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.