EU-China Business Ties Growing More Challenging Amid CAI Pause, Sanctions, Expert Says

Trade and business relations between the European Union and China will likely grow more challenging in the wake of the EU’s decision to pause ratification of the Comprehensive Agreement on Investment (see 2105240023), a European policy expert said. Even so, China will likely push the EU to move forward on the deal, another expert said, as it doesn’t want a series of escalating sanctions by the two sides to continue.

But as long as China's sanctions against the EU remain, issued in retaliation to EU human rights sanctions earlier this year (see 2104210052), the CAI will not be ratified, said Rosa Balfour, European policy expert with the Carnegie Endowment for International Peace. “Things are changing somewhat, which I think make it difficult for the Comprehensive Agreement on Investment to come back, at least in the original formulation that we've seen so far,” Balfour said during a June 1 webinar hosted by the think tank. “Technically it is possible to resuscitate it, but politically the conditions don’t seem to be there.”

Cui Hongjian, a China and European policy expert at the China Institute of International Studies, said China will “try to push it forward” because it represents another step in the country’s “opening up and reform process.” He also said China likely issued its retaliatory sanctions against the EU to “deliver a message.” “China doesn't want to have a longtime exchange of sanctions and counter exchanges in human rights,” he said, adding that China will push for dialogue to resolve the sanctions. He said the “ball is in the court” of the EU.

But Balfour disagreed, saying the only way the EU will again consider the CAI is if China rescinds its sanctions. “That’s clear,” she said. “China would need to climb back on the scale of sanctions in order for that debate to take place.”

Balfour also pointed to other obstacles that could hinder EU-Chinese business prospects, including a stronger EU foreign direct investment screening regime (see 2010090016) and widespread anti-China public opinion due to the government’s alleged human rights violations in the Xinjiang region (see 2103220034). “I do see that the tide is going against seamless business relations between the EU and China,” she said.

The EU is growing “very strong when it comes to protecting its single market,” Balfour said, and is adding to a set of investment screening proposals that will be “difficult” for China. “Europeans are increasingly concerned about the coupling of security issues and economic issues with respect to Chinese investments,” she said. “This is going to continue. It's not going to come to an end.” She also said member states are increasingly passing legislation to hold companies to higher labor standards and drive them away from the potential human rights issues in certain Chinese supply chains. “This will have an impact,” she said.

But Balfour also said the EU must manage member states with significant business ties to China, such as Germany, a large exporter to China, and Greece, which has “accepted a lot of investments” from China. “There's a lot of nuance among the member states that makes it difficult to forge a common policy.”