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European Union (EU) - China Policy

The EU's efforts to stand up to an increasingly assertive China have been stymied by a lack of unity among its 27 member states, many of which have been courted assiduously by the Asian giant. Proposed new EU legislation in 2020 was aimed at ensuring foreign firms backed by heavy state subsidies do not distort competition in Europe. There is particular concern about Chinese companies swooping in to buy European companies weakened by the coronavirus-triggered recession.

The ratification of the Lisbon Treaty in 2010 was a very important development and the EU would now have more engagement with the PRC. The PRC would now have "two important relationships" (i.e., with the EU and with each member state), but because each member state determined its foreign policy, bilateral relations would remain the central relationship with China. The PRC needed assurance that the EU understood and appreciated China's views on human rights, even when disagreement existed, she said. Furthermore, the EU, in pursuing its own economic interests, had to take into account China's economic development needs.

The External Action Service (EAS) established under the Lisbon Treaty would now serve as the focus for foreign policy coordination and implementation, whereas previously, EU foreign policy coordination was divided between the EU Commission and rotating presidency. Under the Lisbon Treaty, bilateral relations could be circumscribed by the need to conform to EU consensus (which would supersede an individual member state's foreign policy position).

The EU did not possess the negotiating tools of its individual member states, but instead derived its strength from "values," and the PRC was not used to dealing with this construct. The PRC did not want to deal with the EU because it preferred to play one country against another within Europe to achieve its objectives (for example, Spain, which is more accommodating to China on Taiwan and the Dalai Lama).

The European Union (EU) and China are linked by an enduring relationship. They are two of the three largest economies and traders in the world. China is now the EU's second biggest trading partner behind the United States and the EU is China's biggest trading partner. The EU is China's largest trading partner, biggest import and export market and primary source of technology transfer, while China is EU's second largest trading partner. In 2009, the two-way trade amounted to US$364.1 billion, down by 14.5% year-on-year. By the end of March 2010, China had signed contracts worth US$128.907 billion of technologies and US$69.14 billion of direct investment from the EU.

In 2017, the EU was Chinas largest partner with a share of 13% of imports of goods in China (EUR 217 billion) and a share of 16% of exports of goods from China (EUR 332 billion). In the same year, China had a share of 11 % in extra-EU exports of goods (EUR 198 billion) and in extra-EU imports of goods China was the largest partner with a share of 20 % (EUR 375 billion).

Both sides are committed to a comprehensive strategic partnership, as expressed in the 2013 EU-China 2020 Strategic Agenda for Cooperation. Yet there is a growing appreciation in Europe that the balance of challenges and opportunities presented by China has shifted. In the last decade, China's economic power and political influence have grown with unprecedented scale and speed, reflecting its ambitions to become a leading global power. China can no longer be regarded as a developing country. It is a key global actor and leading technological power. Its increasing presence in the world, including in Europe, should be accompanied by greater responsibilities for upholding the rules-based international order, as well as greater reciprocity, non-discrimination, and openness of its system. Chinas publicly stated reform ambitions should translate into policies or actions commensurate with its role and responsibility.

The 2016 Strategy on China remains the cornerstone of EU engagement, providing the basis for delivering a further EU policy shift towards a more realistic, assertive, and multi-faceted approach. This will ensure that relations with this strategic partner are set on a fair, balanced and mutually beneficial course.

The European Union and China are two of the biggest traders in the world. China is now the EU's second-biggest trading partner behind the United States and the EU is China's biggest trading partner. The EU is committed to open trading relations with China. However, the EU wants to ensure that China trades fairly, respects intellectual property rights and meets its obligations as a member of the World Trade Organization (WTO).

Chinas proactive and state-driven industrial and economic policies such as "Made in China 2025" aim at developing domestic champions and helping them to become global leaders in strategic high-tech sectors. China preserves its domestic markets for its champions, shielding them from competition through selective market opening, licensing and other investment restrictions; heavy subsidies to both state-owned and private sector companies closure of its procurement market; localisation requirements, including for data; the favoring of domestic operators in the protection and enforcement of intellectual property rights and other domestic laws; and limiting access to government-funded programmes for foreign companies. EU operators have to submit to onerous requirements as a precondition to access the Chinese market.

The EU has an open procurement market, which is the largest in the world. At the same time, EU companies often encounter difficulties to gain access to procurement opportunities in the Chinese as well as other foreign markets, in particular in sectors where EU companies are highly competitive (e.g. transport equipment, telecommunications, power generation, medical equipment and construction services). This protectionist trend is rising.

China is, simultaneously, in different policy areas, a cooperation partner with whom the EU has closely aligned objectives, a negotiating partner with whom the EU needs to find a balance of interests, an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance. This requires a flexible and pragmatic whole-of-EU approach enabling a principled defence of interests and values. The tools and modalities of EU engagement with China should also be differentiated depending on the issues and policies at stake. The EU should use linkages across different policy areas and sectors in order to exert more leverage in pursuit of its objectives.

The EU is committed to engaging with China to uphold the rules-based international order. China has expressed its commitment to a fair and equitable global governance model. At the same time, China's engagement in favour of multilateralism is sometimes selective and based on a different understanding of the rules-based international order. While China has often repeated its legitimate request for reforming global governance to give greater participation and decision-making power to emerging economies, it has not always been willing to accept new rules reflecting the responsibility and accountability that come with its increased role. Selectively upholding some norms at the expense of others weakens the sustainability of the rules-based international order.

The EU is committed to supporting effective multilateralism with the United Nations at its core. As a permanent member of the United Nations Security Council and a beneficiary of the multilateral system, China has the responsibility to support all three pillars of the United Nations, namely Human Rights, Peace and Security, and Development.

China's maritime claims in the South China Sea and the refusal to accept the binding arbitration rulings issued under the United Nations Convention on the Law of the Sea affect the international legal order and make it harder to resolve tensions affecting sea-lanes of communication vital to the EU's economic interests. They also stand in contrast to China's demands for representation on Arctic issues. China's increasing military capabilities coupled with its comprehensive vision and ambition to have the technologically most advanced armed forces by 2050 present security issues for the EU, already in a short to mid-term perspective. Cross-sectoral hybrid threats including information operations, and large military exercises not only undermine trust, but also challenge the EUs security and must be addressed in the context of the mutual relationship.

The year 2019 saw an EU policy shift to a more realistic, assertive and multi-faceted approach to China. In a fairly unusual move ahead of the forthcoming EU-China summit, on 12 March 2019, shortly before the EU-China High-Level Strategic Dialogue of 18 March, the EU published a 'strategic outlook' for EU-China relations, to be debated at that week's European Council meeting. The paper refers to a shift in the balance of challenges and opportunities the EU faces in its ties with China; it moves away from portraying China as a strategic partner towards an issue-based, differentiated framing of China as a cooperation partner, a negotiating partner, an economic competitor and a systemic rival. It spells out three goals: to 'deepen its engagement with China to promote common interests at global level', based on clearly defined interests and principles; to 'seek more balanced and reciprocal economic relations'; and to 'adapt to changing economic realities and strengthen its own domestic policies and industrial base'. It sets out 10 actions, and stresses that Member States need to apply a uniform approach to China to achieve these goals.

The European Union has a strong stake in the continued stability and prosperity of Hong Kong under the One Country, Two Systems principle. It attaches great importance to the preservation of Hong Kongs high degree of autonomy, in line with the Basic Law and with international commitments, as well as to the respect for this principle. The Standing Committee of Chinas National Peoples Congress adopted the National Security Law in Hong Kong on 30 June 2020. The European Union is concerned that the law risks seriously undermining the high degree of autonomy of Hong Kong, and having a detrimental effect on the independence of the judiciary and the rule of law. Both of these principles remain essential for the continued stability and prosperity of Hong Kong, and are therefore of vital interest to the European Union and the international community.

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Page last modified: 14-09-2020 00:08:11 ZULU