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International relations

China and EU close in on investment deal as US casts wary eye

Brussels must reckon with internal split on Beijing and alarm in Washington

German Chancellor Angela Merkel is seen on a screen during a video news conference after a virtual summit with China's President Xi Jinping in September.   © Reuters

BRUSSELS/BEIJING --The European Union and China are stepping up talks on a landmark investment agreement before their year-end target, but U.S. skepticism and internal concerns about Beijing's human rights practices present Brussels with a difficult decision.

Negotiations picked up pace after Beijing switched to a more flexible stance. China has agreed to less-stringent requirements for joint ventures involving EU companies in finance and manufacturing, according to European media.

"It's definitely feasible that, if things move forward as they are moving now, that we can conclude still this year," Valdis Dombrovskis, executive vice president in charge of economic matters at the European Commission, told Bloomberg on Friday. Chinese Foreign Ministry spokesperson Wang Wenbin told reporters the same day that "negotiations have reached the final stretch."

The two sides are already each other's second-largest trading partners, and an agreement easing investment restrictions would further strengthen their economic relationship. But suspicion toward Beijing among some EU members, as well as U.S. concern about Europe growing closer to Washington's biggest geopolitical rival, could leave Brussels in a difficult position.

Polish Foreign Minister Zbigniew Rau warned Tuesday against speeding toward an agreement. "We need more consultations and transparency bringing our transatlantic allies on board," he said on Twitter. "A good, balanced deal is better than a premature one."

Other EU members are also wary of forging a closer relationship with a country that many see as authoritarian.

Brussels has criticized Beijing over human rights issues and cyberattacks on European targets, and concerns have been voiced about China's crackdown on Hong Kong this year and alleged abuses against the country's Uighur Muslim minority population.

The prospect of closer China-EU ties has also alarmed U.S. President-elect Joe Biden's team putting together a new administration.

The administration "would welcome early consultations with our European partners on our common concerns about China's economic practices," tweeted Jake Sullivan, his pick for national security adviser, on Tuesday, implicitly cautioning Brussels against an overly hasty deal.

Biden looks to mend fences with the EU that had frayed under President Donald Trump amid tensions over trade, and join hands with Brussels to put pressure on Beijing to improve intellectual property protections and cut domestic subsidies. But if the EU and China grow closer during this lame-duck period in Washington, the president-elect's plans could stumble right out of the gate.

Beijing has been using trade and investment deals to build up its economic sphere of influence and gain an edge in its competition with Washington.

The long-awaited Regional Comprehensive Economic Partnership was signed in November to create an Asia-Pacific free trade zone covering about 30% of the world's gross domestic product, and President Xi Jinping has said China will "favorably consider" joining the Trans-Pacific Partnership regional trade pact.

Yet not all of these efforts have gone smoothly. Beijing still has many hurdles to clear to participate in the TPP, including reform of state-owned enterprises and addressing procurement policies that favor domestic products. And Japan at this point has little interest in working toward a three-way free trade agreement with China and South Korea sought by Beijing, focusing instead on ratifying RCEP.

China's willingness to make concessions in the negotiations with the EU suggests that it is looking for a quick win.

On the EU side, many European economies are reeling from the damage wrought by the coronavirus pandemic. Germany, the EU's largest economy, is a major supporter of the investment deal with China.

Negotiations are likely to continue as the two sides look to hammer out such issues as protections for employees working in China. At the same time, Brussels will need to try to get member countries on the same page while also taking U.S. interests into consideration, making for a tricky balancing act.

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