China and the European Union have an extensive and growing economic relationship. The EU is now China's largest trading partner and the second-largest export market for Chinese goods. However, there are political forces in Europe demanding changes in the Sino-EU economic relationship and better access to the Chinese market for European companies.

As trade and investment remain major drivers of their bilateral relations, establishing a more balanced economic relationship is necessary if they are to overcome the dilemma that is emerging. Whether this will succeed will very much depend on domestic developments in China and the EU, especially both sides' ability to maintain crucial growth and successfully tackle development challenges.

Despite their mutual importance as trading partners, institutional arrangements governing bilateral exchanges between China and the EU remain limited. There is no free trade agreement between China and the EU, several EU member states concluded investment treaties with China long ago but these treaties were designed to offer investors national treatment and judicial protection while do not include market-access provisions.

The EU, which now has the authority to negotiate on investment, is engaged in the negotiation of a deep and comprehensive investment treaty with China, intended to cover issues including market access and joint venture requirements. The parties recently committed to concluding them by the end of this year.

So, safeguarding economic development for both of them will hinge on their abilities to maintain growth and productivity, create jobs and improve the livelihoods of their citizens. For their continuing prosperity, both are also mutually dependent on trade with one another, and thus have a shared interest in regional and global stability to facilitate economic growth.

As the China-US trade dispute waged for most of last year, this year is the "year of Europe" for China, with an intensive agenda of visits between China and the EU planned and a playing up of the prospects for bilateral cooperation in the months ahead. Meanwhile, negotiations on an investment agreement between the EU and China are progressing and have entered a "critical stage" after six years of talks, a senior EU official said in January.

The large untapped opportunities for increased trade, investment, and movement of people between China and the EU are evident, and these opportunities are likely to grow with China's economic strength continuing to increase. As the EU is in a relatively mature phase of its development, the growth opportunities of a closer relationship with China, and the boost that China can indirectly provide to Europe's traditional markets elsewhere, cannot be ignored.

In an effort to improve and formalize the Comprehensive Strategic Partnership that they had established a decade earlier, in 2013 the two sides agreed the 2020 Strategic Agenda for Cooperation, an ambitious goal-setting document covering a wide range of initiatives in the fields of peace and security, prosperity, sustainable development, and people-to-people exchanges. Since its launch, significant convergence has been achieved between the EU and China, but disparities remain in some sectors, including trade, information and communications technology and the broader digital economy.

China's cooperation with the EU is undergoing profound changes. For the first time, on March 12,2019, the EU labeled Beijing "an economic competitor in pursuit of technological leadership and a systemic rival promoting alternative models of governance" in a document that mapped out a 10-point action plan to establish a more balanced relationship with China. Since then, China has strengthened its engagement with the EU, offering olive branches to Brussels and messages that cooperation outweighs conflict. China also appointed its first special envoy for European affairs－veteran diplomat Wu Hongbo－despite already having an ambassador to the European Union.

This year marks the 45th anniversary of the establishment of diplomatic relations between China and the EU. As a whole, since the establishment of bilateral relations, comprehensive cooperation has been established in many fields between the two sides. The rapid development in bilateral economic and trade relations makes the two closely interdependent. As both are rising powers in the world, they have the political will to cooperate with each other on many issues of international affairs, and that was where the talk of a comprehensive strategic partnership originated from.

However, it is not strong enough to counter their diverging interests. That is why more differences have been displayed over these years. The basic truth is that both China and the EU are also competitors within the confines of an international order under global stress, which is a crucial test of their wisdom and abilities to adjust themselves. Based on that premise, both China and the EU should raise their level of ambition with respect to closer ties.

The author is a postdoctoral fellow at the Institute of European Studies of the Chinese Academy of Social Sciences, and junior research fellow at the China-CEEC Think Tanks Network. 

he author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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