In this Issue
1. The Comprehensive Agreement on Investment (CAI): More than just Trade and Investment
2. Transatlantic Cooperation on China: Not an Easy Restart
3. U.S.-China Relations: Transitioning to a New Approach on China?
4. China's Rise and Ambitions: Is Beijing Its Own Greatest Adversary?
5. Economic and Technological Competition: Confronting Chinese State Capitalism and Techno-Nationalism
In short: The full, but not yet final, text of the EU-China Comprehensive Agreement on Investment (CAI) has been published.
On January 22, 2021 the European Commission published the text of the EU-China Investment Agreement following the agreement “in principle announced” on December 30, 2020. According to the Commission, “the text was published for information purposes only and may undergo further modifications as a result of the process of legal and technical revision, including of the final structure (such as umbering, sequencing, or titles of articles, or any duplication). However, in view of the growing public interest in the negotiations, the text is published at this stage of the negotiations for information purposes. This text is without prejudice to the final outcome of the agreement between the EU and China. The text will be final upon signature. The agreement will become binding on the Parties under international law only after completion by each Party of its internal legal procedures necessary for the entry into force of the Agreement.” Critical appendices, which are still missing, shall be added in February.
In short: Overall, the EU-China CAI has been oversold and underpowered.
This policy paper, written by François Godement, Senior Advisor for Asia to Institut Montaigne, is one of the best analyses of the CAI, looking in detail at the actual content of the deal. The paper attempts to assess wins and losses for both sides. It concludes that the CAI has been oversold by Europe. No doubt, the agreement secures a number of wins for the EU. First and foremost, it is the number of Chinese concessions in terms of investment liberalization. Moreover, the deal re-establishes Europe as a negotiating partner in its own right, with its own mechanisms of leverage − a role that had begun to slip off its grip in recent years. For China, three gains are particularly important: obtaining Europe’s political endorsement against “decoupling”; driving a wedge in the transatlantic partnership on China policy, even if it may be short-term; and gaining further leeway to “get away” with its non-committal attitude towards enforcing environmental and labor ethics standards. As the author emphasizes: “Indeed, a crucial sticking point of this agreement is its lack of enforcement capacity on a number of commitments on China’s part, such as the ones to ratify international conventions on forced labor.” Therefore, it remains to be seen whether the CAI will obtain ratification from the EU Parliament. Finally, a key part of the CAI is still missing from the text published on January 22: most of the Annexes, which should actually list the sectors that are open to investment and make eventual reservations and exclusions.
In short: Why the CAI is a gift to the Chinese Communist Party.
After seven years of negotiations the EU-China Comprehensive Agreement on Investment (CAI) looks to be the best gift the EU could give to China or more accurately speaking the Chinese Communist Party (CCP), write Valbona Zeneli and Joseph Vann of the George C. Marshall European Center for Security Studies. There are simply too many examples of the CCP’s flaunting the rules-based international order to ignore or explain away. More importantly, these transgressions have occurred while the CAI was being negotiated. This begs the question of whether the EU proponents of the CAI are being naïve and mirror imaging EU values onto the CCP with the hope that they will come around. Essentially, this rewards the CCP and encourages its bad behavior. “If ratified, then the CAI will be a de facto recognition that it is acceptable to conduct a wide range of business activity with a totalitarian communist government that has proven itself capable of violating human rights with exacting precision and no apology.”
In short: Trade with China should align with the EU’s long-term strategic and democratic interests, not just those related to business.
In the CAI, the EU sees mostly a business deal, while China sees mostly a strategic win that isolates the United States, argues Didi Kirsten Tatlow, Senior Fellow in the DGAP Asia Program, in this commentary. Two days after the deal was agreed “in principle”, China defined “defending development interests” as a casus belli, highlighting the risks of ever-deepening economic interconnectedness. Therefore, the European Parliament should reject the CAI deal. Instead, the EU’s trade with China should be recalibrated together with the U.S. and other allies, thus creating a broader coalition of democracies to manage the China challenge moving forward. Moreover, trade with China should align with the EU’s long-term strategic and democratic interests, not just those related to business.
In short: More than a hundred international experts are demanding a suspension of the CAI.
More than 100 renowned China experts, researchers and human-rights activists across the globe are calling for a suspension of the EU-China Comprehensive Agreement on Investment (CAI), the magazine DER SPIEGEL reported. "Despite evidence of ethnic cleansing, forced labor, and other gross human rights violations, the leadership of the European institutions have chosen to sign an agreement which exacts no meaningful commitments from the Chinese government to guarantee an end to crimes against humanity or slavery," reads the open letter to EU institutions, which was provided to the magazine prior to publication. The deal is "based on a naïve set of assumptions about the character of the Chinese Communist Party," the letter reads, and "entrenches Europe's existing strategic dependency on China and runs counter to Europe's core values." The signatories are calling on the European Union "to immediately withdraw from the China-European Union Comprehensive Agreement on Investment" and to place any further negotiations on hold until "substantial and verifiable" progress has been made on the human rights situation in the country.
2. Transatlantic Cooperation on China: Not an Easy Restart
In short: The mere prospect of a strengthened EU-US alliance forced Beijing to make concessions to Brussels – a lesson on the power of global coalition-building that Europe failed to take on.
For Andrew Small, Andrew Small, Associate Senior Policy Fellow at ECFR, the CAI looks less like an act of strategic autonomy and more like a form of free riding. In his view the EU took advantage of the nascent sense of collective pressure that Beijing was facing, and China’s eagerness to undercut the new US administration’s coalition-building efforts, to secure a bilateral deal at the first opportunity. Having concluded the CAI, there is good reason now to concentrate efforts on sharpening the competitive and rivalrous elements of the relationship. “The CAI was certainly a damaging moment. But it will be even more harmful if the issue is allowed to dominate a critical year in determining what European China policy will look like in the post-Merkel era, and the critical coalition-building work that Europe itself still needs.”
In short: Going forward, the EU and the United States should leverage their combined strength to shape the international environment.
When it comes to China, although the EU and the U.S. see eye to eye on many fundamental issues, common policy responses have been slow and difficult to materialize. The recent episode of the EU forging ahead unilaterally with an EU-China investment agreement is just one example of this. To coordinate effectively, Brussels and Washington will need to reconcile expectations of what the transatlantic relationship can accomplish with the realities on the ground, argue Lizza Bomassi, Deputy Director of Carnegie Europe, and Paul Haenle, Maurice R. Greenberg Director’s Chair at the Carnegie–Tsinghua Center at Tsinghua University in their chapter to the report “Working With the Biden Administration: Opportunities for the EU” edited by Rosa Balfour. While Washington and Brussels share fundamental views on climate change, trade, global governance, coordination on other policy issues, like technology and defense policy, will require more thorough consensus building.
In short: Thirteen concrete proposals and recommendations for a transatlantic agenda.
What can the Biden administration do right now to reset transatlantic relations? GMF experts provide eight quick-start initiatives on economics and transatlantic security issues, and five recommendations for a democracy and tech agenda that could lay the foundation for Biden’s planned Summit for Democracy. These recommendations include to “build on the proposed Transatlantic Trade and Technology Council to develop with Europe a joint approach to China on economic issues, including forced technology transfers, intellectual property theft, and unfair industrial subsidies. The council should be led at the vice-presidential level and should endorse the idea of a working group of the U.S. Congress and European Parliament on China ahead of final ratification of the new EU-China CAI agreement.”
3. U.S.-China Relations: Transitioning to a New Approach on China?
In short: The Biden administration may have more room for innovation in its China policy than many believe.
Although the Trump administration has tried to intentionally handcuff its successors, the Biden administration has substantial flexibility to reshape America’s China policy. Systematically working through this complex inheritance is the necessary first step to going beyond mere tinkering and reactive management, argues Scott Kennedy, senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in this commentary. There is a large legacy of issues to resolve, but the administration should take its time to consider each individual policy, how they relate to each other, and how retaining, modifying, or jettisoning these measures would dovetail with their own novel initiatives and the broader transition to a distinctive Biden administration approach to China and the world more generally. Hence, the new team would be wise to follow the advice of legendary UCLA basketball coach John Wooden: “Be quick, but don’t hurry.”
In short: “Stable competition” should be the defining feature of U.S.-China relations under the Biden Administration.
The U.S. and China should be able to compete stably, Kurt Campbell, the Indo-Pacific coordinator of President Joe Biden’s National Security Council, points out in this summary of a speech at a China Development Forum event on November 13, 2020. He also emphasized the need to rebuild the bilateral institutions and to create new mechanisms that help support advancing the interests of the two countries. Most importantly, he stressed the need to establish conflict solving mechanisms for times of crises: “I very much agree with what we’ve heard that the United States and China need to focus on mechanisms that can prevent and deal with unintended crises or escalation alike when I was at the Pentagon and other parts of the State Department, we worked on these efforts. They’ve been very difficult. We’ve made very little progress. Ironically, for two such advanced countries, we have very few guardrails in a system that could prevent a problem should we face a crisis. I believe that it will be critically important.”
In short: For the U.S., China is a partner, competitor, and challenger all at the same time.
The Trump administration had an incoherent and inconsistent policy toward China that failed to deliver on its promises. An alternative response to the China challenge would require taking four critical steps, argue David Dollar and Ryan Hass of the John L. Thornton China Center at Brookings: First, the U.S. must strengthen its own economy through reforms and investments. Second, Washington should work with allies in Asia and Europe to push China to continue opening its economy and developing 21st century rules for new aspects of trade. Third, the U.S. needs to counter China’s assertiveness with its neighbors through a strong military presence and call out China for its undermining and violations of international rules and norms. Fourth, the U.S. needs to work with China on issues where there is common interest, especially on climate change, global public health, support to poor countries, and nuclear nonproliferation. “What makes the relationship especially complicated is the need to work closely with China on some issues while countering it in other domains. For the United States, China is a partner, competitor, and challenger all at the same time.”
In short: The Biden administration is likely to focus more on competition and even confrontation with China than on cooperation.
The new U.S. government under President Joe Biden is likely to adopt a significantly different approach to China than the Trump administration did, writes Matt Ferchen, Head of Global China Research at MERICS, in this report. He finds early indicators in the administration’s first statements and actions for a new approach in economic relations, pandemic & climate change challenges, regional rivalry, and cooperation with allies. Europe will find many opportunities to partner with the Biden administration on shared concerns about China’s economic and human rights behavior, and also to cooperate with both on global health and climate concerns. Yet, the United States will likely focus more on competition and even confrontation with China than a Europe that emphasizes a mix of competition, partnership and rivalry.
4. China's Rise and Ambitions: Is Beijing Its Own Greatest Adversary?
In short: Chinese authoritarianism threatens to limit Beijing’s ability to create a plausible new form of global order.
Chinese power today is a protean, dynamic force formed by the nexus of authoritarianism, consumerism, global ambitions, and technology, writes Rana Mitter, Professor of the History and Politics of Modern China at the University of Oxford in this article. The Chinese Communist Party (CCP) wants to firm up its grip on Chinese society, encourage consumerism at home and abroad, expand its global influence, and develop and export China’s own advanced technology. The major obstacle to China’s rise on the international stage is not U.S. hostility or internal foes. Rather, it is the authoritarian strand of the CCP’s core identity. That authoritarianism and at times confrontational expansionism has the effect of tarnishing the other components of China’s model − the emphasis on consumerism and improvements in material lifestyles, the flawed but sincere commitment to global development and poverty reduction, and China’s truly astonishing capacity for technological innovation.
In short: China's expanding efforts to shape global narratives undermine democratic norms.
This report, authored by Sarah Cook, research director for China, Hong Kong, and Taiwan at Freedom House, describes the Chinese Communist Party’s (CCP) sharp power efforts to shape media content around the world. It also documents how nongovernmental actors contribute to a growing accumulation of activities aimed at countering Beijing’s media influence while protecting democratic institutions. Leveraging propaganda, disinformation, censorship, and influence over key nodes in the information flow, Beijing’s expanding efforts to shape global narratives go beyond simply “telling China’s story”. Their sharper edge undermines democratic norms, erodes national sovereignty, weakens the financial sustainability of independent media, and violates local laws. “It is imperative that anyone engaged in the media space − be they journalists, regulators, technology firms, press freedom groups, or even news consumers − acknowledge the influence exerted by China’s authoritarian regime on the news and information circulating in their print publications, radio broadcasts, television programs, and social media feeds.” The report is part of the Sharp Power and Democratic Resilience Series.
In short: China conducts the most sophisticated, global, and comprehensive campaign of transnational repression in the world.
Efforts by the Chinese Communist Party (CCP) to pressure and control the overseas population of Chinese and members of minority communities are marked by three distinctive characteristics, according to this special Freedom House report: First, the campaign targets many groups, including multiple ethnic and religious minorities, political dissidents, human rights activists, journalists, and former insiders accused of corruption. Second, it spans the full spectrum of tactics: from direct attacks like renditions, to co-opting other countries to detain and render exiles, to mobility controls, to threats from a distance like digital threats, spyware, and coercion by proxy. Third, the sheer breadth and global scale of the campaign is unparalleled. Freedom House’s conservative catalogue of direct, physical attacks since 2014 covers 214 cases originating from China, far more than any other country.
In short: What to expect from the Chinese Communist Party (CCP) in 2021?
This paper looks at the main challenges and priorities of the Chinese Communist Party (CCP) for the coming year, and the main challenges the CCP poses to other countries.
Written by Charles Parton, Senior Associate Fellow of the Royal United Services Institute, it is based on a close reading of the 5th Plenum Communique among other documents. In the author's view, one of the CCP’s main pre-occupations for 2021 is to prevent the new U.S. administration from building consensus amongst liberal minded democracies in defense of national security, interests and values. To this end the tactic of dangling economic carrots while holding a big stick will be to the fore in the case of the smaller nations. For the U.S., the CCP may wait to see how President Biden shapes policy. Meanwhile China’s successful ‘divide and rule’ will continue to be applied to the EU.
In short: Military options and the display of power to alter the status quo are a part of China’s regional strategies.
This issue of China Trends sheds light on the links between military power and Chinese behavior in its region. China is investing enormous amounts of budget and political capital to build a "world-class military" by 2050 - a goal outlined by Xi Jinping in his work report to the 19th Party Congress in 2017, and a testimony of its ambitions for China on the world stage.
Military power is first and foremost a tool of foreign policy. Greater capabilities provide the Chinese leadership with options to secure favorable outcomes during crises, in line with Chinese national interests. The policy paper cover three themes: China’s amphibious capabilities building in the context of the Taiwan Strait, the border clashes with India in the Himalayas, and the current status of defense cooperation with Russia. It concludes that China’s pattern of behavior in the South and East China Seas, in the Taiwan Strait and at the border with India provides ample evidence that coercion, fait accompli and the display of power to alter the status quo are an entire part of China’s regional playbook.
5. Economic and Technological Competition:Confronting Chinese State Capitalism and Techno-Nationalism
In short: Competing with China’s state capitalist system requires immediate action and a long-term strategy.
One of the most pressing challenges the Biden administration is facing is how to compete with China’s increasingly powerful and disruptive state capitalist system, which not only threatens U.S. economic and strategic interests, but also undermines the regulatory and legal architecture that underpins the global economy. Against this backdrop, Jude Blanchette, Freeman Chair in China Studies at the CSIS, argues that the Biden administration should make efforts to demand more transparency into the ownership structure and political connections of Chinese firms seeking to invest in the U.S. In addition, it should continue to build and expand the capacity of government agencies and the intelligence community to monitor and track the sprawling network of Chinese firms. Any long-term strategy for successfully competing against Chinese state capitalism, however, must include significant investments in America’s own domestic infrastructure, educational system, health care, and governance capacity. “Absent a deep and enduring commitment to rebuilding internal competitiveness, as well as creating an economic system that is vastly more inclusive, the United States can only tread water while China continues to march toward the future.”
In short: China’s technological nationalism is a reality that can’t be ignored any longer.
The U.S. and its partners face an emerging world of technology which is increasingly divided between rival technology spheres of information and communications technology. One ecosystem, dominated by China, features Chinese firms that are either implicitly or explicitly controlled by the state, creating technology for both a protected domestic market and for international export. On the other side is a more amorphous technology environment. It stretches across the OECD and Development countries and is dominated largely by Western equivalents (with some limited Chinese penetration). In these entirely different technology ecosystems, the U.S. and its allies need to protect their innovation base from China and cannot blindly allow their technological advantage to be acquired by China’s state-owned enterprises and “national champions”, argues James Mulvenon, director of intelligence integration at SOS International, in this commentary. He suggests a range of concrete measures to cope with China’s techno-nationalism. The bottom line of his argumentation is that “long-term competition with China is here to stay and the best defense is a good offense”.
In short: A complete decoupling of the U.S. and China is neither feasible nor beneficial to American interests.
Not long ago, comprehensive decoupling of the U.S. and Chinese economies was considered a possible approach to advancing U.S. interests. But analysis of the connectedness − not only between U.S. and Chinese economies but of each economy with the rest of the world − relegated such a sweeping proposal to the back burner. The CSIS project “Degrees of Separation” starts from the premise that wholesale decoupling of the United States and China is neither feasible nor beneficial to advancing U.S. interests. But it also acknowledges the many areas of tension in the relationship and the failure of past bilateral engagement to adequately address these tensions, thereby requiring a different approach. This interim report reviews the evolution of the U.S.-China relationship since President Nixon’s visit to China in February 1972 and the subsequent normalization of relations starting in January 1979. It takes stock of the current bilateral economic relationship, with particular focus on trade, investment, and innovation linkages, finding the two economies more interconnected now than in the past. The report authored by Stephanie Segal and Dylan Gerstel of the Economics Program at the CSIS, identifies six distinct areas that motivated U.S.-China engagement from 1972 through the end of the Trump administration: (1) geostrategy; (2) economics; (3) human rights and civil society; (4) global rules and norms; (5) global public goods; and (6) technology and innovation. While specific objectives in each area continue to evolve, these six areas remain relevant to guiding bilateral engagement today.
In short: Whoever has control of industrial norms for telecommunications, electricity transmission and artificial intelligence is in a position to dominate.
Industrial standards, created by the U.S. and its allies over decades, form an invisible matrix of rules that underpin the global marketplace. Mundane though it may sound, this uniformity is critical to international trade in how it guarantees that bolts, USB plugs and shipping containers can all be used interchangeably world-wide. The standards reflect the consensus of international panels long dominated by Western technical experts. China now wants to take the lead in fields of the future, the WTJ reports. To the consternation of many Western countries, Beijing is employing state funding and political influence to try to define the norms for all manner of cutting-edge technologies that span telecommunications, electricity transmission and artificial intelligence. China’s efforts are driven by the desire to outdo the West, as well as amass profits. Standards based on patented technologies often require users to pay licensing fees. Nokia Corp. and Qualcomm Inc., for instance, earn billions of dollars annually from patents that underpin cellphone systems made by rivals. China would rather earn that kind of money by designing standards to match technologies developed by its own companies.
In short: Why technical standards are becoming a major battlefield of geo-economic rivalry with China.
Technical standards, which have long been treated as non-political product specifications, are becoming the subject of power rivalry. This is the result of: (a) broader competition between China and the United States over key enabling technologies; (b) a more state-directed approach to technical standards in China; and (c) the often-overlooked power potential inherent in technical standards. Technical standardization’s transformation into an arena for power competition has challenged the European Union (EU), which has traditionally punched above its economic weight and held and still holds enormous influence over international technical standards. In this paper Tim Rühlig, Research Fellow at The Swedish Institute of International Affairs (UI), unpacks the growing power rivalry over technical standards, develops a concept of “technical standardization power” and explains how China has successfully utilized its party-state-permeated economy to increase its technical standardization power. Finally, it summarizes the implications for the EU, outlines a number of scenarios and makes recommendations for Europe.