook

Our end of 2021 recap of China’s economic activities.

By: The Sound of Economics Topic: Global economy and trade Date: December 8, 2021
Read article More by this author
 

Blog Post

European governance

The Global Gateway: a real step towards a stronger Europe in the world?

Disappointment at the lack of fresh cash from European Union global connectivity strategy is short-sighted: Europe supports global development more than any other country in the world. Using existing funds more strategically is the right priority for now.

By: Simone Tagliapietra Topic: European governance, Global economy and trade Date: December 7, 2021
Read article Download PDF More on this topic More by this author
 

External Publication

Chinese economic statecraft: what to expect in the next five years?

Chapter from 'Storms Ahead: the Future Geoeconomic world order' on the expectations from the next five years of Chinese economic policy, published on 27 October 2021.

By: Alicia García-Herrero Topic: Global economy and trade Date: November 26, 2021
Read article More on this topic More by this author
 

Parliamentary Testimony

Dutch Parliament

The future of the stability and growth pact

Testimony given to a Tweede Kamer der Staten-Generaal roundtable discussion on the future of the stability and growth pact.

By: Guntram B. Wolff Topic: Dutch Parliament Date: November 24, 2021
Read about event More on this topic
 

Past Event

Past Event

Covid recovery and the green transition: What can promotional banks do?

What is the role of promotional banks in financing the green transition?

Speakers: Sophie Barbier, Maria Demertzis, Ricardo Mourinho and Lucinio Muñoz Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 18, 2021
Read article More on this topic
 

Blog Post

Goodbye Glasgow: what’s next for global climate action?

After COP26, and as the debate on whether Glasgow represents a success or a failure dies down, what next for global climate action?

By: Klaas Lenaerts and Simone Tagliapietra Topic: Green economy Date: November 18, 2021
Read article Download PDF More by this author
 

Parliamentary Testimony

European governanceFrench Senate

European Union countries’ National Recovery and Resilience Plans: A cross-country comparison

Testimony before the Economic Affairs Committee of the French Senate.

By: Simone Tagliapietra Topic: European governance, French Senate, Macroeconomic policy Date: November 12, 2021
Load more posts