Merkel’s risky China gambit looks doomed amid EU pushback

German chancellor faces a political backlash after the European Union and China agree investment trade deal

She has been the most powerful politician in the European Union for more than a decade. But next year, Angela Merkel will step down as German Chancellor after 16 years in office.

Before she goes, the 66-year-old leader of the Christian Democratic Union party hopes to leave behind a multi-billion-dollar investment deal with China to cement her legacy.

Instead, she might just face a firestorm in Brussels and a political backlash in Berlin for pushing through the Beijing protocol.

“Merkel would no doubt regard a deal as a landmark achievement of Germany’s EU presidency and a vindication of her belief in change through engagement with Beijing. For Europe, though, this should be a moment for more speed, less haste,” the Financial Times warned in an editorial last week.

Merkel has certainly been the driving force behind the accord and was desperate to sign it off despite pressure from the United States.

Seven years in the making, it still has to be ratified next year by the 27-member states of the largest single market in the world, as well as the European Parliament. And that will be challenging.

Reinhard Butikofer, the chairman of the European Parliament’s delegation for relations with China, has called the treaty a “strategic mistake.” He stressed that it was “ridiculous” to believe that Beijing would honor commitments made on labor rights.   

“[The] European Commission seeks ‘to put lipstick on the pig’ in order to garner support for [the] China investment deal. But we must, as [China’s late paramount leader] Deng Xiaoping used to say, ‘seek truth from the facts.’ And nobody is entitled to their own facts, not even [the] European Commission,” Butikofer, a German MEP, tweeted.

Merkel might point out that this is the price of realpolitik. But does she really believe that Beijing will abide by human rights standards in the International Labour Organization’s charter with its track record?

Unfair competition

Chinese President Xi Jinping has reportedly agreed to this point along with a “level playing field” designed to prevent unfair competition, such as state subsidies.

A clause has also been added that EU companies investing in China should “be treated no less favorably” than domestic rivals. 

Greater access to a wide range of sectors, such as manufacturing, engineering, financial services and telecoms complete the package, according to officials who have seen the outline document.

The devil, of course, will be in the detail, critics argue.

Earlier this month, a report released by the Center for Global Policy revealed that more than 500,000 ethnic minority laborers were “being forced to hand-pick cotton through a state-mandated” program. Persecuted Uighur and other Turkic Muslims were literally “coerced” into back-breaking work. 

Naturally, Beijing has dismissed the study and similar investigations by the BBC media network as “fiction.” 

The Xinjiang region produces more than 20% of the world’s cotton and 84% of China’s crop.

“Trade policy does not take place in a vacuum – how the question of forced labor is addressed in the CAI [China Comprehensive Agreement on Investment] will determine the agreement’s fate,” Bernd Lange, the chairman of the European Parliament’s trade committee, tweeted before the deal was announced.

Guy Verhofstadt, the Belgium MEP and a respected voice in Brussels, went even further on his Twitter strand. 

“The stories coming out of Xinjiang are pure horror. The story in Brussels is we’re ready to sign an investment treaty with China. Under these circumstances any Chinese signature on human rights is not worth the paper it is written on,” he said.

For Merkel, the “treaty” also revolves around Berlin’s increasing economic exposure in the world’s second-largest economy.

Last year, data from the Federal Statistical Office of Germany showed that China was again the EU powerhouse’s main trading partner with combined annual exports surging to ?260 billion or nearly US$320 billion.

Corporate coffers

Auto manufacturing, engineering equipment and electronics fuelled German corporate coffers with exports in cars, vans and trucks topping 16.9%.

The proposed protocol will be another shot in the bumper for auto giants Daimler and BMW, along with Volkswagen and Porche, as they move into new energy vehicles and expand rapidly in China. 

Still, the road ahead could be littered with potential political potholes.

“In 2020, the Communist Party’s efforts to reassert control over the economy have accelerated. For example, companies are expected to localize their supply chains and shift R&D and higher-value parts of their manufacturing processes to China,” Max J Zenglein, the chief economist at the Mercator Institute for China Studies in Berlin, said.

“Foreign companies that do not comply with these expectations and do not make these adjustments could put their long-term business prospects at risk. The investment agreement cannot provide guardrails against such developments and leaves European companies exposing themselves to increased political influence,” he added before the investment treaty was announced.

Massive Hole

Unfettered access to China’s 400 million middle-class consumers has always come with strings attached. Why should this deal be any different?

Moreover, the agreement appears to have punched a massive hole in US President-elect Joe Biden’s Beijing strategy. Jake Sullivan, the incoming National Security Advisor, made that clear in a December 18 tweet.

“The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China’s economic practices,” he said in response to the proposed accord.

Even though Biden is a political deal-maker, his plan to challenge Xi’s authoritarian policies by putting together a global coalition of democracies has suffered a setback with the news coming out of Berlin.

As for China, the trade-investment pact was splashed all over the state-controlled media and heralded as a political coup.  

Global Times, the cheer-leader-in-chief, described the agreement in an editorial as “a New Year gift from China and the EU to the whole world.” The fiercely nationalistic tabloid then went on to verbally attack those who “chatter about geopolitics and values,” such as human rights, when “what the public cares about the most is peaceful development.”

Obviously, this was slightly different from the official EU statement. “This agreement binds the parties into a values-based investment relationship … EU leaders also reiterated their serious concerns about the human rights situation in China [and] Hong Kong,” it stated.

In the end, Merkel might struggle to square that circle and bring the dissenting voices onboard for Europe’s deal of the decade.