Sanctions spat has forced EU to reassess its China strategy

It is too early to say whether the investment agreement the EU struck with China at the end of December is dead, although it is clearly badly wounded.

Beijing last week hit European lawmakers from each of the main party groups in retaliation for EU sanctions against four Chinese officials involved in human rights abuses in Xinjiang. It made it all but impossible for the European Parliament to ratify the treaty.

However, ratification is a lengthy process and a lot could change in the several months before it comes to a final vote. China could retreat. More likely, MEPs will come under huge pressure from national capitals and business interests to approve the so-called Comprehensive Agreement on Investment (CAI) in the name of improving European access to bountiful Chinese markets.

Even before last week’s tit-for-tat sanctions, the deal had run into opposition from MEPs over the lack of promises, let alone binding commitments, by Beijing to meet international standards on forced labour. Others were worried about antagonising the Biden administration.

Reinhard Bütikofer, a German Green MEP and leader of the parliament’s China delegation who was one of those sanctioned by Beijing, said support could ebb further when his colleagues realise it may drain industrial investment from Europe.

“CAI is in extremely deep trouble. But I would refrain from saying it is over. There could be attempts to revive it.”

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Nonetheless, China’s response to the EU’s stand on Xinjiang abuses still feels like a turning point in EU-China ties.

“The events of [last] week are a game-changer,” said Janka Oertel, head of the Asia programme at the European Council on Foreign Relations. Beijing “does not regard Europeans as being detached from the broader attack on it”.

China saw the investment deal as an opportunity to drive a wedge between the US and EU, said Bütikofer. It felt “that their efforts at neutralising Europe in a hegemonic battle with the US were making headway”.

The co-ordinated western sanctions were a “big loss of face for Xi Jinping”, he believes, and explain why China struck the EU first with counter-sanctions and hit harder than it had been hit. It also followed up with a consumer boycott, orchestrated by state media, of some western brands over previous Xinjiang statements.

As China was punishing the EU, the US was wooing it. In a speech at Nato headquarters last week, US secretary of state Antony Blinken could barely have been more reassuring about Washington’s approach.

“The United States won’t force our allies into an ‘us or them’ choice with China,” he said. “We know that our allies have complex relationships with China that won’t always align perfectly. But we need to navigate these challenges together.”

The sanctions exchange last week has also forced the EU to reappraise its China strategy. In 2019 the bloc toughened its approach. It needed policies for dealing with a country that was simultaneously partner, competitor and systemic rival. Critics say the EU, until now, largely ignored the last bit. German chancellor Angela Merkel declines to use the term and reportedly banned her officials from doing so.

The EU’s human rights sanctions show the bloc will not always put its business interests first. Had it wanted to, it would have ignored the forced labour issue altogether in its investment agreement in the first place. Public and political opinion would not have allowed it.

But although China has given assurances it will sign up to International Labour Organization conventions on forced labour, it has not said when, nor agreed to a binding timetable. An enforcement mechanism contained in the deal for failing to abide by labour standards amounts to a slap on the wrist.

“The partnership dimension has become a lot smaller,” said Oertel. “Competition has become a lot bigger and the rivalry is now more pronounced.”

That will become clearer as the EU pushes ahead this year with a suite of other unilateral defences that will make it easier to push back against Beijing. These include EU rules on foreign state subsidies, measures against economic coercion and a carbon border tax on imports from climate laggards as well as national measures on slave labour.

“You cannot co-operate as if there is no rivalry,” Bütikofer said. “That is impossible.”