Thursday

30th Jun 2022

Opinion

Why the China-EU summit must succeed

  • Chinese premier Li Keqiang (L) is expected to announce investment in European infrastructure at this week's summit (Photo: European Commission)

The annual China-EU summit is a great opportunity for Beijing and Brussels to align complementary investment agendas. Failure is not an option.

The annual EU-China summit will take place in Beijing in mid-week (12-13 July). The high stakes are reflected by high-level participation, which includes the European Council president Donald Tusk, European Commission president Jean-Claude Juncker and Federica Mogherini, the EU high representative for foreign affairs and security policy.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The summit will be followed by another with G20 finance ministers and central bankers in Chengdu, Sichuan province.

After the Brexit vote, positive results are vital to both Brussels and Beijing. Success would also contribute to brighter global prospects.

The timing is opportune. The summit follows last weekend’s G20 meeting in Shanghai where trade ministers representing the world’s largest economies agreed to trim global trade costs by 15%, to establish a new coordinated global investment policy, to ratify the World Trade Organisation's (WTO) trade facilitation agreement by the year-end and to extend a pledge to cut trade protectionism.

In the past half a decade, the plunge of the world trade has been painful to Europe’s open trading economies – particularly after the UK Brexit referendum.

Need for complementary investments

Today, China is the EU’s second-largest trading partner and one of the biggest markets for the 28-member bloc. Last March, the dispute over China’s MES divided European countries and industries.

According to Luxembourg’s finance minister Pierre Gramegna, China’s huge “One Belt, One Road” (OBOR) initiative to deepen economic links from South East Asia and the Middle East to Europe will be high on the EU-China summit’s agenda.

Beijing is said to be very interested in looking into infrastructure investment in the EU and to eventually participate in the same way that many EU members have joined the Asian Infrastructure Investment Bank (AIIB).

More importantly, following the EU’s MES decision and the UK referendum, the world looks very different today, thanks to extraordinary economic uncertainty, market volatility and political risk. Financially, Brexit shock has boosted safe havens, including the US dollar and Japanese yen, just as it has penalised riskier equities, the British pound and euro.

But much more is still ahead. As risk-averse investors are increasingly cautious with capital, Europe may have to cope with recessionary headwinds, increasing political division and ever more volatile markets.

Time is running out

Only a week ago, the International Monetary Fund (IMF), which is not known for superlatives, gave a bottom line warning to Brussels. The euro area is at the crossroads and there is no time for complacency.

Despite recovery, the region’s medium-term outlook is weak, if not bleak.

In the current status quo, the kind of muddling through that has been the rule in the past half decade is no longer an option. The UK has navigated itself into economic uncertainty. In France, reforms linger amid popular opposition. In Italy, a banking crisis could pave way for the next euro shock - Rome’s constitutional referendum over Italexit.

In such circumstances, Spain’s expansion would splutter, while Germany’s growth deceleration would materialise faster than expected.

After Brexit, likely spillover channels (trade, investment and financial linkages) will virtually ensure that Ireland, Luxembourg, the Netherlands – Europe’s traditionally open, free-trade economies – will be most exposed to the UK contagions.

In contrast, Russia and Eastern Europe, along with France would be least affected by adverse spillovers. Further integration cries for collective action within Europe and accelerated cooperation with investment partners.

In contrast, China is significantly less exposed to the Brexit. As Beijing has only begun critical financial reforms, it is not as vulnerable to British portfolio flows or bank claims as the US, except through Hong Kong.

Nevertheless, Brexit pressures have potential to amplify discouraging trends in world trade and investment. World export volumes have been falling for half a decade. Foreign direct investment (FDI) has been stronger but it is not immune to new headwinds and remains behind the pre-financial crisis high.

Higher stakes, new opportunities

In light of the Brexit, US election risks, immigrant turmoil, geopolitical threats and global economic downgrades, the EU-China summit offers a high-level opportunity to reassess challenging issues, including the post-Brexit review of joint economic goals, Europe’s need for investment capital, China’s OBOR initiatives and new development banks (AIIB, NDB), and Beijing’s quest for market economy status within the WTO.

New crises mean new opportunities. The UK’s actual exit from the EU could reduce China’s strategic benefits from deepening economic ties between London and Beijing, but it would elevate stakes and opportunities in China-EU cooperation.

A post-Brexit UK remains important to China, but not as vital as a non-Brexit UK. A pre-Brexit EU is important to China, but a post-Brexit EU is critical. In an increasingly uncertain global economy, deeper cooperation between a recovering Europe, despite its medium-term challenges, and growing China, despite its medium-term deceleration, would pave way to greater certainty, lower volatility and lesser risk.

Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore).

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

EU envisages China free-trade pact

In a new five-year strategy, the EU executive aims to attract Chinese investment to Europe and to agree a free-trade agreement under conditions.

EUobserved

The EU and China's velvet power

China is pushing its influence through the New Silk Road project and wooing of world media.

Leaders shy away from China market status debate

Leaders are sitting down for the EU-China summit, but the crucial issue of China's market economy status will not be discussed officially. It still dominates industry's thinking on the relationship.

Stakeholder

The South China Sea Arbitration: Illegal, Illegitimate and Invalid

China hopes the EU will respect China's sovereignty and territorial integrity and play a constructive role in the resolution of the South China Sea disputes through bilateral negotiations rather than arbitration, says the Chinese Ambassador to the EU.

The euro — who's next?

Bulgaria's target date for joining the eurozone, 1 January 2024, seems elusive. The collapse of Kiril Petkov's government, likely fresh elections, with populists trying to score cheap points against the 'diktat of the eurocrats', might well delay accession.

Column

China's support for Russia challenges Europe's Peace Order

China's soft support to Russia is deeply troubling for Europe. Here is the EU's biggest trading partner signalling that it is on the side of Russia, its aggression, and its challenge to the post-war international order.

Sturgeon's 2023 'referendum' gamble for Scotland

The independence campaign launch featured a new Scottish government report, comparing the UK's economic and social record with those of other European states — and arguing, unsurprisingly, that Scotland should be independent as a result.

News in Brief

  1. New president for European Committee of the Regions
  2. Gas flows from Spain to Morocco, after Western Sahara row
  3. BioNTech, Pfizer test 'universal' coronavirus vaccine
  4. UK sanctions second-richest Russian businessman
  5. Hungary permits emergency supervision of energy firms
  6. Bulgaria expels 70 alleged Russian spies
  7. EU Commission told to improve CAP data analytics
  8. Scotland pushes for second independence vote in 2023

Stakeholders' Highlights

  1. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  2. Council of the EUEU: new rules on corporate sustainability reporting
  3. Nordic Council of MinistersNordic ministers for culture: Protect Ukraine’s cultural heritage!
  4. Reuters InstituteDigital News Report 2022
  5. EFBWW – EFBH – FETBBHow price increases affect construction workers
  6. Nordic Council of MinistersNew Nordic think tank examines influence of tech giants

Latest News

  1. Nato expands and reinforces on Russian flank
  2. EU Commission says it cannot find messages with Pfizer CEO
  3. EU ministers sign off on climate laws amid German infighting
  4. EU presidency still looking for asylum relocation pledges
  5. Finland and Sweden to join Nato, as Erdoğan drops veto
  6. The euro — who's next?
  7. One rubicon after another
  8. Green crime-fighting boss urgently required, key MEP says

Join EUobserver

Support quality EU news

Join us