A successful EU-China summit despite a context of tension between the two powers

It is only until recently that the EU started to change its position towards China; seeing the country not only as an economic partner, but also as a competitor. China is now starting to produce sophisticated goods that will compete with those made in Europe and maybe more importantly, it is increasingly taking over in key sectors of the European economy. Furthermore, governments throughout Europe are increasingly viewing the Belt and Road Initiative as a tool used by China to spread its own development model. As a response, the EU has highlighted that they would harden rules on foreign investment flows into Europe. In this regard, Emmanuel Macron welcomed an “European awakening” and Cecilia Malmstrom, the Commissioner for Trade, added that the international economic order has been transformed.

The EU Strategic Outlook on China, proposed at the Foreign Affairs Council on 18 March 2019, implements a multi-layered approach and describes China as “a cooperation partner with whom the EU has closely aligned objectives”, a “negotiation partner with whom the EU needs to find a balance of interests”, an “economic competitor in the pursuit of technological leadership”, and a “systemic rival promoting alternative models of governance.” The new Strategic Outlook also mentions that “China can no longer be regarded as a developing country”. A new balance of policy approaches needs to be found.

The Strategic Outlook on China is the outcome of a step by step process targeting foreign direct investment (FDI) that started on February 2017 with a letter, sent to the EU Commissioner for Trade by the French, German and Italian ministers of the economy. A draft regulation on foreign direct investments followed in September 2017 aimed at reaching a balance between preserving the EU's overall openness to FDI influxes and safeguarding EU's interests (the Regulation has been adopted on 5 March 2019 and will enter into force in November 2020). In November 2018, the Parliament, the Council and the Commission approved the framework of the FDI screening. This comes as a response to the fact that the EU has no central FDI screening mechanism on grounds of security or public order and no formal cooperation between Member States on these issues. The framework foresees some minimum requirements to be met but no harmonisation of Member States mechanisms is foreseen. It is expected that this instrument will help to detect and draw attention to foreign investments made in sensitive sectors such as critical assets, technologies and infrastructures.

It is in this context that the EU-China summit was held on 9 April 2019 explaining why issues related to national treatment, reciprocity and transparency where strongly emphasised. During the summit, the joint objective of unbiased and reciprocally beneficial collaboration in bilateral trade and investment was one of the main issues discussed. Some developments can also be underlined on the Investment Agreement negotiations, a top priority for keeping an open, fair and transparent business environment for European and Chinese investors. The investment agreement would “substantially improve market access, the elimination of discriminatory requirements and practices affecting foreign investors, the establishment of a balanced investment protection framework and the inclusion of provisions on investment and sustainable development”. China has promised to reduce its list of sectors of the Chinese economy that are left out from foreign competition and investment by June.

The summit was considered as a win-win event by both sides who approved a joint statement paving the way for EU-China relations in the coming years.

Author: Dr Fanny Tittel-Mosser