Online Commentary

January 19, 2021

The EU-China Comprehensive Agreement on Investment (CAI)

One Deal, Two Realities

In the CAI, the EU sees mostly a business deal, while China sees mostly a strategic win that isolates the United States. Two days after it was agreed, China defined “defending development interests” as a casus belli, highlighting the risks of ever-deepening economic interconnectedness. The European Parliament should reject the CAI deal. Instead, the EU should coordinate its negotiating position on trade with global democracies, including the administration of US President Biden.

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Photo of President Xi Jinping meeting with German Chancellor Angela Merkel, French President Emmanuel Macron, President of the European Council Charles Michel and President of the European Commission Ursula von der Leyen via video link in Beijing, capital of China, Dec. 30, 2020.
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European analysis of China often underestimates Chinese intentions – and pays insufficient attention to what Chinese leaders say in public. Yet examining the view from Beijing is necessary analytical legwork. In China’s “fusion of powers” system, issues that appear isolated are generally multilayered and interconnected. China’s economic activity, for example, is part of “economic statecraft,” not just business. Similarly, “development” is about economy, not aid (though overseas it sometimes may be).

In contrast, the “separation of powers” system of Brussels and the EU’s member states enables issues to be approached in a siloed fashion. Europeans, therefore, tend to focus on issues in isolation from the overall geopolitical context. But because the Communist Party of China (CCP) embeds most things in an overarching national security context, it consistently outclasses Europe strategically. China’s concept of “Overall National Security,” which dates back to 2014, ensures that a range of areas – economics, culture, technology, governance, and more – are fully integrated into state security. The EU needs to understand the consequences of these different perspectives on the Comprehensive Agreement on Investment (CAI) and act accordingly to strengthen not only its geopolitical position, but also the democratic world order.

What Xi Jinping Saw

The European Union and China endorsed the CAI deal on December 30, 2020. That day, in comments reported on Xinhua, China’s state news agency, CCP General Secretary Xi Jinping indicated he saw it squarely within the context of shifting great power relations. He connected it to the CCP concept of “great changes unseen in the world situation in a century” (“世界百年未有之大变局”), in other words, China’s rise to challenge the United States for global leadership. In more detailed comments, Xi emphasized the deal’s political ramifications rather than its business aspects. He called for “strengthened policy communication and coordination” between the EU and China, expanding digital cooperation, and “strengthening coordination and cooperation at the United Nations, the G20, the WTO, the WHO, and promoting political solutions to global and regional trouble hotspots.”

What the EU Commission, Germany, and France Saw

For its part, the EU mostly presented the CAI as a business win for Europe. In a press release, EU Commission President Ursula von der Leyen stated: “Today’s agreement … will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs.” A separate statement on the Commission’s website echoed that approach: “China is also making commitments to ensure fair treatment for EU companies so they can compete on a better level playing field in China.” EU Trade Commissioner Valdis Dombrovskis added: “This deal will give European businesses a major boost in one of the world’s biggest and fastest growing markets.”

Leaders of EU member states, including German Chancellor Angela Merkel and French President Emmanuel Macron, noted that the deal addressed non-business issues too, mentioning climate change, the COVID-19 pandemic, the situation in Hong Kong, and human rights. Chinese statements, however, were silent on the last two topics. And while the EU said it made progress on getting China to adhere to the rules of the International Labor Organization (ILO), China was also silent on the controversial issue of forced labor. A recommendation by a prominent member of the CCP’s United Front – which works to connect the party to non-party and foreign organizations, including people – is worth noting. Wang Huiyao, who is also an adviser to China’s State Council and president of the Center for China and Globalization, warned the international community to be “realistic” about labor issues, suggesting that, while China has committed to trying to ratify ILO conventions, nobody should necessarily expect it to do so.

“Systemic Rival” No Longer – Says China

Separately, China’s Foreign Minister, Wang Yi, said in an interview with Xinhua that “China and the EU are comprehensive strategic partners, not systemic rivals.” China wants the CAI to turn the clock back to a previous era of relations – when the EU was more naive. The EU’s March 2019 description of China as a “systemic rival,” in addition to economic competitor and negotiating partner, needles Beijing, which has regularly asked it to lift the designation.

Overall, China’s narrative of a geopolitical win is emphasized by state media images showing Xi in the center, with the EU constellating around him. While Germany’s Angela Merkel is given pride of place in the top left corner and France’s Macron takes the second position of honor, EU representatives are found at the bottom (see below). A report that Merkel and Macron controversially finalized the details of the CAI with Xi without input from the EU adds weight to China’s interpretation.

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Image from video meeting of Chinese President Xi and European leaders during which the successful conclusion of investment agreement negotiations was announced
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Other Chinese media outlets have also interpreted the deal as one struck by Germany and France, for example this report by Car Commune, which focuses on the automotive industry and especially electric vehicles. The report – without mentioning the European Parliament’s right to ratify the treaty by vote, which it has not yet done – gives this as the reason it would not be finalized until 2022: “For such an important project, only when big countries like Germany or France are president of the EU, is it possible to advance.”

Xinhua also published a graphic that symbolizes what China sees as its highly successful cooperation with the EU. It features the Chinese and EU colors bleeding into each other accompanied by the Chinese words “China-EU Investment Deal Negotiations Completed!” This sentiment is echoed in the design of this image that shows Xi Jinping waving in a friendly fashion at his European interlocutors against a backdrop of mingled flags:

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Photo of Xi Jinping in a video meeting with European leaders on December 30, 2020.
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EU “Strategic Autonomy,” the United States, and China

In his January 2 comments, Foreign Minister Wang indicated that China seeks to influence the “strategic autonomy” debate in Europe. China is “a supporter of … greater strategic autonomy of the EU,” Wang said. Yet not all EU member states are equally happy with the idea of strategic autonomy, which is an issue that may increasingly divide the EU in years to come.

Some EU members – including Central and Eastern European countries such as Poland, Czech Republic, and Lithuania, but also Sweden – have genuine security concerns that are grounded in their experience of threats from the Soviet Union, and now authoritarian Russia, which they recognize in China, too. For them, the United States remains a vital ally. Anna Wieslander, director of northern Europe for the Atlantic Council, recently made this clear when she tweeted that too much strategic autonomy can be a red line. Wieslander tweeted this statement, quoting senior Swedish diplomat Veronika Wand-Danielsson:

Sweden has built its prosperity on openness and cooperation, and an interpretation of strategic autonomy for #EU that implies independence from #US, is not in Swe interest says @AmbVWD #fofrk #säkpol

In an interview, Polish Foreign Minister Zbigniew Rau criticized what he saw as the deal’s democratic deficit, stating: “We should have first discussed EU political goals toward China, thereby searching for a democratic consensus on this issue.” Rau alluded to the CAI’s controversial timing – just weeks before the Biden administration took office – and the speed with which fresh offers from China were made, resulting in a deal being struck after seven years and 35 tortuous rounds of negotiations. “The European Commission and the German presidency brought upon Europe long-term problems organized in an extralegal format all for some quick media fireworks. What kind of global standard are we setting when we employ procedural tricks to avoid political and social debate about an agreement that will impact the lives of our citizens for decades to come?” Rau asked.

Social Commentary Saw a Strategic Win for China Against the United States

China’s geopolitical aims, rather than its business goals, were also highlighted in the country’s informal commentary. One typical article, entitled “The Great Power Game Behind the EU-China Investment Agreement,” was published on the Zhihu website. In it, the author wrote: “The American government was changing hands at the time, and the Biden administration had already said it wanted to unite with its allies on the economy to put pressure on China. So the EU-China investment agreement was reached as quickly as possible, before Biden took office, in order to divide America’s allies and stop them from uniting against China.”

Militarizing Economic Interests – So Called Development Interests

Finally, a significant update to China’s National Defense Law pushes the mismatch in perspectives between the EU and China to a truly sobering level. Signed by Xi Jinping on December 26, 2020, and taking effect on January 1, 2021, thus neatly bookending the CAI deal, the update adds “defending development interests” to legal reasons for China’s use of military force. Here, it is important to understand that, in China, economy is an intrinsic part of “development” (发展). “Development interests” (发展利益) regularly figure in speeches by Chinese leaders, economic directives, and state policies. This raises the prospect that, if China deems a country to be blocking its “development interests,” it could target it militarily. While this is widely interpreted as a warning to the United States, which has increasingly blocked China from accessing sensitive technologies such as semiconductors, the broader challenge is clear. What if the EU, also a technological “piggy bank” for China, were to do the same, acting out of its own interests?

If this seems outlandish to European sensibilities, one need look no further than the seizure by China’s military of contested territory throughout the South China Sea. Territorial expansion in this region, which is rich in oil and gas deposits and contains a major global shipping lane, began in 2013 through a program of island- and sovereignty-building.

The update has global governance issues, too: it deviates from established international law. Article 2(4) of the United Nations Charter generally prohibits states from using force against other states. The two primary exceptions are when the UN Security Council authorizes the use of force and when a state is subject to an “armed attack,” triggering the right of self-defense. China’s addition echoes a different era: the Japanese attack on Pearl Harbor in 1941 in response to US economic sanctions – the reason the postwar negotiations on the UN Charter deliberately excluded economic factors as grounds to use military force.

The EU Must Act for the Long Term

The CAI was agreed within a context that is about much more than business. The solution is to not ratify the deal. And indeed, opposition in the European Parliament is growing as reflected in a recent Tweet thread by one of its members, Reinhard Bütikofer, who wrote:

By rushing to reach this agreement while not taking concrete action against ongoing grave human right violations e.g. in Hong Kong, Xinjiang province and Tibet, the EU risks undermining its credibility as a global human rights actor. 

Instead, the EU’s trade with China should be recalibrated together with the United States and other allies, thus creating a broader coalition of democracies to manage the China challenge moving forward. Moreover, trade with China should align with the EU’s long-term strategic and democratic interests, not just those related to business. Arguments that the deal enables the EU to resist China’s long-standing attempts to “divide and rule,” miss the point. Divide and rule has, arguably, merely been bumped up a level, with the CAI deal driving a potential wedge into the Western alliance itself.