EU Anxiously Waiting For Trade Talks With China – But Beijing Appears Not Interested And Doesn’t Care

EU Anxiously Waiting For Trade Talks With China – But Beijing Appears Not Interested And Doesn’t Care



When the U.S. sneezes, the world catches a cold. However, with China’s economic rise, the world could also catch a cold when China sneezes. The world quickly learns the impact of China shutdown due to the Covid-19 pandemic. Negative global spillover from falling industrial and manufacturing activity in China could trigger retrenchment, inflation or even recession.



Since China overtook Japan in 2010 to become the world’s second largest economy, the landscape of the world’s economics, financial markets, politics, culture and policies have changed tremendously. In the case of the European Union, Beijing’s refusal to talk with them is already a disaster. It has ignored the E.U.’s request for economic and trade meetings.



In their first meeting in nearly 2 years, the E.U. and China met on April 1 for a virtual summit. However, the “April Fool” summit was a failure. Apparently, E.U. leaders wanted China’s assurances that it would not support Russia’s invasion of Ukraine. Beijing refused and told it to fly kite. Ties were so bad that China hasn’t deployed a new ambassador to the E.U. after the position was left vacant more than 6 months ago.



The E.U. is not giving up though. Several dates suggested in the month of June are now water under the bridge. Now, Brussels hopes to meet on July 18. Still, China has not responded, keeping Brussels waiting. Some E.U. officials said Beijing basically doesn’t care as they found it has become increasingly difficult to speak with their Chinese counterparts.



So, how did the bilateral relations deteriorate to such level? For many years, EU-China trade relations were so robust that policymakers used to brag how the value of trades were worth US$1 billion per day. In 2021 alone, E.U. exports to China reached €223 billion (77% increase since 10 years ago), and imports climbed to €472 billion (84% jump since 2011) – translating to €2 billion per day.



The explosive bilateral trade was partly due to Trump’s MAGA (Make America Great Again). Not only the U.S. president launched a trade war to cripple China’s rising power, the POTUS also picked a fight with its traditional ally Europe, especially Germany. Trump’s tariff wars, climate change denial and hostility eventually forced E.U. into the welcoming arms of China.



Chancellor Angela Merkel’s relations with Donald Trump were so bad that Washington had threatened to cut U.S. troops in Germany, the biggest economy in Europe and a key part of NATO defences against Russia, unless the E.U. pays the U.S. for American protection. Instead, Trump’s best friend was Vladimir Putin, not Merkel and certainly not French president Macron.



With Trump’s trade war, followed by tech war on China, it didn’t take much effort to convince Beijing to diversify its foreign reserves in Euros. China wanted to move away from dollar hegemony, favouring a tripolar monetary system based on the U.S. dollar, the Euro and the Chinese Renminbi (RMB). As a challenger to the U.S. dollar, the Euro became Chinese’s good friend.



Even without the hostility between the U.S. and E.U., Chinese policymakers have been looking for excuses to weaken the dollar dominance. Besides, it’s a foolish strategy to put all eggs in one basket. With over US$3 trillion in reserves, diversification of currencies, especially in the Euros, has always been the Chinese government’s strategy.



China was seen as the savior during the 2010 European Debt Crisis, where Chinese investments were instrumental in the recovery of Greece and Portugal. It would lead to an investment deal proposal in 2013 between China and the European Union, which not even the United States gets to enjoy – the Comprehensive Agreement on Investment (CAI).



The EU-China CAI deal would significantly open up the Chinese internal market to European companies. China has agreed to eliminate joint venture requirements, forced transfer of technologies and quantitative restrictions for E.U. On December 30, 2020, after 7 years of negotiations, the EU and China concluded the CAI in principle, pending ratification by the European Parliament.



However, the deal also came just weeks before Joe Biden inauguration. Biden asked Europe to wait for him. Stunningly, Angela Merkel and Emmanuel Macron joined EU leaders Ursula von der Leyen and Charles Michel in a video conference with Chinese President Xi Jinping to conclude the CAI investment deal between the European Union and China – ignoring Biden.



The CAI was such a big deal that the announcement of the proposed investment deal had sparked a “firestorm of criticism” in America because the E.U. did not consult the United States before making the decision. Washington warned that the deal may damage relations with the U.S. as it was a humiliation to prioritize the Chinese over incoming President Joe Biden.



Under tremendous pressure, on March 22, in a joint action with the U.S., U.K. and Canada, the E.U. imposed sanctions on four Chinese officials over allegations of human rights abuses in Xinjiang region. The move was part of a coordinated attack against Beijing by Washington and its allies under newly crowned President Biden. But Beijing was prepared for such attacks.




China retaliated immediately with punitive measures against the E.U. Slamming the EU’s sanctions as nothing but lies and disinformation, countermeasures by China’s Ministry of Foreign Affairs included counter-sanctions on four E.U. entities and ten E.U. officials, of which 5 are members of the European Parliament (MEPs). The degree of retaliation shocked the E.U.



The Chinese counter-sanctions saw European lawmakers, diplomats, institutes and even families forbidden from entering mainland China, Hong Kong or Macao. In addition, the individuals and associated companies and institutions were restricted from doing business with China. German politician Reinhard Butikofer, who chairs the European Parliament’s delegation to China, was among the most high-profile figures to be hit.



Kathleen van Brempt, an MEP from the Socialist and Democrats group, the second-largest political grouping in the European Parliament with 145 MEPs, said – “The lifting of sanctions against MEPs is a pre-condition for us to enter into talks with the Chinese government on the investment deal”. But so far, Beijing does not bother to entertain the European’s request.



The fact that China had chosen to hit the E.U. with its own sanctions without fear that the EU-China investment deal would collapse suggests that Beijing will not tolerate any attempt by the Western powers to bully it. The world’s second-largest economy is willing to kill the CAI investment agreement to send a message – the E.U. cannot use human rights as a tool to pressure it.



The China’s Ministry of Foreign Affairs has told the E.U. to stop lecturing others on human rights and interfering in their internal affairs. China knew it can never win in an argument where the West wantonly interfered in other countries’ domestic affairs by using democracy and human rights as an excuse. But China has learned from Trump that tit-for-tat is the best tactic to counter an act of aggression.



The E.U. sanction is merely symbolic. There is no sign that Beijing will scrap or cancel its “vocational training” for the Uighur Muslims in Xinjiang just because the U.S., U.K, Canada and the E.U. decided to gang-up to teach China a lesson about human rights. The EU’s sanctions on 4 Chinese officials were reciprocated with 10 E.U. parliamentarians being banned in China.



Russia’s invasion of Ukraine has destroyed any chance that CAI could see the light of the day. The war has a direct impact on food and energy prices in the European Union. Worse, inflation in the 27-member E.U. is now at its highest level since record-keeping began in 1997. Its May inflation shot to record 8.1%, up from April (7.4%), March (7.5%), February (6.2%) and January (5.6%).



Brussels is extremely annoyed at Beijing’s refusal to condemn Russian aggression in Ukraine. The initial hope that Xi Jinping would try to broker a peace deal evaporated after the April 1 summit, which Josep Borrell, the E.U.’ own chief diplomat, described as a “dialog of the deaf”. President Xi has simply refused to discuss the Ukraine War, human rights or other issues.



It didn’t help that Beijing has slapped trade sanctions on E.U. member Lithuania over recognition of Taiwan. The E.U. has even threatened that unless China opens its market more, Chinese companies might be restricted from doing business in Europe. In reality, the E.U. can ill afford to open another battlefront with China, having learned its lesson from Vladimir Putin.



Just look at the disaster created by the E.U. after it tried to reduce its reliance on Russian gas. While China depends on the European consumer market for its exports and technology for its growth, the EU too relies on China’s cheap imports to tame the current high inflation. Even U.S. President Joe Biden said he was weighing lifting Trump-era tariffs on Chinese goods to curb inflation.



Beijing also understood the E.U. is plagued with the crisis of 6.5 million refugees thanks to Ukraine conflict. Poland has already withdrawn some of the special benefits for Ukrainian refugees, including payments to households that host them, and the scrapping of free use of public transport. The Czech Republic said Ukrainian refugees should get a job, and those who do not work risk losing welfare benefits.



Hosting Ukrainian refugees could cost E.U. countries €43 billion ($46 billion) this year alone. That explains why Chancellor of Germany Olaf Scholz said he hoped the CAI “will take effect as soon as possible”, despite the fact that it was the E.U. who chose to abandon it in the first place. The E.U. desperately needs to revive CAI. But China isn’t responding.



Exactly why should Beijing waste time talking with Brussels, knowing very well the Western powers like to mix business with geopolitics and will use the meeting again to lecture the Chinese about human rights and to interfere in the internal affairs of Hong Kong, Xinjiang and Taiwan? And why should China rescue the Eurozone by condemning Russia when it was the West who screwed up the entire balance of power in the region?