EU Investment Deal With China Held Up by Beijing’s Sanctions

The European Union signaled it won’t ratify an investment agreement with China as long as its officials are sanctioned in a clash with Beijing over alleged human rights abuses, as the bloc set out strategies to counter state-funded Chinese takeovers.

“The ratification process cannot be separated from the evolving dynamics of the wider EU-China relationship,” Valdis Dombrovskis, the bloc’s trade chief, told reporters on Wednesday, calling China’s retaliatory sanctions against officials including members of the European Parliament “unacceptable and regrettable.”

The next steps in the ratification of the Comprehensive Agreement on Investment will “depend on how the situation evolves,” Dombrovskis said. The EU imposed sanctions in March that targeted four Chinese nationals and one entity over alleged abuses on the Uyghurs in Xinjiang, which led to Beijing responding with its own sanctions.

Also on Wednesday, the European Commission set out strategies to resist state-funded Chinese takeovers and repatriate the production of semiconductors, just as the U.S. seeks to persuade the world’s biggest economies to harden their stance against Beijing. The overlapping initiatives targeting China are part of a plan to ensure the EU has more control over its future, in a so-called “strategic autonomy” push.

These are the latest drives that will shape EU relations with China:

Foreign State Aid

  • The EU Commission unveiled proposals to curb potentially unfair foreign state support to companies. “We will act assertively when necessary to keep our economies working well,” Competition Commissioner Margrethe Vestager told reporters on Wednesday. Vestager said earlier that the EU needs “intrusive” rules to prevent foreign state-funded firms -- such as those from China -- from undercutting EU rivals.

Chip Production

  • The commission laid out plans to diversify supply chains and carry out regular sector reviews in order to tackle the bloc’s dependencies in key strategic areas, including semiconductors. So far Europe has been “too naive, too open” about outsourcing chipmaking to countries like Taiwan, China and South Korea, Industry Commissioner Thierry Breton said in an earlier interview.

G-7 Coordination

  • Foreign ministers from the Group of Seven nations are considering a U.S. proposal for a consultation mechanism that would involve the G-7 -- as well as other stakeholders -- coordinating their approach to China with the aim of bolstering the resilience of G-7 nations. A paper was circulated before a two-day meeting of foreign ministers in London.

India Trade Talks

  • Envoys in Brussels are discussing a draft joint statement between the EU and India announcing the resumption of free-trade talks. Commission President Ursula von der Leyen described China’s regional rival as a “democratic partner” this month following a call with Prime Minister Narendra Modi. Vestager on Tuesday described China, in contrast, as a “systemic rival.” The statement is due to be issued by EU and Indian leaders after a virtual meeting on Saturday.

Human Rights in Hong Kong

  • EU officials are discussing a ministerial statement for next week lambasting China over alleged human rights violations in Hong Kong.

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