The EU needs a new China strategy

This commentary piece is based on ECFR's latest policy report, A Power Audit of EU-China Relations.

Europe's approach to China is stuck in the past. China is now a global power: decisions taken in Beijing are central to virtually all the EU's pressing global concerns, whether climate change, nuclear proliferation, or rebuilding economic stability. China's tightly controlled economic and industrial policies strongly affect the EU's economic wellbeing, and its policies in Africa are transforming parts of a neighbouring continent whose development is important to Europe. Yet the EU continues to treat China as the emerging power it used to be, rather than the global force it has become.

The EU's China strategy is based on an anachronistic belief that China, under the influence of European engagement, will liberalise its economy, improve the rule of law and democratise its politics. The EU therefore engages in a policy that can be described as "unconditional engagement" towards China: a policy that gives China access to all the economic and other benefits of cooperation with Europe while asking for little in return.

The results speak for themselves. The EU allows China to throw many more obstacles in the way of European companies wanting to enter the Chinese market, than any Chinese company faces in the EU - this one reason why the EU's trade deficit with China has swollen to a staggering €169 billion, even as the EU has replaced the US as China's largest trading partner. Efforts to get Beijing to live up to its responsibility as a key stakeholder in the global economy by agreeing to more international coordination have been largely unsuccessful. The G20 summit in London in early April 2009 demonstrated Beijing's ability to avoid shouldering any real responsibility; its relatively modest contribution of $40 billion to the IMF was effectively payment of a "tax" to avoid being perceived as a global deal-breaker.

The 27 EU Member States split over how to both manage China's impact on the European economy and to engage China politically. In doing so, Member States fall into one of four broad groups: Assertive Industrialists, Ideological Free-Traders, Accommodating Mercantilists, and European Followers (for more details, see A Power Audit of EU-China Relations). This ideological squabbling prevents Europe from having a meaningful, bi-lateral dialogue with China.

France, Germany and the UK carry particular responsibility for Europe's divided approach to China. Time and time again, each has lobbied to become China's European partner of choice - even though Beijing only grants preferred status for a limited duration, offering its favours to the highest or most pliant bidder.

China for its part is a skilful and pragmatic power that knows how to manage the EU. China wants wide access to EU markets and investment, it seeks technology transfers, and it wants the EU and other partners to take the lion's share of the costs of the fight against climate change. Importantly, though, it also wants the EU to refrain from rocking the boat on Taiwan and Tibet. To secure these goals, China has developed three basic tactics in its approach to the EU. First, it takes advantage of the mismatch between its own centrally controlled systems and the EU's open market and government to exploit opportunities in Europe while protecting its own economy with industrial policies, restricted access and opaque procedures. Second, China channels EU pressure on specific issues by accepting formal dialogues and then turning them into inconclusive talking shops. Third, China exploits the divisions between Member States.

China now treats its relationship with the EU as a game of chess, with 27 opponents crowding the other side of the board and squabbling about which piece to move. As a neo-authoritarian Chinese academic, Pan Wei, puts it, "the EU is weak, politically divided and militarily non-influential. Economically, it's a giant, but we no longer fear it because we know that the EU needs China more than China needs the EU."  China's new readiness to treat the EU with something akin to diplomatic contempt became apparent last December with the short-term cancellation of the EU-China summit in Lyon, a harsh reaction to French president Nicolas Sarkozy's plans to meet the Dalai Lama.

Any attempt to strengthen the European position must start with an acknowledgment that no Member State is big enough to sway China on its own. Whenever China has shifted its position as a result of European pressure, as it has on nuclear proliferation or to a lesser extent on Darfur, it has reacted to a coordinated effort, strongly backed by the EU as a whole as well as the most influential Member States. Collectively as well as individually, EU Member States will fail to get more from China unless they find ways to overcome their divisions and leverage their combined weight into a strengthened bargaining position.

The EU should therefore drop its attempt to remake China through unconditional engagement and turn to a strategy that offers a realistic chance of achieving its most pressing goals. Unconditional engagement should make way for "reciprocal engagement", a new interest-based approach in which the EU focuses on a reduced number of policy areas, and uses incentives and leverage to ensure that China will reciprocate. The EU has no choice but to engage China as a global partner and to accept its historic rise. But the EU must make it in China's best interests to deliver what Europeans are asking for.

The EU should trade awarding China Market Economy Status (which would allay China's fear of European protectionism) for the removal by China of its own barriers to trade and investment. It should also trade lifting the EU Arms Embargo on China for Chinese support for stronger sanctions against Iran's development of nuclear weapons.  And the EU must be prepared to take more direct action in Africa to support welcome Chinese investments where they meet international financial aid norms, but be prepared to prevent debtor countries from accepting Chinese loans where they undermine governance, stability or sustainable development.

The inauguration of Barack Obama as US president has signaled the start of a new chapter in US-China relations. To avoid being sidelined by the dialogue between the world's old and new powers, the EU will have to offer more than a cacophonous chorus of competing voices.