In the past ten years or so, EU member states have encountered many challenges: the Euro crisis, terrorist attacks, the refugee crisis, Brexit, and so on. When the United Kingdom passed the “Brexit referendum” in 2016, many analysts worried that it would have a ripple effect in other EU countries and lead to the end of European integration. But now it seems that this is not happening. Brexit is likely to be an exception, European countries still want an alliance, and de-integration is not a trend. At present, the biggest challenge facing Europe is undoubtedly the new coronavirus pandemic. In 2020, the euro zone’s GDP decreased by 6.6%, and the EU economy shrank by 6.2%, both exceeding the declines during the 2008-2009 international economic crisis. The latest International Monetary Fund (IMF) forecast is that the euro zone economy is expected to grow by 4.2% in 2021, which is lower than the 5.5% growth rate of the global economy.  

Currently, the EU is undergoing two major transformations. The first is economic transformation, which includes both the green and digital transformations, and the second, also being carried out by the EU, is a diplomatic transformation. For a long time, the strength of the EU as a global economic actor has come from its single market, the euro, and the EU’s influence in the global trading system. Europe prides itself on being a “normative force.” As it faces the new international environment (Chinese people like to speak of “great changes unseen in a century”), especially changes in relations among major powers, the EU hopes to become a geopolitical force, not just a trade and economic force. One can see that Europe in the future wants to reduce its dependence on the United States and other major powers and take the fate of Europe in its own hands.  

Since China’s reform and opening up, economic and trade cooperation has always been the top priority in China-EU relations. Markets, investment, and technology have drawn China and Europe close together. With the rapid development of China’s economy and the deepening and expansion of integration in the EU, China and the EU have become two of the world’s largest economies, and their mutual economic dependence have increased. For 15 consecutive years from 2004 to 2019, the EU has been China’s largest trading partner, and China has been the EU’s second largest trading partner through the same period. In 2019, the trade volume between China and the EU reached US$705.2 billion. In 2020, ASEAN surpassed the EU to become China’s largest trading partner, but at the same time, China replaced the United States as the EU’s largest trading partner in goods for the first time.  

The EU and its member states are constantly adapting to a rapidly developing and increasingly influential China, and this has brought challenges to China-EU relations. As China’s influence increases, Europe hopes to cooperate with China on major global issues, such as jointly addressing climate change, countering terrorism, and protecting biodiversity. However, at the same time, Sino-European economic and trade frictions are also increasing. In recent years, the conflicts between the two parties in the area of investment have been especially conspicuous. The European side’s dissatisfaction with China is concentrated on two issues. The first is the issue of market access, which requires China to adopt the principle of reciprocity to allow European companies to enter the Chinese service industry market, and the second is the issue of fair competition, wherein the differences between China and the EU on Chinese state-owned enterprises, government subsidies, and technology transfer are sharpening. Some European countries are becoming more and more vigilant about Chinese investment, especially by setting high thresholds for Chinese companies’ mergers and acquisitions in Europe. The reason is either due to so-called security considerations, or the belief that the Chinese companies have received support from the Chinese government. Clearly, the vigilant mentality that these European countries have toward China is getting stronger. In addition, at the ideological level, Europe is emphasizing the differences between the two sides more than before. The differences between China and Europe’s political systems have always existed, but now Europe is increasingly highlighting and emphasizing this difference. In the past, European countries have been more pragmatic in their China policies, seeking a balance between economic interests and values, but now the value factor has become more prominent in their China policies. From China’s perspective, Europe’s response to China’s rise is clearly overwrought.  

China’s mainstream view of Europe is that European countries and the EU are its important partners; the numerous common interests between China and Europe are quite real, and there are important opportunities for cooperation with each other. As China’s economic growth remains strong and the Chinese market continues to expand, China and Europe have great potential for cooperation. We see that the strong recovery of the Chinese market and economy is a huge attraction for European countries. According to a survey published by the European Union Chamber of Commerce in China in June 2020, European companies are attracted by China’s huge sales market and to its economic environment, which is becoming increasingly conducive to research and innovation, so their enthusiasm for investing in China is unabated. Results of the annual “Business Confidence Survey” published by the Association for German Chambers of Commerce Abroad (AHK) on 2 February 2021, show that German companies in China strongly recognize the Chinese market; almost all of the companies surveyed (96%) said that they did not plan to leave China, and 72% said that they wanted to expand their investments in China.For China, Europe is first of all a partner in trade and technology, while at the same time, the EU, being comprised of 27 countries, is a key global actor. Without cooperation with the EU, it will be difficult to take global action. Therefore, in China’s eyes, Europe is not only an economic and trade partner, but also China’s global governance partner in responding to the climate crisis and the new coronavirus pandemic.  

The completion of the Comprehensive Agreement on Investment (CAI) negotiations between China and the EU on 30 December 2020, marks a big step forward for China-EU relations. It has not been easy for China-EU relations to take this step, but the CAI’s implementation is definitely worth looking forward to. Beginning in 2014, China and the EU launched a total of 35 rounds of negotiation on the CAI, which lasted seven years. The final stages of the negotiation can be described as “vicissitudinous,” but in the end the two sides eliminated interference, overcame difficulties, refused protectionism, achieved openness, and conflict gave way to cooperation.  

The most outstanding achievement of the China-EU CAI is that it has surpassed the traditional bilateral investment agreement and achieved breakthroughs in the four areas that people are most concerned about: market access, fair competition, sustainable development, and dispute resolution. The person in charge of negotiation in China’s Dept. of Treaty and Law, Ministry of Commerce, praised the agreement as a balanced, high-standard, mutually beneficial, and win-win agreement, which benchmarks international, high-standard economic and trade rules and focuses on institutional openness. On its official website, the EU lists as many as a dozen or more fields in which China has made market access commitments, including manufacturing, automotive, financial services, health (private hospitals), research and development, communications and cloud services, computer services, international shipping, air transport services, commercial services, environmental protection services, construction services, and employee turnover. The EU also emphasizes that the China-EU CAI takes sustainable development as a foundation and attaches great importance to environmental protection and the protection of workers’ rights and interests.  

Judging from the results of the negotiations, the two sides focused closely on their respective major concerns while taking into account both short- and long-term considerations, and finally reached a package agreement that is in the interests of both parties. For example, in the area of market access, China for the first time has made a commitment in the form of a negative list in all industries, including service and non-service industries, to achieve full integration with the foreign investment negative list management system established by its Foreign Investment Law. The EU also committed to improve market access for Chinese companies. In the area of fair competition, the two parties likewise reached a consensus in the end on each other’s concerns. The European Commission believes that the agreement, in terms of opening up the Chinese economy, “is the most ambitious agreement that China has ever concluded with a third country.” In short, the agreement’s signing and entry into force is of great significance for the stable development of China-EU relations, and will be particularly helpful for resolving the conflict points that plague China-EU relations.  

At present, the approval process for the China-EU CAI has encountered serious resistance. On 22 March 2021, the EU Foreign Affairs Council (FAC) announced sanctions against China on the grounds of the so-called human rights issue in Xinjiang. China then imposed counter-sanctions against the EU sanctions. The EU sanctions against China involve four persons and one entity, and the Chinese sanctions include 10 persons and four entities from the EU. On 20 May, the European Parliament passed a motion to freeze the review of the China-EU CAI.  

The CAI is a major breakthrough, a victory for both China and the EU. At present, China and many European countries still want to see the agreement approved. For both China and the EU, the next most important thing is to find ways to prepare a suitable atmosphere and environment to break the current deadlock and return the approval process to a normal track as soon as possible.  

What needs to be pointed out is that even though the EU’s China policy emphasizes competition, Europe’s policy propositions on the issue of responding to economic competition are not the same as those of the United States. The EU advocates resolution through a multilateral framework and bilateral negotiations, and it opposes launching trade war or implementing a “decoupling” strategy against China. German Chancellor Angela Merkel pointed out in an interview with the Financial Times in January 2020 that China’s success lies more in its diligence, daring to innovate, and strengths in the fields of science and technology. Western countries should not regard China’s economic success simply as a threat; they could engage in constructive discussions on it, but should not adopt a hostile attitude towards China. In her view, the West must in the future accept the reality of competition with China, but competition does not mean “decoupling.” She also emphasized that Europe is no longer the “world center,” and that reducing the number of its external partners would damage its ability to respond to global challenges. On 4 February 2021, French President Emmanuel Macron, in a video seminar organized by the American think tank, the Atlantic Council, pointed out that even though Europe and the United States share the same values and histories, he was opposed to joining with the United States and others against China, because doing so would greatly increase the possibility of conflict and weaken China’s motivation to cooperate with other countries, which would be detrimental to everyone.  

To summarize, China and the EU, as two of the three largest economies in the world, have reaped tremendous benefits in the past few decades through economic and trade cooperation. The next few years will be extremely crucial to the world landscape, especially to relations among the major powers. China and the EU need to adapt to the new situation of increasing competitiveness in their relations and explore a new pragmatic, rational relationship model. Specifically, on the one hand, the two sides must actively seek cooperation on green development and the digital economy to ensure that mutual cooperation is continuously maintained and expanded. On the other hand, they also have the responsibility to strengthen exchanges and cooperation to prevent the reappearance of a confrontational pattern between the world’s major powers.  

(Translated by Thomas E. Smith)