Who We Are Services EXPERTISE Locations INTEREL GLOBAL PARTNERSHIP Insights Contact Us

A tougher ‘New Normal’ for European-China relations?

Despite declining sentiment towards China among European publics, until a few weeks ago, China’s relations with most European states were, if not cordial, certainly moderate in comparison with Sino-U.S. relations.

On December 30, 2020, Chinese and European Union officials announced a breakthrough to terms on the ‘Comprehensive Agreement on Investment’, concluding over seven years of negotiations.

This announcement followed last-minute compromises from Chinese negotiators, agreeing to EU demands to include labour standards in the agreement.

European companies and business leaders commended the agreement as a positive step forward. However, others criticised it, including opposition from NGOs, some Members of the European Parliament (MEPs) – who would have to ratify the deal – and the (then) U.S. President-elect Biden’s team. Although the agreement was undoubtedly controversial, MEPs were expected to approve it without serious opposition.

As a result, many observers saw the agreement as a ‘win’ for Chinese diplomacy, introducing a small but significant ‘wedge’ between the U.S. and EU.

Similarly, although the UK government had clashed with China over Hong Kong, London had maintained a supportive policy towards trade engagement and avoided unduly irritating Beijing. This stance included facing down repeated attempts from within the governing Conservatives’ own Party that would have given British courts the powers to determine whether countries were guilty of genocide.

However, diplomatic relations between Europe and China took a major downward shift towards the end of March after the EU joined the UK, US, and Canada to issue a package of sanctions against countries it accused of ‘serious human rights violations’. These sanctions included North Korea, Libya, Russia, South Sudan, Eritrea and, for the first time, China. The measures against China targeted four Chinese officials and one state-sponsored company they accused of being involved with human rights violations in China’s Xinjiang region.

To many observers, this should not have been too much of a surprise: concern over labour rights in Xinjiang had been rising in Europe, while MEPs were closely aware of how labour standards (but not human rights) were now a formal part of the CAI deal.

However, the EU sanctions prompted a response from the Chinese government that promptly counter-sanctioned five MEPs, three national-level EU politicians, and four entities, including the Political and Security Committee (part of the Council of the EU: the ‘Council of Ministers’).

This reaction caused uproar in the European Parliament, with many MEPs sharply criticising both the sanctions and the agreement itself. The Parliament shelved plans to continue discussions with China over CAI ratification, while the  Parliament’s powerful Committee on International Trade chair, Bernd Lange MEP, commented that it was ‘perfectly plain that the agreement would ‘stay on ice – and for quite a long time at that’. His political group was even sharper, announcing ‘We will not be intimidated, we will not be silenced! … The lifting of sanctions against MEPs is a precondition for us to enter into investment talks.’ One other group announced that ratification of the CAI agreement was now ‘unthinkable’ while sanctions were in place.

Previous advocates of the CAI deal and engagement with China now appeared weak, while the Biden administration may have been secretly delighted, able to say the diplomatic equivalent of ‘I told you so’ to their EU counterparts.

Other commentators noted how the Chinese sanctions appeared at best poorly thought through or possibly even deliberately escalatory. The sanctions targeted MEPs – political representatives – rather than civil servants, as the European sanctions did. The Chinese sanctions also seemed designed to target a broad range of major party groupings and representatives from member states rather than targeted at specific ones.

To make matters worse, the clash prompted Chinese audiences to examine Western companies’ sourcing of Xinjiang-made materials, especially cotton. The Communist Youth League of China denounced several Western brands – most notably Sweden based H&M – which had announced in 2020 (to no effect) that they had stopped sourcing products with Xinjiang-made cotton, leading to the rapid withdrawal of H&M products from stores across China.

This sudden collapse in H&M’s market worried businesses, who could see themselves caught between contradictory requirements from consumers in the West and China, with the risk that their carefully established business operations could disintegrate in days. H&M’s debacle has raised the ire of more business-friendly (and also often China-friendly) European politicians, not to mention many Swedish representatives, seeing it as a deliberate action by the Chinese government.

In the UK, sanctions on MPs significantly raised the status of those concerned, elevating some from obscure political critics of China to political ‘martyrs’, who could then overtly wear their new political status as a ‘badge of honour’ reinforcing their credibility and attracting publicity.

As with the European Parliament, the British Parliament also responded severely to sanctions and voted, on April 22, joined legislatures in the U.S., Canada and the Netherlands in voting to accuse the Chinese government of committing genocide against the Uighur minority group.

 

What caused this political clash?

China’s diplomatic posture has been becoming more assertive over the last year, criticised by some Western observers as ‘Wolf Warrior’ diplomacy. With China’s economic rise, not to mention their successful approach to managing Covid, Chinese leaders – especially Xi – are growing in confidence vis-à-vis the West, seeing China now as at least the equal of the US or the EU. Under this new direction, Chinese officials are even less inclined to take lessons from the West regarding their system of government. In the past, such criticism prompted a retort, but responses are growing in correlation with China’s perceived strength.

Furthermore, relative to Western states, Chinese foreign policy is heavily influenced by domestic issues. This instance illustrates how Chinese officials are driving a more forthright approach to international criticism, bolstering the government (and the Party’s) image, as well as promoting their own career prospects.

The blanket response to the EU sanctions from China indicates a quick and poorly thought-through plan that maximised rather than minimised reputational fallout in Europe.

The Chinese response appeared disproportionate to European eyes, imperilling the long-negotiated CAI treaty that had achieved a significant diplomatic victory for China. From an international perspective, Chinese diplomacy has driven the Europeans a step towards the new Biden administration with his new – but still confrontational – approach to China, while galvanising opposition to economic engagement.

In short, Chinese diplomats were caught wrong-footed and followed a new political direction from Beijing, while the Communist Youth League may have simply ‘joined the fray’ in identifying a wayward Western company, rather than being a tool to apply pressure.

Ultimately, Chinese relations with the West has suffered, opposition to China bolstered, and confidence among consumer brands slightly rattled. However, the Chinese government has gained domestic credibility by ‘standing up’ to the West and establishing a ‘new normal’ bar versus criticism.

 

What does this mean for business?

This episode heralds growing tensions between China and Europe, with policymakers becoming increasingly polarised. European governments will become increasingly willing to join the U.S. in challenging China on sensitive issues, while China is increasingly unwilling to accept this criticism lightly.

Western brands will need to run a difficult tightrope between the demands of Western and Chinese consumers. This will require ever more careful communication and positioning with audiences around the world.