European Parliament Freezes Investment Agreements, Thwarts Chinese Communist Ambitions

On May 20, the European Parliament overwhelmingly passed a resolution to suspend ratification of the China-EU Investment Agreement until the Chinese Communist Party lifts its retaliatory sanctions against the EU. The Chinese Communist Party immediately retaliated by saying that the EU was engaging in “sanctions confrontation” and that the agreement was “not a gift from anyone to anyone,” but it really hurt.

The Chinese Communist Party made considerable concessions to sign the rather comprehensive China-EU investment agreement, with Xi Jinping personally stepping in and giving the go-ahead. The concessions are mainly in two areas.

First, the CEIBS is more open than the Special Administrative Measures for Foreign Investment Access (Negative List) (2020 version, with 33 entry restrictions), the Free Trade Pilot Zone version of the Negative List (2020 version, with 30 entry restrictions), and the Hainan Free Trade Port version of the Negative List (2020 version, with 27 entry restrictions) issued by the NDRC and the Ministry of Commerce on December 31, 2020. version of 2020, with access restrictions of 27 articles). In addition to the access restrictions that have been or are planned to be liberalized by the CCP’s existing negative list, the CCP plans to open up to EU companies in areas such as health (private hospitals), R&D (biological resources), communications/cloud services, computer services, and international maritime transport, while China has also eased restrictions on the movement of natural persons to the EU, “allowing EU business managers and experts to work in China for for up to three years, without restrictions such as labor market tests or quotas” and “allow EU investors to visit freely when conducting pre-investment visits.”

Secondly, the level of rules of the CEIBS in terms of fair competition, domestic regulation, transparency and standard setting, and sustainable development is higher than the already existing investment agreements. In fact, they are more inclined to be included in a high-standard FTA than in a pure investment agreement. Among other things, the transparency of state-owned enterprises and subsidies involved in fair competition is the first time it has been reflected in investment agreements and FTAs negotiated or signed by the CCP; the CCP has also relaxed standard-setting to “provide EU companies with equal access to standard-setting bodies.”

Why did the CCP make such a big concession? The immediate economic purpose of signing this agreement is to obtain large-scale investment from the EU and further deepen its economic ties with Europe, while the political purpose is to divide Europe and the US, weaken the transatlantic alliance and establish an international united front against the US.

The Chinese Communist Party signed the agreement with the EU before Biden came to power and won the first hand; however, due to its arrogance and misjudgment, it doubled back on the EU’s symbolic human rights sanctions against Xinjiang, forcing the EU Parliament to freeze the agreement, and even Merkel could not say anything at this time.

Although the Chinese Communist Party claims that the agreement is “not a gift from anyone to anyone,” it is relatively speaking, the Chinese Communist Party is more in demand from the EU. Here are three reasons.

First, the EU has long been an important trading partner for China, and the Communist Party has earned a large surplus. For example, in 2020 China overtook the US as the EU’s top trading partner, with bilateral trade totaling 586,032 million euros, or 16.07 percent of the EU’s total foreign trade, and a Chinese surplus of 181,005 million euros. That’s why China-European trains, which depart from China are fully loaded and come back empty, are so much more. Now that China and the United States are at loggerheads, the Chinese Communist Party can’t leave the EU as a big market.

Second, for a long time, EU investment in China has been relatively small and not growing fast (EU direct investment flows to China were $4.348 billion in 2005, rising to only $6.444 billion in 2019), far out of proportion to the huge trade volume between China and Europe. For example, the EU’s investment in China accounts for a very low share of the total foreign investment attracted by China, only 4.67% in 2019. Now that the CCP has “six guarantees” and “six stabilizations,” it has a great need for foreign investment and a great expectation for the EU.

Third, the CCP’s investment in Europe has been growing rapidly over the years (for example, China’s direct investment in the EU in 2005 was only $190 million, but in 2019 it rose to $10.699 billion, an increase of more than 55 times), and one of the main purposes is to acquire high-tech enterprises and enterprises of key importance, to obtain high technology, to fill the shortcomings of industry, and to promote the upgrading of manufacturing; however, countries such as Germany have strengthened security reviews and have repeatedly called for a halt to Chinese investment in the EU. However, Germany and other countries have strengthened their security reviews and repeatedly called off the acquisitions of Chinese Communist Party companies (for example, in 2018, they called off the acquisition of the German Lefeld Metal Spinning Machine Manufacturing Company by China’s Yantai Taihai Group), and the Chinese Communist Party wants to use the signing of the China-EU investment agreement to weaken or bypass this security review to reach its desire.

Since the Chinese Communist Party is so desperate for the EU, what is the EU doing by signing this agreement?

Since the debt crisis, the EU has almost lost its economic growth, and the burden of social welfare is too large for the EU governments to suffer; at the same time, in the process of transformation to information society and smart society, the EU is indeed lagging behind the US and China in some aspects. In this way, the EU looks outward and has some thirst and illusions about the CCP, which is the reason for its long-term appeasement of the CCP.

However, the EU should wake up and realize that

First, the CCP is more interested in the EU as a piece of fat meat to gnaw, rather than to help the EU revitalize its economy. The “China Manufacturing 2025” and the “China Standard 2035”, which have already been completed, as well as the “National Standardization Development Strategy Research” project now underway, pose a sharp challenge to the EU. In addition, two points need to be pointed out: one is that the Chinese Communist Party does not play by the rules and changes its rules from time to time, so the more you invest in China, the easier it is to fall into the trap and become its meat on the chopping block (the Chinese Communist Party itself calls it “closing the door on the dog”); the other is that the Chinese Communist Party does not play by the rules and is used to writing blank checks. The reason why they dare to make promises is that they will not implement them later (this is what they did in 2001 when they joined the WTO).

Secondly, the EU has great economic and technological advantages over China at this stage. The key is how the EU can use its advantages to reform and advance itself for economic development.

Thirdly, the confrontation between Chinese and European values and the global ambitions of the Chinese Communist Party are destined to be the ultimate enemy of the EU. At present, the EU’s ambivalent attitude toward the CCP is reflected in the “triadic” positioning of the CCP: partner, economic and technological competitor, and systemic opponent. Although this “triadic” positioning can accommodate various voices within the EU’s China policy, it is not only inherently contradictory, but also unclear, and cannot serve the purpose of “strategic clarity”. Without clear strategic guidance, the EU’s China policy will inevitably waver and may even fall down.

In short, the EU’s China policy is now at a crossroads. It is up to you to figure out where to go and where to go.