On 30 th December, the European Union (EU) and China agreed to an investment deal. This deal, according to the EU would help redress the economic imbalance with China. Through this deal, the companies from the EU would get access to invest in China in the sectors such as air transport, telecom cloud services, electric cars and private hospitals. In turn, China would receive concessions in manufacturing and energy sector.
The timing of this deal is significant since for the EU, it comes on the heels of a deal with Brexit whereas for China this is the second major deal after the Regional Comprehensive Economic Partnership (RCEP) that came into force in November 2020.
The impact of this investment deal must also be considered from the angle outside of the EU.
What is in for the United States?
China’s investment deal with the EU coincides with the United States (US) President-Elect Joe Biden about to take office in January 2021. China’s outreach to the EU poses challenge for the US on multiple fronts.
First, this deal could add another chapter to the US-China rivalry. With the US and China engaged in economic and strategic competition, this development would further strain the relations between both the countries. Biden’s policy towards China is likely to be a continuation of Donald Trump’s policy. Biden has spoken about holding China accountable for its abuses on trade, technology, human rights and other fronts.
Second, the relations between the EU and the US had deteriorated during Trump’s tenure. Trump’s America First policy had caused a trade war between the EU and the US. Biden is expected to reverse the America First policy and rework the external engagements of the US.
With China’s proactive approach towards the EU, Biden may find it a difficult task to reset the US-EU relations.
Third, Biden’s attempt to revive the US’ participation in the EU through NATO may also find some resistance due to these developments.
Overall, the competition between the US and China will increase with both the countries attempting to gain strategic and economic space within the EU.
Does it affect India-EU relations?
The EU is India’s largest trade partner. In recent times India has been hinting towards entering into a preferential trade agreement with the EU if not a free trade agreement. During the COVID-19 pandemic the countries whose supply chains were located in China suffered.
India, in its summit with the EU as well as some EU countries, has proposed diversification of supply chains to reduce over dependence on one country. Because of the EU-China investment deal, India would have to compete more with China in order to drive home its point. This deal would also lead India to think about resetting its relations with the EU.
Although India and EU are stakeholders in each others’ economy, the former would still need to pursue EU in a more proactive manner.
India also needs to watch for another angle that may emerge in future with China increasing its stakes in the EU. Of late a number of the EU countries such as France, Germany and the Netherlands are showing keen interest in the geopolitics of the Indo-Pacific Region. These countries have shown inclination to be a stakeholder in the security and economy of the Indo-Pacific Region.
India, with its own increasing engagements in the region, had a positive outlook towards participation of the European countries since it could have given the region a multilateral character. Although the investment deal is in early stages, it remains to be seen how much influence China wields and if that would affect the EU countries’ participation in the Indo-Pacific Region.
Will the Turkey-angle play out between China and the EU?
It would also be important to consider if Turkey would feature anywhere in the growing proximity between the EU and China. The relations between the EU and Turkey remain strained due to Turkey’s assertive activities in the Eastern Mediterranean Sea which has even attracted the possibility of sanctions from the EU.
The Uighur factor could form a link between the EU, China and Turkey. China’s ill-treatment to the Uighurs of Xinjiang province has attracted attention and criticism from various countries and human rights groups. How the EU responds to this situation remains to be seen, especially after the deal. The investment deal also has commitment from China regarding not using forced labour. Whether China would honour it is not clear since it runs internment camps for the Uighurs. There could be a possibility of involvement of this ethnic group as forced labour to assist low cost production. Another issue is that of extradition of the Uighurs who have escaped to Turkey. Until now Turkey has been extraditing the Uighurs, who had sought refuge in Turkey, through a third country. Now China is seeking an extradition treaty that would enable Turkey to repatriate the Uighurs directly to China.
For a long time, Turkey has been attempting to become a member of the European Union. At present, Turkey’s economy and currency are facing crisis situation. There is a possibility that Turkey might use China’s clout to improve its relations with the EU.
The EU-China investment deal is a major development for both the entities. It could shape the economic and strategic priorities of the EU within and outside of the region. On the other hand China’s rising influence would continue to be a challenge for the US, India and China’s various competitors and adversaries.
Views expressed above are the author’s own.
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