China-EU Relations: Trade and Beyond

The Diplomat talks with Kerry Brown about the future of China-EU relations. 

By Justin McDonnell

April 24, 2014

Xi Jinping’s tour of Europe earlier this spring reflected China’s interest in deepening ties with Europe, as well as European countries’ desire for better relations with China. Trade remains the primary driver of China-EU relations, as well as China’s bilateral relationships with various European countries, but there are other factors at work as well. To find out more about the future of China-Europe relations, The Diplomat’s Justin McDonnell spoke with Kerry Brown, Director of the China Studies Centre at the University of Sydney and editor of the upcoming book, China and the EU in Context. 

Why is European trade of strategic importance for China and its development? 

The EU and China are the largest trading partners in the world. They have a vested interest in being able to enjoy the maximum access to each other’s markets, with trade flows going over $1 trillion in recent years. The EU, even after the economic crisis of 2008, remains a vast market for Chinese goods, and China remains hugely important as a place where EU companies have to do better in terms of goods that they sell and services they are seeking to supply. For China, the EU is the ultimate counterbalance to the U.S. market. But more than that, it would be no exaggeration to say that the Chinese economy could not, and would not, have grown as well as it has since its entry into the World Trade Organization in 2001 without a beneficial relationship with the EU. 

Now that the row of underpriced solar panels has boiled over, Europe and China seem ready to improve business ties. During his recent European tour, Chinese President Xi Jinping sought to deepen trade relations with Europe. He’s looking to speed up the bilateral investment agreement, and is now encouraging a long term free-trade accord. While this would certainly help Europe’s more depressed economies and reignite their productive potential, there are serious reservations. Why does Europe seem to be dragging its feet about opening its markets to China? 

Because Europe has had time to reflect on just how much it gave away when China entered the WTO in 2001. It did not foresee that China would be able to use this seminal deal to get most of what it wanted in terms of market access without granting a great deal back. EU companies are still barred from many important government procurement contracts and they suffer a number of barriers to entry into China through national treatment protocols and other impediments. But more difficult than this is the unexpected fragmentation of the Chinese market. The EU has refused to grant China market economy status, a major sticking point, because of the role of government support in state owned enterprises. Europe claims China’s SOEs receive unfair subsidies they received and easy access to the capital. China and the EU therefore enjoy a strong but contentious trading relationship. This is not so surprising. The stakes are high. So the EU negotiators now, knowing just how hard their Chinese counterparts strike deals, have become more wary. 

Are values important in Europe’s relationship with China or is that being undermined by increased trade? 

The EU is a diverse place. Xi Jinping called it a “civilization,” and that is probably how it figures in the thinking of most Chinese officials or middle class people: a place of fine music, literature and culture, but often bewildering due to the different languages and identities across the 28 member states. China has exploited differences between members states in their attitude to China, which is not so surprising. But it has sought unity sometimes, and probably wants to see more unity in terms of investment rules. In many ways, the EU and China are often seeking a unity in each other that is probably not there in the way they expect. The EU does not fully understand the complexity of provincial autonomy in China, and the Chinese often have great problems understanding where the EU is unified and where it is clearly a diverse and often very disunited entity. 

Also, there seems to be a lack of European unity, not only on trade and economic issues, but also on issues of foreign policy and governance. China has a bilateral approach that seems to have fragmented EU policy. How might Europe coordinate a consistent policy of shared engagement? 

The aspiration for a unified policy position in Europe toward China is a holy grail, or something like alchemist’s gold. The issue is who, precisely, would forge this. Neither the President of the EU, Herman Van Rompuy, nor the president of the commission have the mandate to go out ahead on this separate from the instructions of the heads of member states. And so the default position is the lowest common denominator. No national leader with real power in Europe, like Angela Merkel in Germany or François Hollande in France, would be able to step in and take ownership over China policy. The best they can do is to look after their own national interests, while trying to tie those into the EU interests generally — a hard task. The only moment when EU unity is good is when there are crises or problems where the EU can face China as a unified whole. This happened up to a point in the accidental bombing of the Belgrade embassy in 1999 when the EU was able to hold a unified position against strong Chinese criticism and anger. But forging consensus in recent years in the EU has been hard work, and increasingly fragile. 

How can Europe’s young entrepreneurs and investors take advantage of China’s growing middle class and exports? What advice might you give?

They reach out to Chinese through their very much envied innovation values, their record of being very strong in terms of creativity and inventiveness, and through smart and focused marketing and strategy in China. It is likely that the safest route for this is through finding good quality partnerships in China. And these are increasingly found by offering Chinese potential investors good quality partners in Europe. A two way bridge, as it were. Europe is doing okay in China, but it could be doing much, much better