China completed its power transition in March 2013 when government positions were filled five months after the new leadership of the Chinese Communist Party (CCP) took over. President Xi Jinping asserted his authority and ideological control with a campaign against corruption. However, he has not yet found a solution to China’sdomestic social and economic problems. In foreign policy, China sought to enhance its position as the dominant power in the region. China clashed with India and the Philippines over territorial issues, but pressure was increasingly directed at Japan, which was also a test of its alliance with the US. China was determined to strengthen its own relationship with the US, but on the basis of recognition as a “big power”, as Xi put it at his meeting with President Barack Obama. As China also sought to enhance relations with Russia, India, and major partners in Africa and Latin America, Europe did not seem to figure highly on China’s political agenda. The relationship was defined more by economic issues – in particular, a trade dispute initiated by the EU. [...]
The EU, on the other hand, sought Chinese co-operation on Syria, Mali, and the Iranian nuclear problem, issues on which China was more co-operative than in previous years. In the area of trade, the EU accelerated ongoing negotiations for preferential trade agreements with Asian countries, starting a new one with Japan. The move contrasts with the slow progress of talks with China on public procurement, investment, an early warning mechanism to defuse trade disputes, and a Partnership and Cooperation Agreement which seems to have gone nowhere after five years of negotiation. As 2013 drew to a close, China seemed to be more forthcoming: after agreeing to a high-level economic dialogue it had stalled for two years, and reaching a compromise over the solar panel dispute (the country’s first ever compromise over an anti-dumping measure), Beijing suddenly proclaimed the opening of talks on a free trade agreement as a priority.
The solar panel dispute dominated the first half of the year. It was a priority for China because of the increase in sales of Chinese solar panels to Europe – and to the US, which had also slapped anti-dumping duties on China a few months before. But Chinese manufacturers have created a production capacity that surpasses by far the size of the global market. Playing on its strength as a potential investor, and on possible retaliation against European firms, China lobbied EU member states effectively and undermined support for the European Commission’s tough approach. Trade Commissioner Karel De Gucht found himself almost completely isolated (France was the only vocal supporter). Germany’s public stand against the sanctions was a heavy blow.
Trade policy itself, one of the EU’s key achievements, began to unravel. De Gucht’s resolve – much criticised behind the scenes by governments, which did not want a showdown with China – saved the day, although the compromise that was eventually reached was also the result of a negotiation between European Commission President José Manuel Barroso and Prime Minister Li Keqiang. Under the agreement, Chinese firms can avoid sanctions by agreeing to a minimum price. Tensions remain high on other issues (such as the subsidies offered to China’s telecom giants), but the very principle of an EU trade policy, which was threatened by the total lack of solidarity among member states, has been preserved. Given the coming change at the head of the European Commission, the question of whether any strong negotiating position can be upheld remains open, as member states routinely undercut each other and the Commission in front of Chinese officials.
The second half of the year was more positive. With the adoption of the “EU–China 2020 Strategic Agenda for Cooperation”, the EU–China summit held in Beijing in November proved fruitful. Both sides declared themselves willing to strengthen the “strategic partnership”, mapping areas of special interests and areas of enhanced co-operation in the coming years. The summit committed to achieving an investment treaty, but by pushing suddenly for a free trade treaty and hinting that it is open to talks with the US on joining the TPP, China may have switched the issue again at the top of the EU–China relationship. The European Commission, which has never encouraged “shallow free trade agreements”, takes the view that such an agreement makes sense only if it enables market access for European companies. De Gucht sent a clear signal to the Chinese government to be ready to make concessions it has not granted to other partners in preferential trade agreements. Other European leaders who want Chinese investment in their domestic economies, such as British Prime Minister David Cameron, again undercut the Commission by pressing for a speedy outcome.
Thus 2013 left Brussels weakened in relation to China. There were no high-level meetings between EU officials and Chinese leaders until November (except at the G20 summit in September). Meanwhile, leaders and officials from several member states met the Chinese president and prime minister in China. Xi didn’t travel to Europe in 2013, while Prime Minister Li visited Germany and Romania – but not Brussels. Furthermore, just a few days after the successful EU–China summit, the second 16+1 meeting between China and Central and Eastern European countries was held in Bucharest. However, the EU member states involved had consulted the European Commission in advance on decisions adopted there and agreed not to dilute common rules. Unlike last year, therefore, they have not been identified as “slackers”.
The experience from new Chinese initiatives directed to selected member states should teach the EU important lessons for relations with China in the coming years. First, the co-ordination between bilateral relations of member states with the overall framework of the EU–China relationship has taken priority. Absent a new united push or resolve that would ensure that the Commission’s trade negotiation mandate remains truly confidential, there is an increased likelihood that trade and investment bargaining with China will be dominated by the highest bidders, and lowest common denominator positions will prevail. A second priority is to keep bilateral investment treaty (BIT) negotiations on track. While China sees in these negotiations a tool to guarantee minimal rules for what is already free access with very few restrictions (unlike in the US), Europe has the objective of opening up investment and public procurement prospects in China. Securing an outcome of the negotiations that meet the objectives will be a test of the EU’s strategic partnership with China.
