Nikkei Asia | 25 February 2023
China pushes for resurrection of EU investment deal
by JENS KASTNER
HAMBURG, Germany — China has stepped up lobbying of European Union decision-makers to revive a planned investment deal in its latest effort to improve ties with the Brussels-based bloc.
Beijing has proposed it and the EU simultaneously scrap sanctions that derailed the proposed Comprehensive Agreement on Investment (CAI) in 2021, but analysts say big hurdles remain to put the accord back on track.
China’s overtures come as it seeks to change tone from an era of aggressive "wolf warrior" diplomacy and looks to build international alliances in the face of growing tensions with the U.S.
Fu Cong, China’s ambassador to the EU since December, has proposed resurrecting the European investment deal, which was agreed politically in late 2020 but never received the necessary approval from the European Parliament. Ratification stalled after Beijing sanctioned EU officials in response to European bloc sanctions over alleged widespread human rights abuses in the Xinjiang region.
Fu said this month that the world economy was "not going through a very good time" and acknowledged that "some European business people have some complaints about the access to [the] Chinese market."
"We are actually listening to initiatives from the EU side; our proposal is that we leave the sanctions simultaneously," he said during a briefing at the European Policy Center on Feb. 8, according to a transcript.
Fu dismissed European criticism of China over its policies in Xinjiang, where a U.N. report published last year said repression of the mainly Muslim Uyghur population could amount to crimes against humanity. He added that the EU is considering obligating companies to conduct due diligence to prove that there is no forced labor in their supply chain, which would unnecessarily increase costs for businesses.
The investment agreement remains attractive to European business people and some officials because it promises improved market access and conditions for EU companies in industries such as car making, health care and chemicals.
A spokesperson for the European Chemical Industry Council, a trade association, said the sector has continuously been among the top five sectors investing in China.
"We therefore continue to support every political agreement, which ensures that EU investors have better and equally fair access to this key market today and in future. This is a crucial building block for the global competitiveness and further growth in Europe," the spokesperson said. "Industrial competitiveness is key to achieve low carbon and circular economy while keeping growth and jobs in Europe for global competitiveness and further growth in Europe."
In December, Charles Michel, president of the European Council of EU leaders, spoke after a meeting with Chinese President Xi Jinping of the "difficulties faced by EU companies and investors" in the country, particularly on market access.
"We need to work more on the issues hampering our broad trade relationship and there are channels for that," he said.
But many observers remain skeptical that the investment deal will be revived any time soon. Obstacles include disputes over human rights and the drive in Europe, triggered by the Ukraine war, to keep supply chains of essential goods in friendly countries as much as possible.
Joerg Wuttke, president of the European Union Chamber of Commerce in China, said the latest China push was "unrealistic," given that circumstances in Xinjiang "have changed little."
The German foreign ministry responded to Fu’s proposal by saying that EU sanctions are regularly reviewed, with the main aspect being whether any improvement of the human rights situation is discernible.
Noah Barkin, a managing editor with the China practice of Rhodium Group, a New York-based research business, said the EU-China investment agreement had been "in the deep freeze for nearly two years, and it is likely to stay there."
"Some officials in Beijing and Brussels would like to revive it, but there is no obvious path for doing so, short of China unilaterally removing its sanctions on EU lawmakers, which won’t happen," he said. "My sense is that we have moved on from the [former German Chancellor] Angela Merkel era when securing better market access in China was the sole priority. The Chinese economy does not have the allure it once had. And Europe is now in full diversification and resilience mode."
China’s increased European focus reflected "the scale of Sino-American problems," said Alicja Bachulska, policy fellow at the European Council on Foreign Relations.
"Given the prolonged Russian invasion of Ukraine and related sanctions, Beijing might hope that with the war fatigue kicking in, it could be easier for China to convince European business elites to bring CAI back on the table," she said.