The new EU-China trade deal is driven by a commercial realpolitik – and the world knows it

Abuses in Xinjiang have been overshadowed by lucrative side-deals and strategic rhetoric from France and Germany.

Emmanuel Macron and Angela Merkel meet with Chinese President Xi Jinping in 2019 (Photo By Getty)

The idea that Europe must assert its own identity in a world dominated by large-state rivalry goes back to the pan-Europeanism of the 1920s. In principle, it is what motivates Emmanuel Macron, for whom China’s rise “creates the risk of bipolarisation and clearly marginalises Europe”. The US-China economic rivalry, and Europe’s relationship to it, however, is not a rerun of US-Soviet Cold War competition.

Completed in the dying days of Donald Trump’s presidency, the Comprehensive Agreement on Investment (CAI) that the EU has agreed with China appears to be a statement of European strategic intent: Europe will choose its own future.

In recent years, much of the rhetoric pouring out of Berlin made a relations reset prompted by a Democrat winning the White House a German reason of state. But, after seven years of protracted negotiations between the EU and China, finalising the CAI in haste instead appeared to treat Donald Trump’s exit as merely another vagary in the political comings and goings of a mercurial ally. The EU sought the CAI because China enjoys lopsided advantages from the existing flows of capital. With the EU already open to Chinese investment, the deal was supposed to be about levelling the playing field. But since China had relatively little to gain commercially, its dilemma was whether to accommodate the EU’s economic demands for geopolitical advantage.

In authorising late concessions, Xi Jinping has got an implicit commitment from the EU to not form a joint front with the Biden administration against Chinese trade and technology. On 2 January, Wang Yi, the Chinese foreign minister, said that China and the EU were “comprehensive strategic partners, not systemic rivals”. This phrasing explicitly repudiates the language the European Commission used to describe China in March 2019 when Angela Merkel and Macron resolved to close an investment deal with the superpower by the end of 2020.

The EU is also split over China in a way the European Economic Community was never split over the former Soviet Union. Scarcely had the deal been finalised before several EU states – including Italy and Belgium – began attacking those who negotiated it for ignoring China’s use of forced labour.

But European divisions go deeper than China’s persecution of the Uighurs in Xinjiang: China has economically factionalised the EU. Merkel and Macron committed to getting the deal done just as Italy became the 18th EU member to join China’s Belt and Road initiative; an offer of Chinese funding for major foreign infrastructure projects – such as pipelines, ports, railways – in order to increase China’s opportunities to trade globally. During Xi’s state visit to Paris in 2019 – to which Macron had invited Merkel – the French president warned that China “must respect the unity of the EU”. In practice, such rhetoric translated into a Franco-German effort to shift the Sino-European financial relationship from Chinese investment in southern and eastern Europe to French and German investment in China.

That a narrow commercial realpolitik lies behind the CAI is reflected in reports in the German press of corporate side-deals, including the possibility that Deutsche Telekom – Europe’s largest telecommunications company, in which the German government still owns a stake – could become the first foreign firm licensed to operate in the Chinese mobile phone market.

Yet Franco-German differences over China are acute. The CAI is much more Merkel’s victory than Macron’s. For the French president, there is always hope for European sovereignty. In an interview with the Economist in 2019, he complained that in a conversation with Merkel “it was as if I’d used a swear word when I said: ‘Can you guarantee that the development of 5G on the most technologically sensitive cores will be totally European?’”

Of course, she could not, when a few months earlier Deutsche Telekom had signed a supply-chain agreement to deepen its self-described “strategic partnership” with Huawei. Just before the CAI was sealed, the German government agreed to rules that allow it to block vendors from Germany’s 5G network on security grounds. But this law is unlikely to be deployed against Huawei when Deutsche Telekom stands on the verge of a breakthrough in China.

France and Germany stand apart on the Belt and Road, too. Although not formally a member, Germany is a part of China’s New Silk Road. Duisburg’s train terminal and inland port is the prime point of entry for Chinese exports coming to Europe by rail. By contrast, France is the one Mediterranean EU state detached from China’s bid to make the Mediterranean part of the maritime Belt and Road. Yet, as Turkey’s expansionist power grows it has become an emerging geopolitical hotspot, over which France and Germany already disagree.

Brexit complicates the geopolitical picture further. Aroused by the Hong Kong crisis, Britain is the European country that has made the biggest volte face on China. Consequently, the EU must now factor in the UK’s position in its dealings with the US about China. Indeed, with Joe Biden’s arrival, Britain is now aligned with the US on three major issues – climate, dependence on Russian energy, and China – while the centre of the EU is US-aligned only on the first.

If the CAI is supposed to be evidence of European strategic autonomy, then its logic points towards decoupling with the US on security, too. But the position of Poland and other eastern European EU states bordering Russia makes that impossible. In a world in which there are three states that are in different ways more powerful, the CAI is evidence of just how difficult it is for the EU to develop a common external strategy.