Welcome to Xi’s new era!

The Chinese Communist Party (CCP) held its 19th National Congress in Beijing from October 18-24, 2017. This seminal event has set the stage for the next five years of China’s political and economic development. And signs are strong that relations between China and Europe will get frostier. The EU should therefore further strengthen its “Asia pivot” and continue to strive for international multipolarity.

Seven men (and no women) rule China. They are the members of the Standing Committee of the CCP’s Politburo, the new composition of which was presented to the public on Wednesday, October 25, 2017. President Xi Jinping and Prime Minister Li Keqiang are the only members to carry on for a second term, while the remaining five – Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng are new to the club. Apart from belonging to the mightiest political organ in China, all seven have a few more things in common: they are male Han Chinese in their 60s. The uniformity of the politburo points to the increasing unwillingness among China’s leadership to allow for more diversity and pluralism in general.

Moreover, none of the new members can be regarded as potential successor to Xi Jinping. He thus broke with the tradition upheld since the late 1990s to appoint an heir apparent to the Standing Committee after serving the first term in office. This is only one of the symbols showing how much power Xi Jinping has managed to centralize in his person in the last five years. This process culminated in the Party Congress’ including his political works in the Party Constitution as “Xi Jinping Thought” – the exact same wording that until now had been reserved for Mao Zedong alone.

Given these developments, we can certainly expect from China even more strongman policies and less patience for international concerns. This will have a deep impact on the relations between China and the EU, which have not been sunny-side up recently to begin with.

Lack of diversity and transparency makes China’s relations with Europe difficult

Since Xi Jinping took office, the quality of China’s international exchange has experienced a severe backlash: Chinese think tanks and researchers who focus on political and social topics, act considerably more careful and in line with party policies in the public than before. Cooperations and contacts between Chinese and European civil society organizations have experienced serious restrictions since China’s new foreign NGO management law entered into force in 2017. Working conditions for international media have also deteriorated, not to speak of those of Chinese domestic media. The results of the Party Congress lend themselves to the interpretation that China’s political course is not bound for change. Xi Jinping has found his leadership style and sworn the Party on to it. This also means that the most important decision-making processes take place in a black box – unfettered by any kind of transparency

This stokes suspicion abroad, and especially in western countries, in regard to China’s true intentions: Is Beijing behind the Chinese takeovers in Europe? Which geopolitical goal is China pursuing with the “Belt and Road Initiative”? What game does Beijing play regarding North Korea? These fears and insecurities weigh heavily upon many fields and projects, in which otherwise China and Europe would be ideal partners for cooperation.

At the present, however, European politicians and interest groups have little leverage at hand to make Beijing understand that more transparency and reliability should be in China’s very own interest, if it deems relations with Europe important. In fact, China has been paying more attention to Europe since Donald Trump became president of the United States, looking for a way to maintain global stability. Europe has therefore been given the chance to position itself as a strong partner vis-à-vis China. In order to take it, however, EU Member States have to agree upon a common China policy, instead of letting Beijing best them due to their everlasting discordance on how to deal with China.

Europe’s struggle for reciprocity in economic relations with China will intensify

It is already foreseeable at this stage that China will increasingly become more of a competitor for Europe in regard to new technologies, business models and markets. And as China is moving up the global value chain, complementarity in mutual economic relations will decrease. In the first place, this is a positive development, as long as competition is rules-based and fair. However, the framework conditions under which competition between China and the EU is currently taking place constitute a serious issue: the key challenge here is the very lack of reciprocity, i.e. the unlevel playing field in the economic relations between the EU and China. Whereas the European Union offers an open trade and investment environment, the situation for European companies in China is far from that. In contrast, they face various kinds of formal and informal discrimination. Moreover, the Chinese government deliberately protects strategic industries from foreign access.

The situation has even deteriorated, since Xi Jinping took office. Instead of letting the market “play a decisive role”, as Xi proclaimed earlier, industrial policies and state intervention have become the “decisive” factors in China’s economy. This has made life for European businesses increasingly difficult. In his speech at the Party Congress, Xi Jinping promised that conditions for foreign investors will improve. However, this kind of statement can be regarded as part of the usual political rhetoric of China’s party leaders, with little hope to actually being put into practice.

A key challenge for Europe now is to protect business from China’s distortion of competition, while at the same time avoiding a vicious circle of protectionism. This is a difficult task, since the EU has to try and counter very informal kinds of discrimination with formal regulations. The new EU investment screening currently under discussion is one step into this direction and could be interpreted as a first signal towards China that too many lines have been crossed.

Outlook: Europe should keep in mind that Asia is more than China

At present, China still is the most important economic partner of the European Union in Asia and certainly forms the centerpiece of European-Asian relations. This fact will not change all of a sudden during the next five years of Xi Jinping’s second term as president of the PRC. It is also fact, however, that since 2012, China’s growth rates have slowed significantly and will continue to do so in the future. Moreover, our projections based on the Oxford Global Economic Model show that China’s economic growth through 2030 could even decline to an annual rate of two percent. We also see that the economic focus in the Asia-Pacific region is forecast to shift markedly in the mid-term to long run: Indonesia and Vietnam appear to have the potential to emerge as new growth engines and can still expect growth rates of around 4.6 percent in 2030. In India as well, significantly more dynamic growth than in China is to be expected, totaling roughly 4.2 percent in 2030.

Even though it is safe to say that in the future, China will remain an important economic partner, the European Union should put an even stronger focus on greater diversification of its economic relations with Asia than before. The EU’s current Trade and Investment Strategy already implicitly lays out a “Pivot to Asia”, which includes negotiations on free trade agreements with several Asian countries. Those with Vietnam and Singapore are already concluded and the FTA with South Korea has even been in force since 2011. A political agreement with Japan was achieved in March. Talks between the EU and Indonesia started in 2016 and those with India might be resumed before year’s end.

The recent push for implementation of the EU’s Asia pivot has much to do with the United States’ withdrawal from the world stage and the dawning realization that China wants to fill the gap. Considering recent events at the Party Congress, it might have the capacities to achieve this. Against this background, it is not only Europe’s core interest to find ways to keep China within the international rules-based system and to make the country adhere to its commitments within this system. Asian countries, and especially China’s neighbors, too, are allies on this mission. And to many of them, the EU is a natural partner not to isolate or contain China, however, but to make sure that the world order remains multipolar in the future.