Coordinating European China policy: harmonizing ‘West’ and ‘East’

The most pressing challenge for European China policy in times of political fragmentation concerns the growing wedge between West and East. No, not that West and East. It is the current divide between Western and Eastern Europe which policymakers have to bridge in order to reach a healthy and mutually beneficial EU-China relationship. The challenges facing European governments and EU institutions are all invariably linked to the countries grouped under the acronym CEE (Central and Eastern Europe). Since the EU accession of 7 states from this region in 2004 (followed by Romania and Bulgaria in 2007), the EU has been confronted by a set of existential questions which have not yet been properly addressed. Brexit underlined the possible danger of failing to bridge this West-East divide. Now that Beijing is eyeing the CEE region as a willing and useful ally to the advancement of its economic and political goals, European policymakers will have to align the interests of the region with those of Western European member states and prevent internal division from weakening the EU’s bargaining position with China.

LATVIA-CHINA-DIPLOMACY-TRADEChina’s interest in the CEE countries was reiterated during the 5th “16+1 summit” between CEE countries and China, held in Riga in November 2016. At the summit, China pledged to set up a €10 billion-sized investment fund to finance projects in the CEE region and aimed to raise a total of €50 billion in project finance among the 16 European countries. These financial commitments come amid growing concerns among Western European countries about Chinese investments on EU territory. Germany in particular has raised calls about restricting market penetration by Chinese companies in certain sectors, as criticism towards the current state of asymmetrical market access between China and EU countries has increased.

But criticism has been largely confined to Western European governments who are suffering the most from this unequal treatment. Chinese investment is different in those countries (aimed at acquiring strategic assets and research development networks) compared to CEE states (mainly infrastructure-based and focused on opening the market to Chinese commodities), causing the two regions to have divergent interests when dealing with Beijing. This hurts the EU’s bargaining position with China, in particular in negotiating the EU-China Bilateral Investment Agreement.

The EU should make great effort, therefore, to counter the appearance of internal division. Coordinating European China policy is a requisite to secure symmetrical market access with China. Western European policymakers will have to convince their Eastern European counterparts to ‘fall in line’. A daunting task, since support for market restrictive policies will make it harder for CEE states to attract much-needed Chinese investment. Any attempt at harmonization can only be successful if the wealthier Western European states stress the long-term benefits to the CEE region. The policy tools would help CEE governments protect their still maturing domestic industries from being overrun by cheap Chinese commodities. As an extra incentive, the EU should also direct considerably more funds to finance projects in the CEE region to decrease its dependency on Chinese money.

Since the majority of CEE countries are EU net beneficiaries, and given the rising anti-EU sentiments in Western Europe, it will be difficult for politicians to convince their citizens of this monetary stimulus. But strong leadership is needed to prevent a political fallout between West and East and a weakening of the continent. A healthy and mutually beneficial relationship with China will aid the EU in becoming stronger both economically and politically. Addressing the internal division and competing interests between Western and Eastern European member states is vital in order to achieve such a bilateral relationship.

(This essay was written as part of an application for the MERICS European China Program 2017)

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