Since 1979, the United States has been the most important Western partner of China, providing capital, technology, management and access to institutions of learning.
Under President Donald Trump, this has changed. Trump – and the other US ruling elite — had designated China as their top global rival and competitor. The worsening trade war is the most dramatic sign of this historic change.
Amid this situation, Beijing wants Europe to replace the US as the key economic partner.
In his first overseas trip this year, President Xi Jinping went in March to Italy, Monaco and France. He attended over 40 events in five cities. “This shows the great importance China attaches to Europe,” said Foreign Minister Wang Yi.
The minister quoted Xi as saying during the trip that “in a world of unprecedented transformations, a stable, strategic and reciprocal China-EU relationship is urgently needed.”
The European Union (EU) is China’s biggest trading partner; and China is the EU’s second biggest trading partner, behind the US. The two sides have an annual EU-China Summit; an EU-China High Level Economic and Trade Dialogue; a Joint Committee on Trade; and a Trade and Investment Policy Dialogue.
“The EU and China are committed to a comprehensive strategic partnership, as expressed in the EU-China 2020 Strategic Agenda for Cooperation,” the EU said in a statement on April 9. “Given the importance of EU-China economic relations, it is important to maintain very close trade and investment links while developing a more balanced economic relationship.”
It said that the two sides worked together on many issues, including the Iran nuclear agreement, denuclearization of the Korean peninsula, peace and security in Afghanistan, and peace-keeping and security and defense matters in Africa and fighting piracy.
The EU view of China is largely positive. In 2017, it exported 244.3 billion euros of goods and services to China. It sees China as an important source of tourists, students, human talent and inward investment.
Total Chinese investment in Europe, including mergers and acquisitions (M&A) and greenfield investments, amounts to more than US$350 billion. China has acquired more than 350 European companies over the past 10 years.
Chinese investment is especially welcome in Portugal, Greece, Italy and countries in Eastern Europe with government deficits and a shortage of capital.
Since the financial crisis of 2008, Chinese companies have invested nearly nine billion euros in Portugal, in strategic assets like electricity, transportation, oil, financial services, insurance, health and real estate. The government has strongly welcomed the money.
The EU is not a global military power. Of the 28 EU members, only France and Britain have military bases overseas. So they are not a military competitor with China.
The treatment of Huawei is a good indicator of Europe’s attitude. While Trump has banned it from US telecom networks, Ireland is welcoming Huawei to build its 5G network alongside two local firms Eir and Vodafone. With a presence there since 2004, Huawei employs nearly 200 in three cities in Ireland.
Britain and Germany are permitting the Chinese firm to operate, but subject to restrictions and government oversight. The company is also active in other European countries.
European firms in China share many of the concerns of American entities, in terms of market access, protection of intellectual property and unfair advantages given to state firms.
In a statement in April, the EU said China’s economy was marked by lack of transparency, industrial policies and non-tariff measures that discriminate against foreign companies, and strong government intervention, resulting in a dominant position of state-owned firms, unequal access to subsidies and cheap financing.
But the EU approach is negotiation, not confrontation or a tariff war.
“The EU is negotiating with China a comprehensive agreement on investment,” Brussels said in April. “This agreement should create a more level-playing field for business and more market opportunities for both sides. It should give the market a more decisive role.”
The European attitude to inward Chinese investment has been broadly positive. But there is concern over the imbalance – the EU is much more open to Chinese investment than vice versa.
In September 2018, at the request of Germany, France and Italy, the European Commission proposed new legislation to establish a Common European Framework for Screening FDI. The legislation focuses on strategic assets that are critical to European security and public order, including foreign acquisitions of critical technologies, infrastructure, or sensitive information.
Universities in Europe are heavily dependent on Chinese students, who pay the highest level of fees. China is the largest source of overseas students for UK, Germany and France. The Sino-US trade war and rising anti-Chinese sentiment in Washington will drive more students to Europe.
The US has chosen to give up its privileged position in China. It is Europe that will benefit.
– Contact us at [email protected]