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China Plans Visits to Europe in Times of Uncertainty

BLOG - 12 February 2019

This coming spring is riddled with international uncertainties, the first concerning China. Will the 2nd of March deadline for China-US trade talks have a positive outcome, or will the game of trade sanctions keep on escalating? To what extent will China’s slowing economy be under more pressure?

These events will indirectly impact Europe. Mutual US-China trade sanctions have actually improved Europe and other bystanders’ exports in the short term. Paradoxically, a US-China resolution of trade disputes, even if limited and temporary, could turn up the heat on Europe. And in theory at least, China would have more reasons to make concessions – if only transactional, rather than structural – to Europe if it faces increasing difficulties with the United States.
 
But this may merely be pocket money, compared with the cliffhangers that Europe faces this spring. Come 29 March, and we might be confronted to a hard Brexit. By late May, European elections will form a Parliament that will have to find a majority for a new Commission. As the weeks go by, the present Commission will drift into irrelevance.

The latter is far less threatening to China, not because it trades less, but because it does not leverage as effectively as the United States.

This is exactly the moment China chose to anticipate the next EU-China summit. Indeed, it proposed to hold it on April 9, immediately followed by the 16+1 summit (with Central and Eastern European countries), which the EU always dreads. It would thus be held less than nine months after the previous summit in 2018, which is an unusually short interval. Moreover, President Xi Jinping, who visited Spain and Portugal very recently, is reportedly planning a visit in late March to Paris and Rome.

Paris and Rome – or Rome and then Paris? – is perhaps not as spectacular an itinerary as Xi Jinping’s trip from Riyadh to Tehran (via Cairo…) in 2016. Still, the two European capitals have never been more at loggerheads with each other. President Macron and Italy’s governing duet make no bones about the fact that the coming European election will be a choice between the two camps. Should a hard Brexit be nearing, Mr Macron will have to deal with the emergency, while Di Maio and Salvini will take advantage of the situation to defy the European Union. Italy’s recent sabotage of a European Council resolution regarding Venezuela, that just so happens to coincide with the stance taken by China and a handful of other authoritarian states, is a clear indication of Salvini’s willingness to step up his game.
 
As to the EU-China summit, it will be fighting adverse trends.

  • First, there is no reason for China, given that it has refused the structural changes required by the Trump administration, to grant any changes to the European Union. The latter is far less threatening to China, not because it trades less, but because it does not leverage as effectively as the United States. And a month and a half-long interval is clearly not sufficient to negotiate comprehensive agreements from a cold start. Recently, China has put forward new proposals for the long-stalled bilateral investment agreement, suggesting a multi-step calendar that essentially postpones most changes coming from the Chinese side. In its speeches, China has mastered the art of unsubstantial proposals, where the language it uses to declare agreements conceals a significant lack of concrete content.
     
  • Second, the incentive for Italy’s ruling coalition to show voters that it can tough it out with the Commission and defy liberals from the European establishment, encourages it to sign on to China’s proposals. The first is a memorandum of understanding (MOU) on the Belt & Road Initiative (BRI), which was also signed by some other countries (most recently, by Portugal). Looking for decisions about investments in public infrastructures with cash up front, or simply, for some, purchases of Italy’s public debt, could both be extremely helpful to this government, and would also represent a significant electoral argument. Conversely, Emmanuel Macron and his pro-European and reforms platform, while they are not a losing proposition, could do without further difficulties, including without the easy accusation that he is "mismanaging China", and failing to grasp the golden opportunities offered by the Silk Road.

 
The same can be said of the outgoing Commission – although, as we have just found out in the Alstom-Siemens case, Commissioners at this stage find it easier to say no than to start new initiatives. It has recently posed several challenges to China. One of them is the request that Member States put an end to so-called golden visas. Indeed, these provide easy public (and occasionally private) money, often for those who are precisely most prone to accommodating Beijing on many grounds (e.g. Portugal, Hungary, Cyprus, Estonia). The Commission and the Council will have to watch over their shoulders to ensure that the ensuing 16+1 summit does not unravel the consensus that the EU can still muster in its own summit with China.
 
In short, these Chinese visits reveal a strategic and well-planned agenda, at a moment when Chinese leaders can probe their European’s partners' weaknesses. Can these tactics reverse China’s recent strategic losses? Does China even think it has suffered any losses? The almost complete lack of open controversy around Europe’s new investment screening directive shows that for the time being, China sees it as a paper tiger. The latter’s implementation through national decisions will decide whether this is a real change of scenery for foreign investment in critical sectors. Xi Jinping’s visits relentlessly push the BRI narrative. Huawei’s marketing and public affairs discourse around 5G and "smart cities", advertised as having "360 degree knowledge of what goes on", has not ceased.

Of course, China can make verbal adjustments and can take decisions on a case-by-case basis, as it has just has done for a number of foreign enterprises turning their joint ventures into 100% owned subsidiaries. It is very unlikely to concede major changes, especially at a time when the European political environment is visibly unstable.
 
Consistency and unity between France, the EU leaders present at the summit, and hopefully with the 16 + 1 language and decisions, if not with Rome, may be the best that Europeans can achieve at this critical moment in time.

It is very unlikely to concede major changes, especially at a time when the European political environment is visibly unstable.

In the longer term, the situation will depend on the outcome of the European elections and the coherence between views held by key Member States, starting with France and Germany. A defensive agenda on issues going from trade to investment, to technology phishing and influence peddling must certainly be maintained with consistency. Yet it will not replace the much-needed positive agenda encompassing more support for innovation and funding to European tech firms, and the unification of European rules in the areas where non-European firms seem to thrive on the fragmentation of their European would-be competitors.
 
Let’s face it: China’s inroads and successes do not exclusively rely on unfair support and influence peddling. Its dynamism, the bets it has placed on geo-economics and its industrial policies should not be disregarded. It’s not enough for Europe to be a unified space for people and goods. Europe should also move to forward-looking policies.

 

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