China and E.U. Leaders Strike Funding Deal, however Political Hurdles Await

The heads of state and government of China and the European Union agreed on Wednesday to make it easier for companies to work together. This is a major geopolitical victory for China as criticism of its human rights record and handling of the pandemic have increasingly isolated the country.

However, political opposition in Europe and Washington could ultimately ruin the landmark pact and highlight the difficulties of dealing with an authoritarian superpower that is both an economic rival and a lucrative market.

A large group in the European Parliament, which must ratify the agreement before it can enter into force, rejects the agreement on the grounds that it is not doing enough to stop human rights abuses in China. In addition, a top advisor to President-elect Joseph R. Biden Jr. has signaled that the new administration is not happy with the deal.

Chancellor Angela Merkel has made the agreement a priority because of its importance for German automobile manufacturers and other manufacturers with major activities in China. That year, China ousted the United States as the European Union’s largest trading partner with 480 billion euros or 590 billion US dollars in two-way trade by October.

The pact would relax many of the restrictions placed on European companies in China, including the requirement that they operate through joint ventures with Chinese partners and share sensitive technology.

The deal would also open China to European banks and contain provisions to cut secret government subsidies. Foreign companies often complain that the Chinese government is secretly subsidizing domestic companies to give them a competitive advantage.

The agreement will “significantly improve the competitive environment for European companies in China,” said Hildegard Müller, President of the German Association of the Auto Industry, in a statement before the announcement. “It will give new impetus to a global, rules-based framework for trade and investment.”

China’s leader Xi Jinping also made reaching the deal a priority and empowered negotiators to make enough concessions to persuade Europeans to move on.

European officials said a breakthrough came in mid-December when China made a significant concession to make a greater commitment to international standards on forced labor. China also agreed to step up its efforts to combat climate change.

European Commission President Ursula von der Leyen said the deal would “give European investors unprecedented access to the Chinese market so our companies can grow and create jobs”.

“It will also commit China to ambitious principles of sustainability, transparency and non-discrimination,” she said in a statement.

The announcement was preceded by a video call attended by Mr. Xi, Ms. von der Leyen, Ms. Merkel and President Emmanuel Macron of France.

The conclusion of the pact is a diplomatic victory for China, whose international standing has been marred by dealing with the coronavirus pandemic, the crackdown in Hong Kong, and the forced labor and mass internment of Uyghurs and other Muslims in the far west of Xinjiang.

These issues – and the caution of China’s pledges to genuinely open up to foreign investment – became the focus of opposition to the deal as the final details were clarified. For the Chinese, the agreement has shown that the country is not exposed to any diplomatic isolation worth mentioning when it comes to dealing with human rights.

But the deal could be a hard sell in Europe.

“Public opinion has been very disillusioned with the Chinese regime,” said Philippe Le Corre, a Harvard Kennedy School research fellow who persecutes Chinese investments in Europe over Hong Kong and the pandemic. “And now we have this deal, which is mainly supposed to please a handful of German multinationals.”

Economy & Economy

Updated

Dec. Dec. 23, 2020 at 8:59 p.m. ET

Opponents may be able to collect enough votes to block ratification in the European Parliament.

Reinhard Bütikofer, chairman of the German Greens and chairman of the European Parliament delegation for relations with China, said the agreement should include a stronger guarantee against the use of forced labor.

“I think the European Parliament will fight very hard for its position on this and several other issues,” he told Radio Deutschlandfunk on Wednesday.

China appeared eager to reach an agreement before Mr Biden took office in January. He reckoned that closer economic ties with the Europeans could prevent the new government from trying to develop an allied strategy to challenge China’s trade practices and other policies.

Speaking on Monday, Mr. Biden said the United States is “stronger and more effective on all issues that matter to US-China relations when we are flanked by nations who share our vision for the future of the world Share the world. ”

Right now, he said, there is “an enormous vacuum” in American leadership. “We need to regain the trust and confidence of a world that has begun to find ways to work around us or without us.”

The White House also opposed the deal, but had little leverage among Europeans to block it. The Trump administration has been trying to isolate China and its businesses for months. She announced new restrictions this week on those tied to the People’s Liberation Army, only to be rejected by countries that are still ready to engage the Chinese.

The decision by the Europeans to overlook objections from Camp Biden was an indication that relations with the United States will not automatically fall back on the relative bonhomie that prevailed during the Obama administration.

President Trump’s fondness for burning bridges with long-standing allies inspired Europe to largely ignore the United States in pursuing trade deals with countries like Japan, Vietnam and Australia. European diplomats said this week that while they hoped for a more cooperative relationship with the Biden administration, they could not subordinate their interests to the US election cycle.

The negotiators for China and the European Union had worked on an agreement for nearly seven years, but progress suddenly accelerated after Mr Biden defeated Mr Trump in the elections.

Unlike Mr Trump, who has often been hostile to Europe, Mr Biden is expected to try to work with the European Union to curb Chinese ambitions. However, it could take many months for these efforts to materialize.

Under US law, members of the new administration will not be allowed to negotiate directly with foreign officials until Mr Biden takes office on January 20. In an interview in early December, he said he planned a full review of trade relations with China and consulted allies in Asia and Europe to develop a coherent strategy before making changes to US trade terms.

“I will not take any immediate steps,” he said.

In the meantime, Mr Biden’s advisers have used public statements to warn European officials against rushing to act and to convince them of the benefits of waiting for coordination with the new American administration.

The decision of Mr. Biden to serve as National Security Advisor, Jake Sullivan, wrote on Twitter this month that the new administration would “welcome early consultations with our European partners about our shared concerns about China’s economic practices.”

Chinese officials have been pushing to keep the deal on track in recent weeks, especially after the opposition became public in Europe.

When talks stalled last week, the Chinese Ministry of Commerce said in a statement that the deal “would be of great importance to the recovery of the world economy.” It was said that both sides had to be ready to meet “halfway”, but that China would protect “its own security and development interests”.

Despite the provisions of the treaty on forced labor, Chinese officials have repeatedly denied that the country is practicing in Xinjiang or elsewhere, despite evidence to the contrary. The vehemence of these rejections raises questions about how China can be expected to comply with obligations to protect workers’ rights.

“The so-called forced labor in Xinjiang is an outright lie,” said a Foreign Ministry spokesman Wang Wenbin recently. “Those responsible for such despicable slander should be convicted and brought to justice.”

The European Chamber of Commerce in China welcomed the agreement with caution, saying it could face hurdles before the two countries ratify it. “A strong match would be a strong statement to show that constructive engagement can lead to results,” said Chamber President Jörg Wuttke in a statement.

Ana Swanson, Keith Bradsher and Monika Pronczuk contributed to the coverage.

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