January 4, 2021 | Contextualizing the EU-China Investment Agreement (CAI)
Contextualizing the EU-China Investment Agreement (CAI)
Happy 2021, it’s great to be back from holiday, and like many of you, I’m looking forward to a new year!
I want to extend a warm welcome to our new subscribers. It’s great to have you here! If you’re new to my daily notes, it’s a daily exploration of the most relevant issues in US-China relations and China’s relationship with the world.
I use this newsletter to clarify my own understanding of China and share my ideas with a broad and sophisticated audience of academics, policy analysts, investment professionals, and others who are passionate about China.
I believe China and US-China relations will continue to have a profound, yet subtle, impact on the world for decades. My primary aim is to uncover those subtleties and share them with you.
Again, I’m excited to be back, and I hope you enjoy today’s edition of my daily notes!
Best,
Kevin
Today’s Focus:
Contextualizing the EU-China Investment Agreement
US-China relations
Contextualizing the EU-China Investment Agreement
We ended 2020 by building a framework to contextualize US-China relations as we transition from Trump to Biden. While I organized these assumptions around a growing US-China technology competitive dynamic, they are still applicable to most other facets of the US-China relationship.
Moving into 2021, I think it’s wise to continue to operate under the presumption that the Trump administration’s China policy was an anomaly and that the incoming Biden administration will steer away from the confrontational and disjointed approach that characterized the Trump administration.
Even though we’re only four days into the new year, we’re already witnessing simmering tensions in an unexpected area: US-EU tensions revolving around China.
These tensions center around the controversial Comprehensive Agreement on Investment (CAI) between the European Union and China.
According to the terms of the agreement, China will commit to providing “a greater level of market access for EU investors.” In return, China receives a guarantee that it will continue to maintain open access to EU markets.
Aside from the EU and China, hardly anyone seems to be completely satisfied with the deal. Some argue that China conceded too much to the EU, while others argue that the agreement constitutes a direct threat to US-EU relations.
I’ll spend the next few days focusing on the economic and geopolitical significance of the EU-China investment agreement.
By the end of this week, we’ll have a better perspective of these two fundamental areas:
The agreement's underlying intent from the perspective of both the European Union and China.
The core principles behind US objections to the agreement.
More Reading on the EU-China Investment Agreement
EU and China agree new investment treaty (Financial Times)
The EU and China have unveiled a long-awaited investment treaty that aims to open up lucrative new corporate opportunities but which risks antagonising president-elect Joe Biden’s incoming US administration.
EU and China reach agreement in principle on investment (European Commission)
The EU and China have today concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI). This deal follows a call between Chinese President Xi Jinping and European Commission President von der Leyen, European Council President Charles Michel and German Chancellor Angela Merkel on behalf of the Presidency of the EU Council, as well as French President Emmanuel Macron.
China-EU investment deal: who’s the real winner after seven years of negotiations? (South China Morning Post)
Against such a gloomy backdrop, it was no surprise that EU and Chinese leaders were quick to celebrate sealing the landmark deal – officially called the Comprehensive Agreement on Investment (CAI). Though according to critics, while it might be a symbolic victory for Beijing there is little in it for Brussels.
Europe has handed China a strategic victory (Financial Times)
Even in the current geopolitical order, China has repeatedly demonstrated its willingness to use its economic power as a strategic weapon. By deepening their economic reliance on China — without co-ordinating their policy with fellow democracies — European nations are increasing their vulnerability to pressure from Beijing. That is a remarkably shortsighted decision to make, for a “geopolitical commission”.
EU-China Investment Deal Threatens US-Europe Relations (Voice of America)
…the deal was met with dismay by aides to U.S. President Donald Trump, whose administration has engaged in a long-running trade war with Beijing. And while Biden advisers have been less vocal about their approach to China, they had signaled reservations about the pact and a desire for more input before it was concluded.
EU-China FDI: Working Towards Reciprocity In Investment Relations (Rhodium Group, 2018)
The growth and resilience of Chinese investment flows is eliciting both enthusiasm and anxiety in Europe. Some politicians are excited about the prospect of new investments to revitalize their local economies and better connect them with the booming Chinese consumer market. Others are concerned about potential security risks and negative economic impacts.
US-China Relations
America’s ideological dilemma with China
To pursue Cold War 2.0, Washington will have to explain away how Chinese ‘communism’ has been as good as, or even better than, American capitalism at delivering economic success and abundance for its people as well as much-needed growth for the world economy
A China Strategy to Reunite America’s Allies
China’s autocratic ways and its strategic ambition are prompting the world’s democracies to band together against it. But, as the European Union’s recent decision to sign an investment accord with China makes clear, China’s geopolitical heft and the allure of Chinese trade and investment are tempting many to curry favor with it.
In a Topsy-Turvy Pandemic World, China Offers Its Version of Freedom
China resembles what “normal” was like in the pre-pandemic world. Restaurants are packed. Hotels are full. Long lines form outside luxury brands stores. Instead of Zoom calls, people are meeting face to face to talk business or celebrate the new year.
The country will be the only major economy to grow this year. While such forecasts are often more art than science, one outfit is forecasting that the Chinese economy will surpass that of the United States in 2028 — five years earlier than previously predicted.
Dan Wang 2020 Letter
Will we recognize what broader Chinese success or failure will look like? Since reform and opening, the country has always looked like it was on the brink of some disaster, either economic, political, or financial. Meanwhile, it has avoided big crises as it improves various capabilities. If that’s still the story at the end of the next decade—a decent rate of growth, avoiding the worst crises, while facing tough challenges—should we deem that a success or a failure?
Avoiding the climate canard in US-China relations
With the departure of the Trump administration, the rhetorical noise about that relationship as a Manichean good vs. evil struggle likely will go down a few decibel levels. Under Biden, the purpose of American foreign policy will be focused on how best to tangibly improve the health, security, and prosperity of the American people.
As this transition unfolds, so too will debates about how — and on what issues — to coordinate with China. Already, climate issues have become a symbol of this debate.
Thanks for reading, see you tomorrow!
Best,
Kevin
Photo Credits:
Though I agree with you that Trump administration is an anomaly and "the incoming Biden administration will steer away from the confrontational and disjointed approach that characterized the Trump administration.", I believe Biden could miscalculate by pushing further to test Beijing's red line. This is encouraged by Trump's red line pushing without damaging consequences. This newfound courage by USA will lead to war. I believe in the saying: "to prevent a war, you must be willing to initiate a war"
Excellent post.
Thanks for your efforts!.
Hope you recognize me from Twitter ;)