ASEAN business China diplomacy European Union foreign policy Investment United Kingdom

China’s Investment in Europe Disrupts the Status Quo

On December 30th 2020, the European Union and Beijing reached terms on a new China-EU Comprehensive Agreement on Investment (CAI). This is the second financial programme since 2016 to tilt economic power in the direction of China and away from the West.

On December 30th 2020, the European Union and Beijing reached terms on a new China-EU Comprehensive Agreement on Investment (CAI). This is the second financial programme since 2016 to tilt economic power in the direction of China and away from the West.

China’s impact on the world stage disrupted the status quo with the launch of the Asia Infrastructure Investment Bank in 2016. Headquartered in China, it represented the biggest move in economic power since World War 2. The World Bank was formed in 1944 at the Bretton Woods Monetary Conference in Bretton Woods, New Hampshire. Its first loan was to France in 1947 for post-war reconstruction; and just like the World Bank, the AIIB launched with $100 billion side-lined for economic development. Post-2008 global financial crisis, if the World Bank had pivoted to become an economic fund for infrastructure spending, the AIIB may have had less of a gap to walk into, but as the World Bank strictly prioritises ending poverty some may argue AIIB is simply filling the void left.

China is of course not the sole power holder of the AIIB, with shareholders from over 100 countries maintaining an active role in its governance – including the United Kingdom – but the AIIB represented the first real threat to the Dollar. The Dollar had since WW2 been a shining light of stability, and the entirety of financial markets around the world are underpinned by the green notes. However, the power and influence of China has given a separate route many countries have chosen to go along.

AIIB was symbolic, and perhaps the new China Agreement on Investment represents the next building block for Beijing’s dominance around the world. During the 4 years of the Trump Administration’s rhetoric, and actions following that showing America was interested in America first, Europe has pivoted. Europe has fended off a collapse in the Union which could have ensued post-Brexit, and cultural integration with migrants from war torn countries put strain on the perceived Identity of Europe. Fending off a Chinese charm offensive to build a stronger relationship was not a course of action taken. In a world where the USA could not be counted on; because the EU is an institution – and President Trump acted with dis-taste for any institution which did not favour American interests, such as the warning to stop funding NATO; – the EU was left with one global superpower to strike an economic deal with which could change the face of investment over the coming decades.

This is less speculation than that of fact, backed up by Jake Sullivan tweeting the administration “would welcome early consultations with our European partners on our common concerns about China’s economic practices.” For a National Security Advisor to tweet so openly before even taking office, speaks volumes to how the status quo has changed. America is not the first number on speed dial for the leaders of European States’.

According to Eurostat, EU exports to China were highest in 2019 (EUR 198 billion) and lowest in 2009 (EUR 77 billion). EU imports from China were highest in 2019 (EUR 361 billion) and lowest in 2009 (EUR 185 billion). With this shift since the financial crisis of 2008, it is clear to see why China has taken centre stage for the technocrats and diplomats within the EU. The CAI deal is extensive and covers:

 The deal will reportedly grant the EU enhanced market access in China, in sectors such as health services, chemicals, electric vehicles, and telecoms. Advocates say it will enhance legal protections for EU investments in China, eliminate equity caps and quantitative restrictions, ease requirements for joint ventures, and increase transparency in the Chinese market.

Dr. James CarafanoDr. Arvind GuptaJeff M. Smith
January 22, 2021

For those who remain sceptical of the EU relationship with China, only time will tell how the CAI is rolled out. It is worth noting many EU states already have a relationship to the Belt and Road initiative of Beijing such as Italy, so there likely will not be huge push-back when investment is promised. However, if the United States’ global position of reliable power broking returns, it will be interesting to watch if the status quo really has shifted east for good.

Sources:

China Briefing: https://www.china-briefing.com/news/eu-china-reach-agreement-on-investments-in-principle-what-does-it-mean-for-businesses/

The Diplomat: https://thediplomat.com/2021/01/the-pitfalls-of-the-china-eu-comprehensive-agreement-on-investment/

New Europe: https://www.neweurope.eu/article/the-eu-china-investment-agreement-is-a-disaster-for-the-west/

DW: https://www.dw.com/en/eu-china-investment-deal-done-and-dusted/a-56087516

Reuters: https://www.reuters.com/article/china-eu-investments/investment-deal-expected-to-bolster-european-dealmaking-in-china-idINL4N2JH0QI

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