The Chinese Communist party knows better than most organisations that the enemy of your enemy is, potentially, your friend. It even has a special unit, the United Front Work Department, dedicated to recruiting allies and isolating enemies around the world.
Over recent years, however, Beijing has managed to alienate a potentially valuable partner — the European business community — even as it was locked in a damaging trade war with the US.
Instead of finding common cause with the Europeans as he locked horns with China, US President Donald Trump angered them by launching trade wars across the Atlantic Ocean as readily as he did across the Pacific. That gave Beijing a golden opportunity to move quickly and wrap-up a high-quality trade agreement with Brussels, as EU trade negotiators have themselves done recently with Japan and South America’s largest economies.
But Sino-EU talks over a Comprehensive Agreement on Investment, or CAI, have dragged on for more than five years. The two sides are now hoping to finally conclude an agreement by the end of next year.
Even the mild-mannered engineers at the German Mechanical Engineering Industry Association are beginning to sound fed up. “More than 20 rounds of [CAI] negotiations have taken place without reaching significant results,” Thilo Brodtmann, the association’s executive director, said on a recent visit to Beijing. “China should take credible steps to create reciprocal market access.”
Similar disillusion can be discerned in the annual position papers issued by the EU Chamber of Commerce in China.
Initially there was much hope that the reform blueprint unveiled by the party’s Central Committee in November 2013, just one year after Xi Jinping assumed power, meant what it said when it promised to give the market a “decisive role” in allocating resources.
Instead, it would soon become clear that Mr Xi’s vision was one in which the party would exercise ever greater oversight over the economy and prioritise the development of “stronger, bigger and better” state-owned enterprises at the expense of private sector companies and foreign multinationals.
By 2016 Joerg Wuttke, head of the EU Chamber in Beijing, was speaking of the need for “reciprocity”. His member companies, he said, had to negotiate a “small, rocky pathway to China” while Chinese investors cruised along “an autobahn” to Europe, where they could make acquisitions and enjoy market access that their European competitors could not dream of in China.
In its most recent position paper, released last month, the EU Chamber has gone a step further. It said that Brussels now faces a “Sputnik moment” in its relations with Beijing and should, if necessary, make its common market less open to Chinese investment in certain areas.
Whereas before reciprocity was all about trying to force China, grudgingly if necessary, to move more in Europe’s direction, it is increasingly about using protectionist Chinese tactics to counter the competitive threats thrown up by Beijing’s unique model of “state capitalism”.
For example, EU-member countries and China have cabotage laws prohibiting foreign-flagged vessels from participating in domestic shipping. So a European shipping line with services operating out of multiple ports along China’s long coastline cannot move containers between its ships in Chinese waters. Such “relays” can only be done in relatively distant third countries, such as Japan or South Korea.
Chinese shipping lines, by contrast, benefit from the fact that the EU’s three largest ports — Rotterdam, Antwerp and Hamburg — are relatively close to each other but still located in different countries. This allows them to relay containers between ships much more efficiently.
“This puts European shipping companies at a disadvantage when competing against the Chinese shipping industry,” the EU Chamber noted in its position paper. In the absence of allowing European ships to relay cargoes in China, it added, the EU should consider “preventing non-EU flagged vessels from performing international relay” as “such a common EU approach could help leverage a resolution to this situation”.
The chamber is similarly frustrated with the obstacles European companies face in trying to participate in Chinese government tenders. So it suggests that Brussels should fight fire with fire in this area as well by limiting Chinese companies’ participation in EU tenders.
“Many European companies have all but given up on China’s government procurement market due to the unfair treatment they face,” the chamber said. “[The EU could] put pressure to reform its SOEs and public procurement system by potentially impacting the bids of [Chinese] national champions in EU public procurement tendering for as long as China delays its own reforms.”
Beijing officials have been disappointed by longstanding allies in the US business community who have been relatively cautious in their criticism of Mr Trump’s hawkish approach to China. If they are not careful, they may soon find themselves asking how they also managed to lose EU Inc.