Merkel will fail to save investment deal with China

May 13, 2021 08:58
German Chancellor Angela Merkel was the leading architect of the Comprehensive Agreement on Investment. Photo: Reuters

In September, German Chancellor Angela Merkel will retire after 15 years in power. The most powerful leader in Europe will leave behind many achievements – but not the investment deal with China on which she spent seven years and 35 rounds of negotiations.

On December 30 last year, she signed off on the Comprehensive Agreement on Investment (CAI) with French President Emmanuel Macron and Chinese President Xi Jinping, It was a personal triumph for Xi, in his attempt to drive a wedge between the EU and the United States.

The European Parliament and the EU Council need to approve it.

No European leader has invested more time in China than Merkel. She has visited the country 12 times and was the leading architect of the CAI. Germany is the largest EU investor in China, which hosts major operations of Volkswagen, Audi, BMW, Siemens, Bayer, BASF and other big firms.

In 2020, China was the largest trading partner of Germany for the fifth consecutive year and its second largest export market. The value of bilateral trade in 2020 reached 212.1 billion euros, an increase of three per cent over 2019, despite the Covid-19 epidemic.

But, during the last few months, relations between Beijing and the EU have deteriorated so rapidly that approval by the EU Parliament and the EU Council this year will be impossible.

In March, the EU sanctioned four Chinese officials over suspected human rights violations in Xinjiang. In response, Beijing imposed sanctions against European politicians, scholars and research groups it deemed critical of its policies in Xinjiang. They included several members of the European Parliament.

Joerg Wuttke, president of the EU Chamber of Commerce in China, said that the CAI was not going to take place for a long time. “I would even say that it could be years until someone finds an exit mechanism to get away from the sanctions. Who is going to make the first move?”

He said that this year the Communist Party would celebrate its 100th anniversary and France and Germany would hold elections. “In both cases, public opinion on the other party is not good.”

He said that Beijing has launched a charm offensive to encourage European businesses to expand their investments in China. “We have been given unprecedented access and we are being listened to. We have been helped in many instances. China is very clever in compartmentalising political tensions and global politics with business on the ground,” he said.

Wuttke himself has been a key player in the negotiations. He is Vice President and Chief Representative in China of BASF, which he joined in 1997. Since then, he has been responsible for helping guide the company’s investment strategies for China, negotiation of large projects and government relations. BASF is one of the biggest foreign investors in China.

The view of Merkel, Macron and other EU leaders is that it needs to engage with China on many fronts, including climate change, the pandemic, Myanmar and the Iran nuclear deal. So it should separate the CAI from other issues, such as Xinjiang and human rights.

Beijing has urged Europe to ratify the CAI as soon as possible. “The investment agreement is not a gift from the EU to China,” said China Daily in an editorial last week. “The deal was struck after seven years of intense negotiations, and during that time the two sides have had much to talk about and, in doing so, they have had plenty of opportunity to get to better know each other. Neither has suddenly changed overnight.

“What has changed is the US strategy to contain China. Having tried and failed to go it alone, Washington is now desperately trying to get the US allies to sully themselves by joining it in its dirty work,” it said.

Beijing considers Berlin its best ally in Europe. In late April, the two held by video the sixth China-Germany intergovernmental consultation, chaired by Merkel and Premier Li Keqiang and with 25 ministerial officials from both countries. In the months ahead, it is counting on the force of Merkel and the formidable German business lobby to win approval of the CAI.

But most major parties in the EU parliament say that approval is impossible while Beijing’s sanctions on its members remain.

Merkel’s charm, persuasion and 15 years of connections will not be enough.

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A Hong Kong-based writer, teacher and speaker.