EU puts China ties under the microscope

EU puts China ties under the microscope

EU puts China ties under the microscope
The 20th Chinese Communist Party Congress is to re-elect President Xi Jinping. (AFP)
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Discussions over a potential big new gas price measure against Russia is top of the political agenda in Brussels. However, the European Council summit of 27 presidents and prime ministers this Thursday and Friday may well also be remembered for a potentially significant hardening of the EU’s foreign policy position toward China.

Relations between Brussels and Beijing have frayed since at least when the COVID-19 pandemic began and this week’s summit could move the EU closer to formalizing that shift. This development, which comes as President Xi Jinping gets a third term from the National Congress of the Chinese Communist Party, bodes ill for bilateral relations, including the long-negotiated Comprehensive Agreement on Investment, whose ratification is frozen in Brussels.

The EU may stick to a three-part assessment of China as “partner,” “competitor” and “systemic rival,” despite this possibly being outdated. However, the European External Action Service, the EU’s diplomatic body, has this week advised member states in a new document that the “competitor” aspect should increasingly become the focus of bilateral relations, as Beijing “becomes an even stronger global competitor for the EU, the United States and other like-minded partners.” This is key, it is asserted, because “China is not going to change,” and is “moving to a logic of all-out competition, economically but also politically.”

The intervention comes with the claim that “current and foreseeable challenges” are only likely “to widen the divergence between China’s and our own political choices and positions,” the report adds. It also advises the bloc to double down on ties with other Asia-Pacific powers, including Japan, India and Australia, diversify supply chains and “intensify efforts to reduce vulnerabilities” in areas including fighting disinformation, cyber, maritime and space security, innovation and technology. These would build from existing measures taken, including the new “A Globally Connected Europe” strategy, which is widely seen as a competitor to China’s Belt and Road Initiative in pushing for investments in visible projects to link the EU to the wider world.

The initial response from Europe’s foreign policy elite to the new document has been favorable, with Dutch Foreign Minister Wopke Hoekstra saying “there is increasing realism in the dialogue with China. We are leaving naivety behind.” Meanwhile, European High Representative for Foreign Affairs and Security Policy Josep Borrell said that “a new discussion on China, with a new analysis, is very timely.”

While the significance of this week’s development depends on the degree to which the 27 EU states adopt the advice, it at least represents a clear shift in policy tone. Remember here that the EU had previously referred to Beijing as Europe’s “strategic partner in addressing global and international challenges.”

While the significance of this week’s development depends on the degree to which the advice is adopted, it at least represents a clear shift in policy tone

Andrew Hammond

In this context of challenge, there are still some areas of common interest and cooperation. These include the importance of an open, multilateral trading system and tackling climate change.

On the economic issue, China still hopes that the investment agreement might get ratified. However, the prospects of ratification getting kicked further into the political long grass are growing.

Global warming is another issue on which the two sides have long had a fruitful dialogue. They have cooperated on developing a cost-effective low-carbon economy, with their 2015 agreement, for instance, agreeing to intensify cooperation in domestic mitigation policies, carbon markets, low-carbon cities, greenhouse gas emissions from the aviation and maritime industries, and hydrofluorocarbons.

Beyond China, the EU also has Russia in its sights given that the energy market crisis has worsened significantly since Moscow’s invasion of Ukraine. The European Commission will this week seek to agree new emergency regulations to address high gas prices and ensure the security of supply in the coming months, beyond the already-agreed measures on gas and electricity demand reduction, gas storage and the redistribution of surplus energy sector profits.

Rather than bringing in formal gas price caps, which member states have disagreed over, this new regulation contains about half a dozen alternative elements. They include combining EU demand and joint gas purchasing to secure optimal prices and reduce the possibility of member states outbidding each other on the market, while seeking to deliver security of supply across the bloc.

Moreover, work is underway to develop a price correction mechanism to introduce a so-called dynamic price limit for transactions on the main European gas exchange, the Title Transfer Facility in the Netherlands, plus a temporary “price collar” to prevent extreme price spikes in derivatives markets. Beyond these immediate-term measures, a new liquefied natural gas pricing benchmark will be developed by spring 2023.

Taken together, these developments underline how both Russia and China are currently under the EU policy microscope. With relations with Moscow remaining in a deep freeze, there is now a growing possibility of EU-China ties moving in a similar direction.

• Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.

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