The EU and China, the world’s second and third largest economies, should be looking to turn their trade relations into a genuine partnership but both are still wary of protectionism and unfair competition, according to a comprehensive report published on Wednesday (13 September).
The report titled “EU–China Economic Relations to 2025 Building a Common Future” draws a blueprint for the future trade relations for the next decade. It was co-written by the Brussels-based Bruegel think tank, Chatham House, the China Centre for International Economic Exchanges and The Chinese University of Hong Kong.
With global uncertainties on the rise and the US apparently stepping back from “playing a leadership role”, it has become extremely important for the EU and China to find ways to deepen their bilateral economic cooperation, the report said.
As the report lays out, “the two sides have the opportunity to deepen cooperation in virtually all areas, from infrastructure, energy and environment, to science, technology, financial services and global governance. In this way, the EU and China can help ensure that global development is stable, strong, balanced and sustainable”.
China has launched a charm offensive with the EU since US President Donald Trump took office, in an effort to find allies amid fears that Trump could undermine it with his protectionist “America First” policies.
But the EU remains cautious about its second-largest trading partner, concerned by China’s massive steel exports, its militarisation of islands in the South China Sea and a turn towards greater authoritarianism under President Xi Jinping.
Xi has made a vigorous defence of globalisation and painted a picture of China as a “wide open” economy, but foreign business groups complain vociferously that China discriminates against them with policies that limit their access to the Chinese market and support domestic competitors.
China, on the other hand, worries that the EU can impose policy measures against them, such as anti-dumping and countervailing duties, and that the EU is too busy with its own agenda, from institutional reforms to Brexit.
The EU is looking to conclude a bilateral investment treaty with Beijing that would make it easier for European companies to do business in China.
Chinese expansion already underway
Meanwhile, China continues to expand into EU countries through bilateral deals. After investing heavily in many African countries, Chinese state-controlled giant trusts are now looking to Europe and have made it clear that they are not going to stop in Eastern Europe.
The Chinese have already managed to get an economic foothold in many Western countries, sometimes even by proxy.
This will be the case with at least part of the UK’s energy infrastructure, where the Chinese can penetrate through their French partners. Britain thus awaits the signing with Electricité de France (EDF) and the Commission’s approval for building a nuclear plant composed of two reactors close to Hinkley Point, in south-west England.
The plant is supposed to go online in 2023. It should produce 3,260 MW, or 5-6% of the UK’s total consumption, and would be the first new nuclear plant in the UK since 1995.
The problem is that an important part of the funds used to build it will be Chinese. The cost of the two EPR’s (Evolutionary Power Reactors) built by the French Areva will be as high as €16 billion, which EDF cannot finance alone.
EDF therefore turned to the two Chinese nuclear giants – CNNC (China National Nuclear Corporation) and CGN (China General Nuclear Power Group) – with whom the French company started working already three decades ago. The two Chinese companies will together own 30% to 40% of the shares in the British plant.
In Sweden, the Zhejiang Geely Holding Group, owned by the billionaire Li Shufu, bought the ailing Volvo in 2010.
Chinese companies even have the option of eventually taking majority stakes in UK nuclear plants – even though some in the ruling Conservative Party are trying to reverse this option, which was granted by the former British Chancellor of the Exchequer, George Osborne.
This means that the UK could be going one step further than France, where Chinese companies have been buying minority stakes in French industries for decades.
By entering a joint-venture with EDF in building the nuclear plant in England, the Chinese will also enter the British energy market, where EDF is dominant, after having bought British Energy in 2009.
The Chinese are also present in the French tourism sector. Club Med has allied itself with the Chinese Fosun conglomerate, whose operating activities include insurance, industrial operations, investment and asset management. China is thus on track to becoming the second biggest market for Club Med after France itself.
And Airbus has partnered with the Chinese Avic in an effort to get onto the Chinese market, while GDF Suez sold 30% of its gas-producing sub-branch to China Investment Corporation.
Another big French company the Chinese might soon win, and which has a symbolic status in France, is Peugeot-Citroën. This loss-making family-run concern has offered Dongfeng to buy half of a €3 billion capital increase (the other half going to the French government), in exchange for 20-30% of its shares.
The Chinese say they are still considering the offer, but this could simply be a bargaining position.
For Western countries, rolling out the red carpet in front of the Chinese could have serious consequences.
Chinese representatives already sit on the Volvo board in Sweden, as they will in France if the deal with Peugeot goes ahead. On top of being politically cumbersome, such conquests would mean that the Chinese will gain access to European technologies and an insight into the functioning of some key industries.
Furthermore, European officials would also find it more difficult to level criticism against China, in the face of expected pressure from the industries and lobbyists.