Beijing in Brussels' bad books at EU summit

By Andrew Hammond

Discussions over a big new potential gas price measure against Russia are at the top of the domestic political agenda in Brussels. However, the European Council summit of 27 presidents and prime ministers last week may well be remembered also for a potentially significant hardening in the EU's foreign policy position toward China.

Relations between Brussels and Beijing have frayed now since at least the pandemic began and last week's summit moved closer to formalizing that shift. This development, which comes as President Xi Jinping got a third term from the National Congress of the Chinese Communist Party, bodes ill for bilateral relations, including the long-negotiated Comprehensive Agreement on Investment (CAI) whose ratification is frozen in Brussels.

The EU may stick to a three-part assessment of China as "partner," "competitor" and "systemic rival," despite this being potentially outdated. However, the European External Action Service, the EU's diplomatic body, last week advised member states in a new document that the "competitor" piece should increasingly become the focus of bilateral relations as Beijing "becomes an even stronger global competitor for the EU, the United States and other like-minded partners." This is key, it is asserted, because "China is not going to change" and is "moving to a logic of all-out competition, economically but also politically."

The intervention comes with the claim that "current and foreseeable challenges" such as human rights abuses in Xinjiang; Beijing's qualified support for Moscow's invasion of Ukraine; and the imposition of Hong Kong's national security law are only likely "to widen the divergence between China's and our own [EU] political choices and positions."

It also advises the bloc to double-down on ties with other Asia-Pacific powers including Japan, India and Australia; diversify supply chains; and "intensify efforts to reduce vulnerabilities" in areas including fighting disinformation, cyber, maritime and space security, innovation and technology. These would build from existing measures taken, including the new Globally Connected Europe strategy, which is widely seen as a competitor to China's Belt and Road pushing for investments in visible projects to link the EU to the wider world.

The initial response from Europe's foreign policy elite to the new document has been favorable with Dutch Foreign Minister Wopke Hoekstra saying "there is increasing realism in the dialogue with China. We are leaving naivety behind." Meanwhile, European High Representative of the Union for Foreign Affairs and Security Policy, Josep Borrell, said that "a new discussion on China, with a new analysis, is very timely."

While the significance of last week's development now depends upon the degree to which the wider EU-27 states adopt the advice, it represents a clear shift in policy tone, at least. Remember here that the EU had previously referred to Beijing as Europe's "strategic partner in addressing global and international challenges."

In this context of challenge, there are still some areas of common interest and cooperation. This includes the importance of an open, multilateral trading system and tackling climate change.

On the economic issue, China still hopes that the CAI might get ratified. However, the prospects of ratification of the deal getting kicked out further into the political long grass are growing.

Global warming is another issue where both sides have long had a fruitful dialogue. Both parties have cooperated on developing a cost-effective low-carbon economy with their 2015 agreement, for instance, agreeing to intensify cooperation in domestic mitigation policies, carbon markets, low-carbon cities, greenhouse gas emissions from the aviation and maritime industries, and hydrofluorocarbons.

Beyond China, the EU also has Russia in its sights given that the energy market crisis has worsened significantly since the invasion of Ukraine. Last week, the European Commission sought to move forward with a new emergency regulation to address high gas prices and ensure the security of supply in coming months ― beyond already agreed measures on gas and electricity demand reduction, gas storage and the redistribution of surplus energy sector profits.

Rather than bringing in formal gas price caps, which member states have disagreed over, this new proposed regulation contains around a half dozen alternative elements. They include combining EU demand and joint gas purchasing to secure optimal prices and reduce the possibility of member states outbidding each other on the market, while seeking to deliver security of supply across the bloc.

Moreover, workstreams are underway to develop a price correction mechanism to introduce a so-called dynamic price limit for transactions on the main European gas exchange, the Title Transfer Facility (TTF) in the Netherlands, plus a temporary "price collar" to prevent extreme price spikes in derivatives markets. Beyond these immediate-term measures, a new Liquid Natural Gas (LNG) pricing benchmark will be also developed by spring 2023.

Taken together, these developments underline how much not just Russia, but also China, is currently under the EU policy microscope. With relations with Moscow remaining in a "deep freeze" while Putin remains in power, there is now a growing possibility of EU-China ties moving in a similar direction.

Andrew Hammond (andrewkorea@outlook.com) is an associate at LSE IDEAS at the London School of Economics.