China-EU relations face uncertain future despite investment deal

Rachel Zhang
·5-min read

Both China and the EU have hailed an investment agreement between the two sides as a breakthrough, but the course of future relations remains uncertain with many potential pitfalls ahead.

European countries are still prepared to work with the United States to counter China and events such as the mass arrest of opposition politicians in Hong Kong are likely to cause further criticism of Beijing.

The investment deal is seen as a sign that the two sides can work together despite many grievances over their economic relations and pressure from the US, but observers cautioned that further problems lay ahead, while German Chancellor Angela Merkel – a key force in backing the deal – is planning to step down later this year.

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Some have criticised the EU for rushing the investment deal with China ahead of Joe Biden’s inauguration in light of Western concerns at China’s actions in Xinjiang and Hong Kong. European observers think it is too soon to consider the deal as “definitive”.

Deal or no deal? What next for China-EU investment pact and why it may fail

“First, it is concluded ‘only’ in principle, without much precision; no text has yet been edited and when it will be, it has to withstand legal scrutiny. Second, it has to go through the European mechanisms,” said Sophie Boisseau du Rocher, a senior researcher with the French Institute of International Relations, a think tank.

“What I want to suggest is that it gives time to the Biden administration to take initiatives and make proposals to the EU, to blow a new spirit in the relationship.”

The deal will need to be approved by the European Parliament, where a growing number of members have expressed concern over the Hong Kong arrests.

Bernd Lange, the head of the EU parliament’s trade committee, which will be responsible for reviewing the deal later this year, said concerns about political freedom and human rights would play a prominent role in handling the investment agreement.

Carlo Altomonte, a professor of economics at Bocconi University and a research fellow at Bruegel, a Brussels-based economic think tank, said the deal itself was subject to much scrutiny, especially during its implementation phase.

“We are now in the implementation phase of the agreement, so we have to see how it rolls out. For sure, enforcement on the Chinese side is going to be critical, ie ‘future commitments’ or verbal guarantees are not going to work,” he said.

“If these issues are tackled, it is likely the EU has an argument to also bring the US to the negotiating table, to the benefit of everyone. If the Chinese government delays the enforcement, then it is the EU that will move back to the US camp.”

Angela Merkel, pictured with Chinese President Xi Jinping, was key driver of the deal but is stepping down later this year. Photo: AFP/Getty Images
Angela Merkel, pictured with Chinese President Xi Jinping, was key driver of the deal but is stepping down later this year. Photo: AFP/Getty Images

Relations between the EU and the US have been hit during the Trump administration with the imposition of tariffs by US on European products. However, incoming US national security adviser Jake Sullivan said the US would seek to end the trade war with its European allies to deal with China together.

On Tuesday in a meeting with his Cypriot counterpart Nikos Christodoulides, Chinese Foreign Minister Wang Yi warned that the EU should not be influenced by external forces when dealing with China.

Steven Blockmans, director of research at the Centre for European Policy Studies, a think tank in Brussels, said the dialogue between the EU and US on China would provide a key mechanism for advancing shared transatlantic interests and managing differences.

“Topics include biomedical research, a green trade agenda, and more acutely related to the systemic rivalry with authoritarian powers and closed economies that exploit the openness on which American and European societies are built,” he said.

EU should not let others interfere in relations with China, Wang Yi says

Hu Weinian, a research fellow of the Centre for European Policy Studies in Brussels, said: “The EU-US have been working together on China … even when the US imposes tariffs on the EU. Therefore, tariffs or trade war are not an obstacle for the EU and the US to work together on China’s trade malpractices.”

As much as the EU is eager to cooperate with the Biden administration, there may be limits to how far it is wiling to go against China.

The EU stresses the need for “strategic autonomy” amid growing scepticism about the US on the continent.

“On working on multiple fronts, I expect the EU will take an issue-based approach on each individual subject – be ‘independent and assertive to pursue its own interests’ – well that becomes the EU’s open strategic autonomy,” Hu said.

But observers also said European countries were reluctant to be exposed to any kind of retaliation from China.

“The recent announcement of an investment agreement between the EU and China shows that European leaders will need to be convinced of the value for them of working with the US to counter China and that they value their own room to act or actually to be able to choose not to act, what they refer to as strategic autonomy,” said Pepijn Bergsen, a research fellow with Chatham House, a London think tank.

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