The effects of the China-EU Investment Deal

On the 30th of December 2020, the EU and China announced the agreement in principle on a revolutionary investment deal that would massively lower barriers to entry for European companies competing in China and vice versa. The deal would symbolize the most comprehensive opening of the Chinese market ever since the Communists took power in 1949. However, the effects of the deal would not have only been economic in nature, as it would have provided a convenient avenue for Chinese geopolitical expansion throughout the EU, as a continuation of their strategy of expansion of influence through commercial agreements and investments.

Despite the decades-long negotiations and the numerous advantages for both parties however, the future of the deal itself is now in question after the EU, along with the UK, USA and Canada, imposed sanctions on China due to their cultural genocide of the Uighur population in Xinjiang.

What are the contents of this agreement?

The agreement is essentially a bilateral treaty that promises to lower many of the existing tariffs and barriers between China and the EU to facilitate trade and integration. In order to secure a level playing field, the EU has implemented clauses that ban ‘forced technology transfers’ to Chinese companies, as well as committing both parties to a course of sustainable development. It is important to point out that Chinese state-owned companies are not banned from doing business in the EU, as they officially and unofficially were previously, but they must respect the European markets’ rules if they wish to do so. 

What does China gain?

The Chinese leadership within the CCP has been pursuing a policy of geopolitical expansion for the past decade, often using economic means and agreements to further their interests. For a famous example, we can take the 2015 requisition of the port of Hambantota from Sri Lanka as payment for the $1.1 billion that China had lent to the country to construct that same port. China has used its Belt-and-Road initiative to finance numerous megaprojects in developing countries which, attracted by promises of development, fall into the trap like moths drawn to a lamp. Once those countries cannot repay the massive loans that are needed to finance such megaprojects, China swoops in and offers a deal. 

Often the solution is to ‘lease’ some piece of important national infrastructure for 99 years to China, who can then make use of it as they see fit. For example, when prime minister of Japan Shinzo Abe visited Sri Lanka Chinese military submarines were there to greet him. It is fittingly ironic that 99 years is also the amount of time that the New Territories outside of Hong Kong were leased to the British Empire, perhaps the most prominent symbol of colonialist humiliation in China. 

Another important gain that China gets from such investments is the possibility to receive important information and intelligence about other countries. Coming back to the example of the Sri Lankan port of Hambantota, Chinese envoys explicitly demanded that, as a condition for the acceptance of their loan, they would need to have full access to gather any information they needed on ships, cargo and personnel that passed through the port. Furthermore, with such a strategic asset in their possession it then becomes possible for China to influence local and even national politics through threats and bribes. 

What could be the effects on the EU?

While such scenarios might seem out of place in relatively wealthy Europe, we should not forget that little more than a decade ago the Greek, Spanish and Italian governments were in such a desperate state of financial ruin that they may have happily accepted a tempting Chinese bailout deal rather than imposing austerity measures on their voters. Since the EU would hardly be able to offer a deal as appealing as China’s, at least in the short term, it is not inconceivable for the governments of such countries to go for the figurative Chinese honeypot.

The Chinese government’s focus on funding megaprojects is also very appealing to many eastern European countries who are faced with crumbling infrastructure and expensive commitments to EU directives aiming for high-speed rail, modern and wide highways and more. For example, when Croatia needed to build a bridge to connect the exclave of Dubrovnik to its mainland, one of the longest in the entire Balkans, they turned to a Chinese company who promised to build it at the lowest cost possible. This bridge was necessary for Croatia’s full entry into the Schengen area, as the exclave of Dubrovnik needed to be directly connected to the rest of Croatia, instead of passing through Bosnia, a non-Schengen country.

Even if such worse-case scenarios were avoided however, there is still the massive issue of Chinese intelligence and information gathering throughout the EU. Chinese state-owned companies are notorious for being instrumental in carrying out goals and projects that the government cannot involve itself directly into. If they were to begin operating in Europe, they would be used as means to collect sensitive information, just as they already do for example in Mongolia and other East Asian countries.

What can we expect in the future?

Despite the extensive ramifications and benefits this investment deal could have on both China and the EU, it might never become realized, as recent exchanges of sanctions between the two parties, along with a resurgent USA willing to take back their place as leader of the free world means that tensions are likely to keep rising in the near future. Nevertheless, if it were to be signed it would certainly be a great opportunity for China to extend its geopolitical and economic influence throughout the EU.

+ posts

Leave a Reply

Your email address will not be published. Required fields are marked *