China Macro Reporter

<table class=nl_card><tr><td class="nl-post"><hr><p>In the U.S., we focus - rightfully - on the U.S. trade negotiations with China.<p>But, at the same time, the EU is grappling with what its strategy should be in dealing with China. <p>The recent EU-China Summit provides a platform to understand the conflicting forces underlying a divided EU's effort to develop a comprehensive response.<p>So. in this special edition, we look at the issues and conflicts suggested by the EU-China Summit as a heads up for you to include the EU at the forefront of your analyses of China global ambitions.<p>Look forward to your thoughts.</td></tr></table>

1. 'EU-China Summit': China faces a tougher Europe

<table class="nl_card" id="19apr1301"><tr><td><table class="multi-block"><tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr></table><p class="caption"><a href="" target="_blank">New York Times</a><p class="excerpt">An annual European Union meeting with China is beset by new worries about Beijing’s ambitions and practices, market barriers and industrial espionage.</p></td></tr><tr><td class="nl-post"><p><strong>'On Tuesday, April 9,</strong>the European Union and China met in Brussels for their 21st annual summit,'<a href="" target="_blank">reports the New York Times</a>.<ul><li><strong>'The challenge for Europe</strong>is to forge a united front in the face of a China that<a href="" target="_blank">only last month it labeled</a>an “economic competitor” in critical industrial fields and a “systemic rival” politically.'<li><strong>'The mood is certainly tougher now,</strong>especially after Italy last month became the first Group of 7 country to join China’s vast Belt and Road project.'<li><strong>'Last month,</strong>President Emmanuel Macron of France said that the European Union had finally woken up to China. “China plays on our divisions,” he said. “The period of European naïveté is over.”'</ul><p><strong>'If China is now a “systemic rival,”</strong>the<a href="" target="_blank">joint statement</a>did not reflect that new view, but tried to preserve a sense of partnership,' said Theresa Fallon, director of the Centre for Russia Europe Asia Studies in Brussels.'<ul><li><strong>'"The<a href="" target="_blank">joint statement,</a>"</strong>she said, “also highlights the E.U.’s preferred approach of dialogue and cooperation with China and is a contrast to President Trump’s more assertive approach.”'<li><strong>'In difficult negotiations,</strong>the Europeans had a hard time finding agreement on a joint statement with the Chinese that is serious about substance.'<li><strong>'They succeeded up to a point</strong>, but the commitments made by China are more about further talks than specific actions.'<li><strong>'But a senior European official</strong>also pointed to a statement finally reached after the last summit, in Beijing in July, which was full of promises not delivered, especially on issues like investment ground rules and market reciprocity, which are sources of tension now.'</ul><p><strong>'“China will attempt</strong>to use every opportunity, including the E.U.-China Summit, and the '16+plus 1' meeting in Croatia, to pit Europeans against each other and against the United States,’’ said Jamie Fly, the director of the Asia and Future of Geopolitics Programs for the German Marshall Fund in Washington. ‘‘It would be foolish and shortsighted to take the bait,” he added.'<ul><li><strong>'Avoiding that may not be easy.</strong>President Trump sees the European Union as an economic “foe.”'<li><strong>'On Tuesday,</strong>Mr. Trump threatened an additional $11 billion in tariffs in response to European subsidies to Airbus.'<li><strong>'“The EU has taken advantage</strong>of the U.S. on trade for many years. It will soon stop!’’ Mr. Trump tweeted.'</ul><p><strong>'China, on the other hand</strong>, works hard, despite recent conflicts, to be attractive to European businesses, both for investment and trade. “China uses honey while the U.S. is using vinegar,” said French analyst François Heisbourg.'<ul><li><strong>“The U.S. is pushing Europe</strong>in China’s direction.”</ul></td></tr></table>

2. Europe's 'new realism' at the 'EU-China Summit'

<table class="nl_card" id="19apr1302"><tr><td><table class="multi-block"><tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr></table><p class="caption"><a href="" target="_blank">Mercator Institute for China Studies (MERICS)</a></p></td></tr><tr><td class="nl-post"><p><strong>‘The atmosphere around</strong>this year’s EU-China Summit is dramatically different from previous years: in a balancing act, the EU has developed a new realism and a much keener awareness of both the opportunities and challenges presented by China,' says Rebecca Arcesati of the Mercator Institute for Chinese Studies (MERICS) in Berlin.<ul><li><strong>‘In a remarkably blunt</strong><a href="" target="_blank">strategy paper</a>published in March, it labelled China “an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.”’<li><strong>‘This represents a sea change</strong>in the EU’s assessment of China’s – and its own – capabilities.’<li><strong>At the Summit,</strong>'frustrated with China’s market-distorting practices and predatory technological acquisitions, Brussels wants to push Beijing to curb industrial subsidies, open up its market and commit to signing an ambitious bilateral agreement on investments by 2020.’<li><strong>'But it remains</strong>to be seen whether the EU will be able to present a united front.’</ul><p><strong>'China maintains</strong>an ambivalent position toward Europe.'<ul><li><strong>'While it wants European integration</strong>to access the single market, balance against the US and demonstrate its own commitment to multilateralism, the reality is that Beijing also benefits from EU divisions.'<li><strong>'For example</strong>, Xi’s visit to Italy was a big success for his leadership, as a G7 country endorsed his chief geopolitical initiative, undermining Brussels’ efforts to devise a common European approach to the Belt and Road Initiative (BRI) and made abundantly clear that Beijing still profits from the profound divisions that exist between member states..'<li><strong>'The EU should expect Beijing</strong>to continue cultivating ties with individual member states and accession countries while simultaneously offering assurances and concessions at the EU level.'</ul></td></tr></table>

3. China's strategy for the EU

<table class="nl_card" id="19apr1303"><tr><td><table class="multi-block"><tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr></table><p class="caption"><a href="" target="_blank">The Corner</a></p></td></tr><tr><td class="nl-post"><p><strong>‘Only a few days</strong>before Li Keqiang’s official visit to Brussels for the EU-China summit on April 2019, Xi Jinping has conducted his second trip to Southern Europe in only five months' says Alicia Garcia Herrero of Breugel, the Brussels-based think tank.<ul><li><strong>‘Here are some takeaways</strong>on the visit’:</ul><p><strong>‘First, it has become crystal clear</strong>that Europe (including the European Union) is increasingly important for China’s external policy.’<ul><li><strong>‘The EU-China Summit.</strong>like its precedents in the past, will not target key strategic issues.’<li><strong>‘The EU intends to demand</strong>from China the same treatment as the US in the ongoing negotiations.’<li><strong>‘China, knowing the difficulties</strong>in negotiating with the EU as a whole, prefers to deal with EU member states separately, at least for the issues where national competences dominate.’</ul><p><strong>‘Second, China’s strategy</strong>towards EU member states tailors each country’s key needs. This is why it is so effective.’<ul><li><strong>‘In the case of Italy,</strong>Chinese funding for infrastructure projects is the best enticement to the Italian government to support its flagging economy.’<li><strong>‘This was also the case</strong>for Portugal and Greece in the past, but the prize that China handed over to Italy is larger.’<li><strong>‘As one of the EU’s founding members</strong>and one of the selected groups of the seven largest industrialized countries in the world (G7), Italy has received the largest prize.’<li><strong>‘On the other hand,</strong>Chinese strategy to get France closer to China is very different as it focuses on increasing imports of French goods (especially for the aircraft and aerospace industry) as well as access to Chinese market for French financial institutions (banks and insurance in particular).’</ul><p><strong>‘Third, China’s gifts to European countries</strong>are obviously not free lunches.<ul><li><strong>'China’s massive investment in Italy</strong>comes in exchange for the latter’s endorsement to China’s major soft power machine, namely the Belt and Road Initiative.'<li><strong>‘Against the backdrop</strong>of the China-US trade war, China is more interested than ever in expanding influence to the detriment of the US, which is what China’s is doing with Italy.'<li><strong>‘For a country as important as France</strong>on the military/NATO front, China’s objective is driven more by economic factors.’<li><strong>‘In fact,</strong>China’s key interest on France is rather to keep an open market for its acquisition of valuable companies.’<li><strong>‘In other words,</strong>countries like France are more attractive for China to move up the technology ladder than expand its soft power umbrella.’</ul><p><strong>‘All in all,</strong>China’s strategy to the EU looks well targeted, offering each country what it really needs while focusing less on EU institutions.</td></tr></table>

4. The EU's (possible) strategies toward China

<table class="nl_card" id="19apr1304"><tr><td><table class="multi-block"><tr><td class="pdf-container"><iframe src=";embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></table><p class="caption"><a href="" target="_blank">open in a new window to read</a></p></td></tr><tr><td class="nl-post"><p><strong>'The trade conflict</strong>between the United States and China has brought China-US strategic competition into the open, and the he global influence of the US-China cold war will be persistent' says Alicia Garcia Herrero of Breugel, the Brussels-based think tank.<ul><li><strong>'At this juncture</strong>, the EU is the world’s only economy that can balance the power between the US and China.'<li><strong>'The European Union</strong>faces an urgent question: how to position itself in the competition.'<li><strong>'Several options</strong>are under discussion.'</ul><h5>‘1. Safeguard multilateralism?’</h5><strong>‘The EU has long called</strong>for economic multilateralism and is pushing for reform of the World Trade Organisation to adapt to China’s sheer size.’<ul><li><strong>‘That said,</strong>the EU will also find cooperation with the US difficult in the reform of the WTO.<li><strong>'Since his election,</strong>President Trump has pushed "America first" policies and has certainly not supported multilateralism.'<li><strong>‘On the other hand,</strong>China’s expectations of WTO reform do not seem to be in line with the EU’s.’<li><strong>‘In fact,</strong>China expects to enjoy a special status as an emerging economy, which should allow China to continue to keep its economic model while continuing to enjoy the benefits of open trade.’</ul><p><strong>‘While ideal in terms of the benefits</strong>of the status quo for an open, export-led economic bloc like the EU, the reality is that the EU risks remaining isolated in its pursuit of multilateralism, at least in the form we understand it today.’<ul><li><strong>‘Being the last one</strong>to abandon the boat of WTO reform is probably courageous but also naïve and potentially costly for the EU.’</ul><h5>‘2. Enhance Europe’s reliance on the Transatlantic Alliance?’</h5><strong>Europe could</strong>'reinforce its alliance with the US to the point of following the US in its actions to contain China’s economic/technological rise.’<ul><li><strong>But, ‘the current US administration</strong>has made it very clear that multilateralism and open trade is something of the past.’<li><strong>And, ‘the US</strong>has taken aim not only at China but at many other economies including the EU.’</ul><p><strong>‘There is a practical reason</strong>that would make it very costly for the EU to lean on the US completely.’<ul><li><strong>‘The EU is not a single country,</strong>but a group of countries that have different views about the US and also about China.’<li><strong>‘While Western Europe</strong>might be easier to unite against China, Eastern Europe, together with the Western Balkans, have gone in the other direction with the 16+1 group, which implies close cooperation with China in a number of economic policies.’<li><strong>‘As if this were not enough,</strong>some Western/Southern EU member states are taking the same route, starting with Greece, followed by Portugal and Italy, a founding member of the EU.’<li><strong>‘The EU’s efforts to establish</strong>an EU-level system of screening foreign direct investment, which was finally adopted on 5 March 20196, but was clearly weakened compared to the original proposal, points to the difficulties of moving unitedly to a closer Transatlantic Alliance to the detriment of EU member states relations with China.’</ul><h5>'3. Strengthen cooperation with China?'</h5><strong>‘Strengthening cooperation</strong>with China is also a practical – albeit unlikely – choice for the EU insofar as its current strategic ally, the US, is clearly watching Europe and making it increasingly costly for Europe to move away from its historical anchor, namely the US.’<ul><li><strong>'However,</strong>even the cost of a more neutral position (equidistant between the US and China) are increasing - the Chinese market is simply too large to be avoided.'<li><strong>'This means</strong>that the opportunities in the medium term should be greater in China than in than the US, under a very important assumption, though, namely that China truly opens up to foreign competition.'<li><strong>'In other words,</strong>if China were to grant true market access to foreign companies (European companies), the benefits for Europe of remaining neutral between the US and China may skyrocket.'<li><strong>‘In that context,</strong>the EU has taken some steps to improve economic cooperation with China since 2013 but the current stand-off with the US constitutes one more important hindrance (beyond China’s apparent lack of interest to change its state-led model) for such negotiations to bear fruit.’</ul><p><strong>'While it might seem unrealistic today,</strong>this last option might need to be explored if the US continues to move away from multilateralism and, to some degree, from the Transatlantic Alliance.'</td></tr></table>

5. VIDEO | The Heat: China-EU summit

<table class="nl_card" id="19apr1305"><tr><td><table class="multi-block"><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></table><p class="caption"><strong>The Heat:</strong><a href="" target="_blank">China-EU summit Pt 2</a>| video 24m</p></td></tr><tr><td class="nl-post"><p><strong>Great discussion</strong>with experts:<ul><li><strong>Chen Chenchen,</strong>deputy director of the Macro Research Department at Chongyang Institute for Financial Studies at Renmin University<li><strong>Tim Summers,</strong>senior consulting fellow with the Asia-Pacific Programme at Chatham House and author of “China’s Regions in an era of Globalization.”<li><strong>Sourabh Gupta,</strong>resident senior fellow with the Institute for China-America Studies.<li><strong>Philippe Le Corre,</strong>senior fellow with the Harvard Kennedy School and author of “China’s Offensive in Europe”</ul></td></tr></table>