China acts fast to stymie Biden trade alliance with Europe

Within the past fortnight, China has taken two steps that undermine the ability of the incoming Biden administration to build a western alliance to contain China’s growing and increasingly aggressive global assertiveness.

On the final day of 2020, China signed an investment pact with the European Union despite pleas from Biden advisers to hold off until the new administration had an opportunity to talk through the common concerns of the US and Europe about China’s economic policies and practices.

Then, at the weekend, China announced a response to the myriad of sanctions the Trump administration has imposed on its companies and individuals, unveiling a new set of rules that purport to counter foreign laws that "unjustly prohibit or restrict" Chinese companies or individuals from undertaking their normal business.

President Xi Jinping’s government has moved to undermine Joe Biden’s chances of building a western alliance.Credit:Getty Images

Chinese companies or individuals suffering losses because of foreign sanctions, or a third party’s compliance with those sanctions, will be able to sue for damages in China’s courts.

For foreign companies with big operations or sales in China, that would create an enormous dilemma of whether to comply with the US sanctions and risk punishing damages, or obey the Chinese rules and risk US-imposed penalties.

While US companies are unlikely to risk breaching the sanctions – which leaves them exposed to the risk of court-ordered compensation in China – the rules will also cause angst for companies from other jurisdictions. If a European or Australian company, for instance, were to comply with the US sanctions, they would risk being sued in courts that answer to the PRC.

The new rules are vague, probably deliberately so, to create uncertainty and cause companies to think more deeply about compliance with the US sanctions.

The Biden administration will have to move early and aggressively if it wants to convince the Europeans to tear it up and develop a trans-Atlantic approach to dealing with China.

They are seen not just as an attempt to deter the outgoing Trump administration from further action (there have been a raft of new anti-China measures announced in the dying days of the administration) but as a shot across the bows for the Biden administration.

They may also be part of a pre-emptive two-pronged attempt to drive a wedge between Europe and the US, where Biden has made a restoration of the relationship with Europe – a relationship fractured by Donald Trump’s trade wars and complete disdain for multi-lateralism and its institutions – a priority.

The investment deal with the EU was the culmination of six years of negotiations, but appeared to be going nowhere until Xi Jinping ordered the Chinese team to make eleventh-hour concessions.

The deal, labelled the “Comprehensive Agreement on Investment,” on paper opens up some of China’s key markets to European companies, supposedly removes forced technology transfers and potentially creates greater transparency around state subsidies.

It will, if it comes into force as envisaged in 2022, give European companies greater access to China’s financial services sector, its auto and electric vehicle industries, its health sector, cloud computing and telecommunications.

One of the last-minute concessions contains China’s agreement to continue "sustained efforts" to comply with international conventions on forced labour – a reference to the labour camps in Xinjiang province.

Given the level of China’s compliance with the terms of the "Phase One" trade deal it signed with the Trump administration to pause the Trump-initiated trade war – it has bought only around half the US goods and commodities it committed to buy – it is improbable that it would actually close down those camps or stop exploiting/stealing the intellectual property of other countries.

The deal, pushed hard by German chancellor Angela Merkel because of the importance of the Chinese market to Germany’s export-driven economic model and Merkel’s own (outdated) conviction that trade with the West can change China, has yet to be ratified by the European Parliament and will also need to be approved by individual European states.

The Biden administration will have to move early and aggressively if it wants to convince the Europeans to tear it up and develop a trans-Atlantic approach to dealing with China.

The EU’s aspiration to be an independent pillar of global geopolitics – a third force independent of the US – and the distrust sown by the erratic behaviour of the Trump administration were influences on the in-principle commitment to the deal with China. Biden’s envoys will face an uphill battle to undo the new status quo.

That agreement, and China’s response to the US sanctions, isn’t good news for the Morrison government, either.

China’s belligerence towards Australia – its punitive tariffs and outright bans on an ever-widening range of Australia’s exports – could only be countered by collective action by a coalition of the West that included both the US and the EU.

The unwillingness of the Europeans to wait a few weeks to talk to the Biden administration sees the prospect of that coalition receding – even though the actions China has taken towards Australia, with which it has (along with other nations in the region) a trade deal, ought to have provided the Europeans with an illustration of the complexities and risks of expecting Xi Jinping’s China to behave in accordance with Western norms.

(The EU might, of course, say the same of the US after the experience of the past four years).

Despite China’s treatment of Australia, the Uighurs in Xinjiang, Hong Kong, the Himalayas and its predatory encroachments in the South China Sea, Europe has pursued – as the US has done under Trump – a unilateralist approach to China in pursuit of economic advantage and its ambitions to be a global geopolitical force.

That is, of course, their right. But they have allowed China to exploit the divisions Trump created in the West, take advantage of the economic weakness in Europe created by a virus that originated in China and make it more difficult for Biden to create an alliance of China’s critical trading partners that might discipline its more egregious behaviour and provide international support for Australia in the process.

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