How Economic Incentives Undermine Human Rights Diplomacy in EU-China Relations

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On December 30, 2020, the European Union (EU) and China announced that they concluded the Comprehensive Agreement on Investment (CAI), a long-awaited deal that would provide the EU with greater access and a “more level playing field” in the Chinese market.[1] However, the announcement immediately drew criticism from scholars, civil society groups, and Members of the European Parliament (MEP) for failing to secure concessions from China on human rights in light of its recent string of high-profile transgressions.[2] Hastened to a conclusion by the six-month German Presidency of the Council, the CAI’s controversy exemplifies the pattern of the EU’s cautious approach to human rights in China.. This paper argues that the bloc’s disinclination for a tougher line on China is largely the result of local political elites eager to preserve their own bilateral economic interests with Beijing, with pressure exerted by Member States such as Hungary and Greece involved with the Belt and Road Initiative (BRI), and pressure exerted by Germany, which seeks to preserve access to the Chinese market for its powerful export sector. 

The self-interest of Member States involved with the BRI and the related 17+1 regional grouping in Central and Eastern Europe (CEE) have undermined the EU’s effort to hold China accountable for its human rights abuses. The BRI is a large-scale Chinese investment program, launched in 2012, that nominally aims to boost Eurasian economic relations and streamline the flow of trade. Yet, for sub-initiatives such as the 17+1 group, the very practice of opening a new diplomatic front that distinguishes the different needs and interests of Eastern and Western Europe relies on exploiting existing divisions within the region.[3] As Richard Q. Turcsányi outlines, the roots of the rapprochement between CEE Member States with China are a product of the enduring socio-economic disparities within the EU.[4] In particular, there is the lasting impression that more could have been done by Western Europe in response to key recent crises such as 2007-2008 financial crisis, the succeeding Eurozone crisis, and the 2015 migrant crisis.[5] Of the 11 EU Member States that have signed up to the 17+1 framework, a key factor is that “there is a widespread feeling (substantiated and deserved, or not) that they are still treated as second-class citizens in Brussels” and that the policies of the Western-dominated bloc often leaves them behind.[6] These conditions made the initial prospect of Chinese capital with lax rules and regulations attractive to CEE leaders. For Brussels, in contrast, Chinese-backed infrastructure projects and acquisitions throughout the region often lack transparency and violate EU norms, giving rise to corruption.[7] Prominent examples include the controversial construction of the Budapest-Belgrade railway and the sale of a majority stake in the strategic Greek port of Piraeus to a Chinese state-owned firm. In particular, China has shown an aptitude for connecting with local political elites and producing agreements with opaque procurement procedures (auctioning off contracts in a non-competitive manner), non-public documentation, and lax environmental standards that make them especially conducive to existing processes of state capture and cronyism. For many CEE states grappling with chronic corruption, these BRI infrastructure projects are especially problematic. In recent years, “public procurement became the most important payout channel enabling the allocation of state funds to government-friendly economic players,” reinforcing existing corruption cycles.[8] In essence, Chinese investment is seen by many ruling parties as a way to funnel money to political allies in the private sector and strengthen their hold onto power.

In Hungary, the largely Chinese-financed Budapest-Belgrade high-speed railway represents the cornerstone of efforts by Prime Minister Orbán to cultivate closer ties with Beijing. Proposed back in 2013, the railway was to be the flagship project of the 17+1 framework and a milestone in Orbán’s “Eastern Opening” strategy, which defied Brussels by seeking greater investment flows from Russia and China.[9] However, plagued by delays and ballooning costs, it became the target of a 2017 investigation launched by the EU into allegations that Hungary had broken EU laws on procurement as well as claims that the project was being pushed ahead despite its financial unviability.[10] In 2018, after the EU concluded that only the Serbian portion of the railway was profitable and forced the Hungarian government to organize a public tender, the project came under further criticism both within and outside Hungary.[11]It was revealed that one of the contracts was given to Lőrinc Mészáros, childhood friend and key ally of Prime Minister Orbán.[12] To many, it did not come as a surprise. According to the 2020 European Commission (EC) Report on Hungary, the country had one of the highest instances of state contracts awarded with only a single bid with frequent “systemic irregularities” in the bidding process and clear preferential treatment of select firms.[13] Furthermore, the railway’s staggering €3 billion price tag, the largest for an infrastructure project in Hungarian history, led critics to lambaste the economic feasibility of the project by pointing out that the proposed line fails to connect adjacent major cities along the route, leaving taxpayers to foot the bill for a transportation venture that offers them dubious benefits.[14] Indeed, even the pro-Fidesz magazine Figyelő concluded in its investigation that the project’s debt would take some 2,400 years to pay off.[15]

BRI investment has come to serve as a mechanism that exacerbates processes of corruption and democratic backsliding under Orbán’s regime.. The Budapest-Belgrade railway is just one example of the many infrastructure projects with Chinese financial backing that channel money to private Hungarian firms with murky ties to state actors and to Fidesz-loyalists as part of an expansive crony capitalist network designed to strengthen and perpetuate what has been called Orbán’s brand of “Hungarian Authoritarian Populism.”[16] It is within this context that other projects similar to the Budapest-Belgrade railway in its questionable economic feasibility can be better understood, for they are first and foremost politically-motivated and implemented based on the availability of Chinese funding with “little focus on the demand of, or sustainability of, the services that they are intended to support.”[17] For Orbán, these engagements with China have synergized particularly well with the anti-Brussels stance that he has come to adopt. Hungary, he argues, does not have to rely on the EU when it has powerful partners like Russia and China. In turn, deepening Sino-Hungarian ties under Orbán have translated to breaks with Brussels on the latter’s China policy. 

Greece’s situation bears large similarities to Hungary’s. Greece has also enjoyed large-scale BRI investments, most notably the acquisition of its port at Piraeus, a crucial centre of the country’s economic livelihood, by the Chinese state-owned shipping firm COSCO. China sought to capitalize on Greece’s continuing struggle with high debt pressure and its resentment of years of austerity imposed by Brussels. As a result, China’s involvement has been very welcome in Greece. According to an EC report, investment in Piraeus “led to an increase in freight traffic by 600% between 2009-2018 and is expected to lead to additional investment of close to 0.5% of Greek GDP and the creation of more than 30,000 new jobs by 2025.”[18] Whereas the Piraeus port was shunned by EU investors who did not consider it an attractive prospect, China has already announced additional plans to boost local tourism by building new terminals for cruise ships, luxury hotels, shopping malls, and a large recreation park.[19] Yet China’s involvement in Greece has also raised concerns similar to those in Hungary. In 2015, the EC found that Greece had granted unfair tax exemptions and preferential treatment to COSCO in breach of EU rules.[20] In addition, the increasing rate of Chinese investment flowing into Greece has highlighted the country’s longstanding struggles with corruption. Local business leaders “perceive corruption to be rather widespread in public procurement (according to 72% of respondents), with 83% of businesses citing tailor-made specifications as a particular issue,” pointing to concerns of favoritism and clientelism in the disbursement of state funds.[21]

For Member States like Hungary and Greece who have been on the receiving end of this Chinese “checkbook diplomacy,” they have demonstrated in return a proactiveness in tamping down on the discussion of what China considers “key sensitive issues.” The two states have been the most active in blocking EU statements that criticize China on human rights, with the use of their vetoes increasing significantly since 2015, according to interviews conducted with members of the European External Action Service (EEAS).[22] For example, in July 2017, Hungary, Greece, and Croatia repeatedly blocked a joint 28-member statement recognizing the ruling reached by the Permanent Court of Arbitration in The Hague which declared China’s territorial claims in the South China Sea to be in violation of international law. It was later revealed that diplomats from the three countries had privately consulted with senior Chinese officials prior to the vote.[23] In 2017, Greece blocked the EU joint statement to the UN Human Rights Council (UNHRC) in Geneva—marking the first time that a 28-member statement was not issued—on grounds that it constituted “unproductive criticism” and that individual bilateral talks outside of the UN were more appropriate.[24]While these countries have officially denied that their vetoes were influenced by their bilateral investment relations with China, the empirical result as well as some off-the-record interviews make the picture very clear. To maintain good investment relations with China, some CEE Member States are willing to cater to Beijing’s demands on issues surrounding territory and human rights. For Greece, the contrast between an austere EU that has treated them as the Eurozone’s delinquent compared to an amenable China that was eager to invest was particularly stark. Paying greater respect to what China has declared its core interests did not seem like an unreasonable repayment of favors.[25]

Germany, which has long exerted its influence to shape the EU’s relationship to China according to its interests, has also contributed to the bloc’s failure to hold China accountable for its human rights abuses.[26] Since the start of China’s market-opening reforms in the late 1970s, Europe has benefited from lucrative access to China’s vast market and no country more so than Germany. As a result, the EU’s stance towards Beijing can be thought of as operating on a sort of Brussels-Berlin axis.[27] Thus, the tensions and criticisms that have recently defined the Germany-China bilateral relationship are reflected in EU-China ties. 

In recent years, the EU has called for a redefinition of its China strategy in recognition that “China’s economic power and political influence have grown with unprecedented scale and speed, reflecting its ambitions to become a leading global power.”[28] In its high-profile 2019 report “EU-China – A Strategic Outlook” which largely formed the basis of the 2020 CAI, it described China as simultaneously an important “cooperation partner” with whom a more reciprocal relationship needs to be reached and a “systemic rival promoting alternative models of governance.”[29] The report exemplified the balancing act that EU leaders have tried to sustain for many years, a consensus that is coming under increasing strain as China’s authoritarian rule becomes further entrenched and its human rights abuses come more to light. The result is a disjointed, mixed message about where EU priorities lie. Even the “tougher line” which some media outlets characterized the new approach concerned only the economic dimension. The EU is keen to address longstanding frustrations about the imbalanced trade relationship and called for China to end its practices of “preserving its domestic market for its champions, shielding them from competition through selective market opening,” placing restrictions on investment, and forcing the transfer of technologies by EU firms wishing to do business in China.[30] However, while the label “systemic rival” dominated the headlines, in reality the 2019 report merely drew attention to the “deterioration” of rights in Xinjiang and urged China to respect “the high degree of autonomy enshrined in the Hong Kong Basic Law.”[31] Similarly, the 2020 CAI  secured only from China a “commitment to make continued and sustained efforts to pursue ratification of the ILO fundamental Conventions on forced labor.”[32] In both cases, there was an absence of any substantial, tougher measures that would induce China to rein in its human rights and international law transgressions.

The EU is careful to avoid introducing what is viewed as unnecessary friction into its relationship with China, an approach that reflects the outsized influence of Germany. According to Max Zenglein, chief economist at the Mercator Institute for China Studies, “Europe’s weak point is Germany, and in Germany it’s the car industry, and in the car industry it’s Volkswagen.”[33] This factor has been especially prominent under the chancellorship of Angela Merkel, who is very mindful of the powerful German industrial-business lobbies and their concerns that that Germany should not upset its lucrative economic relationship with the world’s largest market, especially given that Germany exports more to China than the next six EU Member States combined.[34] For instance, the Volkswagen Group sold over 4.2 million cars in China in 2018 and comprised 20% of all new cars sold in the country; by comparison, the US market accounted for only 350,000 sales in the same period.[35] As a result, German auto executives have long lobbied against tougher positions against China, emphasizing that angering Beijing on sensitive issues would affect access to the Chinese market and potentially cost jobs at home.[36] In a 2018 interview with Die Welt, the CEO of Siemens said that Germany should be “thoughtful and respectful towards China…if jobs in Germany depend on how we deal with controversial topics, then we shouldn’t add to indignation, but rather carefully consider all positions and actions.”[37]Merkel’s approach to China embodies the traditional policy of Wandel durch Händel (“change through trade”), a doctrine rooted in Cold War ideas which holds that, through deepening economic ties, China would gradually move towards further political and economic liberalization.[38] In the summer of 2020, as Beijing imposed the controversial National Security Law on Hong Kong and many in the Bundestag were calling for a strong German response, Peter Altmaier, the Minister of Economic Affairs and Energy, expressed in an interview that Germany “[has] trade relations with many regions across the globe, including in many cases countries that have a different understanding of civil rights than we have in Germany…I have always been convinced and I still believe that change can be achieved through trade.”[39] Yet, despite long being a core tenant of policy-making in Berlin and Brussels, it is an approach that has increasingly been criticized as outdated and naïve in dealing with a China under Xi Jinping that has shown no qualms about disregarding international rules and norms. 

There is no better exemplification of the soft approach that Brussels has continued to take vis-à-vis China on human rights than the increasingly obsolete EU-China Human Rights Dialogue, an annual bilateral forum established in 1995. Done behind closed doors, the Dialogue has achieved substantively little, and scholars have characterized it as an ineffectual approach “symptomatic of the EU prioritizing its material interests with China.”[40] The fundamental disagreement is over China’s rejection of of EU values and the obligation of the government in guaranteeing them. Indeed, Beijing takes a statist view on human rights where individual rights can and should be subordinate to the collective welfare of the nation in the name of “maintaining stability.” As a result, interviews with former EU Dialogue participants and analysis of classified documents show that the ineffectiveness of the Dialogue means that it has come to serve as “intensive training for a small number of Chinese officials on how to engage with—and effectively counter—human rights related inquiries, criticism and recommendations.”[41] Comments aimed at the situations in Hong Kong or Xinjiang are met with well-rehearsed rebuttals stressing “principles of mutual respect and non-interference in internal affairs” and a “refusal to be lectured” by EU officials who—the Chinese side accuse—have their own problems with the mistreatment of minorities and migrants in Europe.[42] Over time, China has largely succeeded in leveraging its growing economic power to water down the Dialogue by pressuring the EU to agree to reducing the frequency of the meeting from biannually to annually as well as engaging in time-wasting practices that obstruct the EU side.[43]

The EU-China relationship is at a critical junction. With the provisional agreement of the CAI with China, the Commission and EU Member State leaders sought to reorientate the relationship towards greater reciprocity in recognition of China’s rising place in the world. Yet, it has received substantial criticism from scholars and experts on China as well as from MEPs who say they will vote against ratification on grounds that the CAI largely fails to address China’s high-profile human rights transgressions. This paper has sought to situate the defining tension within the EU establishment—the bloc’s balancing act of weighing its economic interests against its commitment to uphold its values as an international normative power—in the context of pressure exerted by Member States involved in BRI investment relations with China and the preferences of Germany with its high prioritization of access to the Chinese market. Moving forwards, it is clear that while some within the EU favor a tougher line on China in principle, there is considerable reluctance to bear the economic and diplomatic blowback that would come with a more confrontational approach. It remains to be seen whether the EU’s balancing act will be sustainable, or that a time of choosing, where it will have to come down on one side or the other is fast approaching.


References

[1] “Key elements of the EU-China Comprehensive Agreement on Investment,” European Commission Press Release (December 30, 2020)

[2] Shannon Tiezzi, “China-EU Investment Deal Sparks Backlash Over Rights Concerns,” The Diplomat, January 13, 2021. 

[3] Ágnes Szunomár, “Blowing from the East,” International Issues & Slovak Foreign Policy Affairs 24, no. 3 (2015): 61-64.

[4] Richard Q. Turcsányi, “China and the Frustrated Region: Central and Eastern Europe’s Repeating Troubles with Great Powers,” China Report56, no. 1 (February 2020): 71.

[5] Ibid.

[6] Ibid.

[7] Angela Stanzel, “A common EU China Policy: The divided, the ruled, and the united,” European Council on Foreign Relations (2017), 36-38.

[8] Anita Koncsik, “From the Happiest Barrack to the Saddest Shopping Mall: Accountability, transparency and (anti-)corruption in Hungary,” Frontiers of Democracy (Palgrave Macmillan: London, 2016), 5.

[9] Szunomár, 61-64.

[10] Ibid.

[11] Nick Miller, “‘Why are they giving us the money?’ Behind China’s plans to ‘rescue’ a decrepit rail link,” Sydney Morning Herald (June 20, 2018).

[12] Edit Inotai, “Budapest to Belgrade: All Aboard the Secret Express,” Balkan Insight (April 22, 2020)

[13] “Country Report Hungary 2020,” European Commission, Report (Brussels, February 2, 2020), 43.

[14] Valerie Hopkins, “Hungary to keep details of Beijing-funded rail link secret,” Financial Times (April 2, 2020)

[15] Inotai.

[16] Samuel Rogers, “The Changing Dimensions of the post-2010 Hungarian Political Economy and the Emergence of Hungarian Authoritarian Populism,” PhD diss., University of Bristol, 2019, 229-233.

[17] Ibid, 17.

[18] “Country Report Greece 2020,” European Commission (Brussels, February 26, 2020), 46-47.

[19] Frank Sieren, “Sieren’s China: Athens caught between Brussels and Beijing,” Deutsche Welle (November 7, 2019).

[20] “State aid: Commission orders Greece to recover incompatible aid from Piraeus Container Terminal” European Commission Press Release(Brussels, March 23, 2015).

[21] “Country Report Greece 2020,” 64.

[22] Max Roger Taylor, “Inside the EU–China Human Rights Dialogue: assessing the practical delivery of the EU’s normative power in a hostile environment,” Journal of European Integration (2020), 11.

[23] Laurence Norman, “EU Issues South China Sea Statement Ending Discord Within Bloc,” The Wall Street Journal (July 17, 2016)

[24] Robin Emmott and Angeliki Koutantou, “Greece blocks EU statement on China human rights at U.N.,” Reuters (June 18, 2017)

[25] Jason Horowitz and Liz Alderman, “Chastised by E.U., a Resentful Greece Embraces China’s Cash and Interests,” The New York Times(August 26, 2017)

[26] Janka Oertel, “The New China Consensus: How Europe is Growing Wary of Beijing,” European Council on Foreign Affairs (2020), 9

[27] Mark Leonard, “The End of Europe’s Chinese Dream,” European Council on Foreign Affairs (May 27, 2020)

[28] “EU-China – A strategic outlook.” European Commission (March 12, 2019), 1.

[29] Ibid.

[30] Ibid, 5.

[31] Ibid, 2.

[32] “EU-China Comprehensive Agreement on Investment,” European Commission (December 30, 2020), 4.

[33] Jakob Hanke Vela, “Europe’s China weak spot: Germany,” Politico (September 13, 2020)

[34] “China-EU – international trade in goods statistics,” Eurostat – European Commission, (March 2020).

[35] Vela.

[36] Erika Solomon and Guy Chazan, “‘We need a real policy for China’: Germany ponders post-Merkel shift,” Financial Times (January 5, 2021)

[37] Kate Brady, “Germany’s reluctance to speak out against China,” Deutsche Welle (July 7, 2020)

[38] Solomon and Chazan.

[39] Vela.

[40] Taylor, 1.

[41] Katrin Kinzelbach, The EU’s Human Rights Dialogue with China: Quiet Diplomacy and its Limits, (Routledge, 2014), 214.

[42] Taylor, 7.

[43] Ibid.


Works Cited

Brady, Kate. “Germany’s reluctance to speak out against China.” Deutsche Welle, July 7, 2020.

“China-EU – international trade in goods statistics.” Eurostat – European Commission, March 2020.

“Country Report Greece 2020,” European Commission, Brussels, February 26, 2020.

Emmott, Robin, and Angeliki Koutantou. “Greece blocks EU statement on China human rights at U.N.” Reuters, June 18, 2017.

“EU-China – A strategic outlook.” European Commission, March 12, 2019.

“EU-China Comprehensive Agreement on Investment.” European Commission, December 30, 2020.

“Key elements of the EU-China Comprehensive Agreement on Investment,” European Commission Press Release, December 30, 2020.

Horowitz, Jason, and Liz Alderman. “Chastised by E.U., a Resentful Greece Embraces China’s Cash and Interests.” The New York Times, August 26, 2017.

Hopkins, Valerie. “Hungary to keep details of Beijing-funded rail link secret.” Financial Times, April 2, 2020.

Inotai, Edit. “Budapest to Belgrade: All Aboard the Secret Express.” Balkan Insight, April 22, 2020.

Kinzelbach, Katrin, The EU’s Human Rights Dialogue with China: Quiet Diplomacy and its Limits. Routledge: 2014.

Koncsik, Anita. “From the Happiest Barrack to the Saddest Shopping Mall: Accountability, transparency and (anti-)corruption in Hungary.” Frontiers of Democracy. Palgrave Macmillan: London, 2016.

Leonard, Mark. “The End of Europe’s Chinese Dream.” European Council on Foreign Affairs, May 27, 2020.

Oertel, Janka. “The New China Consensus: How Europe is Growing Wary of Beijing.” European Council on Foreign Affairs, September 7, 2020. 

Miller, Nick. “‘Why are they giving us the money?’ Behind China’s plans to ‘rescue’ a decrepit rail link.” Sydney Morning Herald, June 20, 2018.

Norman, Laurence. “EU Issues South China Sea Statement Ending Discord Within Bloc.” The Wall Street Journal, July 17, 2016.

Rogers, Samuel. “The Changing Dimensions of the post-2010 Hungarian Political Economy and the Emergence of Hungarian Authoritarian Populism.” PhD diss., University of Bristol, 2019.

Sieren, Frank. “Sieren’s China: Athens caught between Brussels and Beijing.” Deutsche Welle, November 7, 2019.

Solomon, Erika and Guy Chazan. “‘We need a real policy for China’: Germany ponders post-Merkel shift.” Financial Times, January 5, 2021.

“State aid: Commission orders Greece to recover incompatible aid from Piraeus Container Terminal.” European Commission Press Release, Brussels, March 23, 2015.

Stanzel, Angela. “A common EU China Policy: The divided, the ruled, and the united.” European Council on Foreign Relations, October 7, 2017. 

Szunomár, Ágnes. “Blowing from the East.” International Issues & Slovak Foreign Policy Affairs 24, no. 3 (2015): 60-77.

Taylor, Max Roger. “Inside the EU–China Human Rights Dialogue: assessing the practical delivery of the EU’s normative power in a hostile environment.” Journal of European Integration (2020).

Tiezzi, Shannon. “China-EU Investment Deal Sparks Backlash Over Rights Concerns.” The Diplomat, January 13, 2021.

Turcsányi, Richard Q. “China and the Frustrated Region: Central and Eastern Europe’s Repeating Troubles with Great Powers.” China Report 56, no. 1 (February 2020): 60–77.

Vela, Jakob Hanke. “Europe’s China weak spot: Germany.” Politico, September 13, 2020.

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