As US-China ties sour further, can Beijing wrap up EU trade talks on time?

For years, China prioritised the United States over the European Union as it tried to pursue a new model of great power relations.

While that concept never took off, Beijing has still devoted more attention and effort to satisfying the demands of Washington, compared with those of Brussels.

That much has been obvious since US President Donald Trump launched the trade war against China two years ago, forcing Beijing to focus intently on reaching a deal with Washington, and leaving Brussels to fret that the EU would be at a disadvantage.

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But the dynamics have changed dramatically since the beginning of this year. Although China and the US signed the phase one trade deal in January after more than 18 months of conflict, their overall bilateral relations have continued to sour on almost all other fronts, aggravated by the coronavirus pandemic.

European Council President Charles Michel, German Chancellor Angela Merkel and European Commission President Ursula von der Leyen take part in a virtual summit with China's President Xi Jinping on September 14, 2020. Photo: Reuters alt=European Council President Charles Michel, German Chancellor Angela Merkel and European Commission President Ursula von der Leyen take part in a virtual summit with China's President Xi Jinping on September 14, 2020. Photo: Reuters

Now the EU is front and centre for China as it re-evaluates its diplomatic priorities and prepares for the worst-case scenario for its ties with the US.

The most immediate test for potentially deeper bilateral ties has been whether China and the EU can wrap up negotiations on a bilateral investment strategy that has already been seven years in the making.

With just two months left before the self-imposed deadline at the end of this year, pessimism is rising as to whether they can bridge the considerable gaps and conclude the talks.

These doubts are certainly valid, particularly as EU leaders have in recent months been increasingly outspoken about not just the lack of progress on the investment treaty and Beijing's promise fatigue on levelling the playing field for European businesses, but also China's human rights record and decision to tighten control of Hong Kong through the imposition of the tailor-made national security law.

This has prompted some analysts and media commentators to believe that China-EU relations, which have been conditioned largely on trade and investment, risk going on a downward trajectory as the EU develops a more holistic strategy to manage China's rise.

Last year, it labelled China as a "systemic rival". Since the pandemic broke out last December, China's "wolf warrior" diplomacy has also caused disquiet among many European governments and citizens alike.

But there are also reasons to believe China-EU ties are not as gloomy as portrayed by overseas media, particularly as Beijing has sharpened its political will in recent months to elevate the importance of its ties with Brussels, including pushing for breakthroughs in the remaining months of the investment treaty talks and showing more convergence on tackling climate change.

For instance, media outlets and analysts have reacted coolly to the virtual summit that Chinese President Xi Jinping had last month with European Council President Charles Michel, European Commission President Ursula von der Leyen and German Chancellor Angela Merkel. With good reason.

The summit merely ended up with an agreement to continue talks on the investment treaty and to initiate two new dialogues over climate and the environment, and digital technology.

But the behind-the-scenes interactions at the September 14 meeting provided interesting and insightful indicators of renewed determination and willingness from both sides.

Originally scheduled for an hour, it ran for two-and-a-half hours. Xi was believed to have gone off script at times to address the EU leaders' concerns over human rights, the investment treaty, and other issues, according to sources briefed about the summit.

On climate change, one of the EU's central concerns, Xi hinted that China, the world's largest polluter, would do its best to reduce emissions.

One week later, Xi made the bold announcement that China, which accounts for one-quarter of the world's carbon emissions, aimed to have carbon dioxide emissions peak before 2030 and achieve carbon neutrality before 2060.

The news would likely have heartened and delighted the EU leaders, who last year unveiled plans to create the world's first carbon-neutral continent by 2050 and toughen its medium-term targets, promising to cut emissions by 50-55 per cent in 2030 - up from a current aim of 40 per cent.

Xi's September 22 announcement certainly expands another important avenue for cooperation between China and the EU, which between them are responsible for one-third of the world's carbon emissions. All this comes after the US, another of the world's largest polluters, in 2017 withdrew from the Paris climate agreement, which is seen as vital in fighting against global warming.

Meanwhile, as the investment treaty talks approach their final lap after seven years of procrastination, China has displayed an unusual urgency to push for breakthroughs, with the frequency of the talks having increased to almost once a month since the beginning of this year.

Some headway was reached in the 31st round of talks in July, when Beijing and Brussels agreed on disciplining Chinese state-owned enterprises, transparency rules for subsidies, and rules tackling forced technology transfers.

The statements from both sides kept mum on details, except to say significant progress was made on all three fronts.

In fact, there was more than met the eye. China was believed to have made substantial concessions for the first time by agreeing to remove the preferential treatment for state-owned enterprises and to boost the transparency of subsidies and regulatory barriers - one of the major complaints among foreign investors.

Significance of the progress on China's state-owned sector should not be underestimated. Until now, Beijing has stalled demands from foreign countries, including the US, that it should reduce and remove explicit and implicit subsidies and benefits, including low-interest bank loans for the state-owned enterprises.

At the 32nd round of negotiations last month, Beijing and Brussels discussed market access and sustainable development. Zhang Ming, China's envoy to the EU, said both sides would try to find "a potential landing zone" in the next meeting, expected to take place later this month.

Despite the acceleration of talks, both are believed to have agreed to only one-third of the issues. On top of market access, the other sticky issues include labour rights and the environment, provisions for dispute settlement, and an institutional framework for the enforcement of agreement clauses.

This article originally appeared on the South China Morning Post (SCMP).

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