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EU hesitates over investment deal with increasingly authoritarian China

RFI | 12 March 2021

EU hesitates over investment deal with increasingly authoritarian China

by Jan van der Made

China has recently drawn damaging international criticism because of plans by the National People’s Congress to further curtail freedom in Hong Kong. In spite of that, Beijing and Brussels are trying to finalise what has been described as ’the biggest investment agreement’ in history. But will it ever be ratified?

"An assault on democracy in Hong Kong" was the reaction of the US State Department to the 9-point decision by the National People’s Congress (NPC) to curtail Hong Kong’s legislature.

According to plans released by the NPC, the Chief Executive and candidates for Hong Kong’s Legislative Council will now all have to be screened by a 1,500-strong committee handpicked by Beijing, overturning the situation where half of the seats were directly elected. The new arrangement represents an "enrichment" of the "democratic system" of Hong Kong, according to the NPC announcement.

"When they are saying that, they must be joking," Jean-Pierre Cabestan, a political science professor with Hong Kong’s Baptist University, told RFI. "It’s an additional control of the electoral system in Hong Kong."

In their own democratic fashion, NPC members approved the new system in Hong Kong with 2,895 votes in favor and one abstention.

Economic independence?

But for many of the Beijing lawmakers, the economy is more important.

China projects an economic growth of 6.8 percent for 2021, when most other economies are slowing down as a result of the Covid-19 pandemic - affecting China’s export-based operations.

Possibly triggered by this, Cabestan says there was more focus on domestic consumption, domestic research and development, domestic acquisition and mastering of technologies.

"The major trend is more self-reliance, decreasing dependence on Western countries, and Japan, and South Korea," he says.

China Investment Deal

In spite of this, China and the European Union on 30 December signed, "in principle", the Comprehensive Agreement on Investment (CAI), a monster deal that had been seven years in the making.

But it is far from clear if this deal will ever be ratified.

A week before the CAI was agreed, France’s Junior Minister for Trade, Franck Riester, told the Le Monde newspaper that Paris would block the CAI if the issue of forced labor wasn’t addressed.

Trade deals should be used as leverage "to advance social issues," Riester said. He also warned that the deal would lead to more market access, but not to investment protection, "even though it’s important to protect our companies from the risks of sudden nationalisation" of China-based assets by the Beijing government.

Labour rights

But after last-minute negotiations, China agreed that it will "on its own initiative" look into ratifying International Labour Organization (ILO) conventions against forced labour.

"It is the first time that China has committed to an international agreement to the Sustainable Development Goals," including labor rights, François Godement, Senior Asia Advisor with the Montaigne Institute in Paris told RFI.

But Godement adds that by agreeing to include the labour rights "on its own initiative" Beijing indicates it will not respond to pressure on this front. "China has ceded a lot in principle, and very little or next to nothing in practice," he says.

CAI Annexes published

On 12 March, after a delay of more than two months, the European Commission published the long-awaited "Annexes" to the CAI - including the reservations made by the EU and China.

Initial reactions to the publication of the full text are not positive.

Nick Marro, an analyst with the Economist Intelligence Unit tweets that "The CAI replicates a lot of what foreign investors already get in China’s FDI negative list (including iterations from previous years). So far, I don’t see anything that the CAI has given to EU investors that go beyond other markets."

Trojan Horse

The deal involves "health clinics in China in key cities," Godement says, and vague promises of "participation of European companies" in the budding Chinese electric cars industry, "but very subject to government guidance," especially when it comes to location of the factories, and some possible openings for the creation of joint ventures in finance and telecom.

"Beijing sees investment deals as a kind of Trojan Horse," says Clive Hamilton, Professor of Public Ethics at Charles Sturt University in Canberra, and co-author of the book Hidden Hand, that investigates China’s growing economic and political influence in the West, "a means by which it can smuggle greater political and economic influence into other countries through the channels opened up by these investment deals."

Hamilton, who lives in Australia, says he observes a growing Chinese influence in "the economic, political, business and academic elites within Western countries," and says that Beijing sees "Australia as a great prize because we are a ’European’ nation in what it sees as its sphere of influence, and close to the United States."

Political advantage

After the purchase of the port of Darwin, "the buying up of broad swathes of agricultural and horticultural products," and planned investments in telecoms and gas networks, the Australian government got nervous, and put in place "tough protections into the foreign investment regime, which limit the capacity of Beijing to use investment by Chinese companies to gain a strategic or political advantage in Australia."

Europe seems now to be following Australia’s example - but it may be too little, too late as many European countries have already signed up to China’s ambitious Belt and Road Initiative - including EU core members Italy and Luxembourg, as well as Portugal and Greece where Beijing now controls a large part of the strategic Piraeus port.

However, on 18 Februray, the European Commission concluded the Trade Policy Review (TPR), which aims to ensure that "China takes up greater obligations in international trade, and dealing in parallel, with the negative spillovers caused by its state - capitalist economic system".

Unilateral measures

"We are in the midst of preparing a large quantity of unilateral measures designed to defend ourselves from Chinese activities," says Godement, measures governing investment, state monopolies, subsidies and others. The action "reflects the fact that China and the EU don’t obey the same rules, and that they are systemic rivals," an expression first used by in the 2019 EU-China Strategic Outlook.

Meanwhile, the final decision will fall to the European Parliamant, which has to ratify the CAI.

"China is getting the worst possible press for all its moves," says Godement. Beijing is under fire for its dealing with the Muslim Uyghurs in the Xinjiang Autonomous Region, the way it is suppressing democracy in Hong Kong, its increasing assertiveness in the South China Sea, and suspected cover-up of details related to the origins of the Covid-19 virus.

According to Godement, the European Commission’s tactics "are to completely de-emphasize the CAI, saying that it is just one small local agreement which does not even cover the entire investment issue," while underlining unilateral measures, such as restrictions on sensitive investments, to "give satisfaction to critics of China".

It is, he says "a complete reversal of public diplomacy by the EU," which initially trumpeted the CAI as a major victory. "It is going to be a real emotional and political debate inside the European Parliament," he says.

 source: RFI