CHINA AND THE STRATEGIC TASKS FOR THE NETHERLANDS IN EUROPE No. 111, June 2019 ADVISORY COUNCIL ON INTERNATIONAL AFFAIRS ADVIESRAAD INTERNATIONALE VRAAGSTUKKEN AIV Members of the Advisory Council on International Affairs Chair Professor Jaap de Hoop Scheffer Vice-chair Professor Joris Voorhoeve Members Professor Tineke Cleiren Professor Joyeeta Gupta Professor Ernst Hirsch Ballin Professor Luuk van Middelaar Professor Mirjam van Reisen Monika Sie Dhian Ho Lieutenant-General (ret.) Marcel Urlings Executive Secretary Marja Kwast-van Duursen P.O.Box 20 0 61 2500 EB The Hague The Netherlands telephone + 31 70 348 5108/6060 e-mail [email protected] www.aiv-advice.nl Members of the EU-China Committee Chair Professor Luuk van Middelaar Vice-chair Monika Sie Dhian Ho Members Dirk Jan van den Berg Marnix Krop Professor Kees van Paridon Carlo Trojan Mirella Visser External experts Frans-Paul van der Putten Maaike Okano-Heijmans Executive Secretary André Westerink Contents Foreword I China joins the world order: a new player, a new game 8 Introduction: from convergence to recognising differences 8 I.1 China as a strategic player 9 I.2 Convergence after all? 12 II Europe between China and the US 14 Introduction 14 II.1 China’s view of Europe 15 II.2 America’s view of Europe in light of relations with China 17 II.3 Europe’s strategic task: four central questions 20 III Bilateral relations with China 22 Introduction 22 III.1 Ten member states 22 Germany 22 United Kingdom 25 France 27 Italy 29 Poland 31 Hungary 32 The Netherlands 34 Greece 36 Sweden 38 Belgium 39 III.2 The European Union 41 III.3 Regional initiatives 45 III.4 Intermediate conclusion: faultlines and coalitions 47 IV Issues between the member states 50 Introduction 50 IV.1 Market access and trade agreements 51 IV.2 Strategic economic policy 54 IV.3 Foreign direct investment screening 56 IV.4 5G networks and choosing Huawei equipment 57 IV.5 Arms 2.0: export of goods and technology with potential military applications 60 IV.6 Human rights 62 IV.7 Memorandums of Understanding on China’s ‘new Silk Road’ 68 IV.8 Chinese investments in ports 71 IV.9 Chinese investments in the Western Balkans 73 IV.10 China’s activities in the South China Sea 75 V Summary, conclusions and recommendations 78 V.1 Main lines of argument 78 V.2 Four strategic questions 80 V.3 Six motives 92 V.4 Seven strategies for overcoming a lack of consensus 94 V.5 A public matter 98 V.6 Ten recommendations (brief summary) 99 Annexe I Request for advice Annexe II List of persons consulted Annexe III List of abbreviations Foreword On 9 October 2018, the Advisory Council on International Affairs (AIV) received a request from the Minister of Foreign Affairs for an advisory report on the relationship between the EU and China, and especially the importance for the Netherlands of an effective, united European approach to China. In its request for advice (attached here as annexe 1), the government asked four subsidiary questions: 1. What policy areas are affected by the lack of unity in Europe’s approach to China and how is this manifested? Can the AIV identify the underlying reasons for this as far as the EU is concerned, and what role China plays in this? 2. Can the AIV indicate the political and economic consequences for the Netherlands in the absence of an effective, united European approach? 3. Can the AIV indicate ways (relevant to the Netherlands) in which a European approach to China could be made more effective and unified? How could the Netherlands contribute to this process? 4. What are the Netherlands’ specific interests and position in this regard? To what extent can and should we promote Dutch interests through the EU, or should this be done in other ways? Answering these questions requires first addressing a broader issue, namely the strategic arena in which the relationship between the EU and China is shaped and the kind of player China essentially is. The challenge that China poses for the Netherlands and the other EU member states, individually and together, can only be fully understood against this background. This report therefore starts by examining China’s significance as a new actor in the changing geopolitical order, focusing on its own specific characteristics (chapter I) and the dynamics this generates in the three-way relationship between Europe, China and the US (chapter II). The AIV then investigates the lack of unity in Europe regarding China from two perspectives. First, from the vantage point of the individual member states and their specific historical, political and economic relations with China (chapter III), portraits of their relations with the People’s Republic provide an insight into the motives behind their positions. Second we look at policy areas where there are a number of salient issues, such as human rights, 5G or investment screening, and what is at stake for the Netherlands in these areas (chapter IV). These two perspectives – member states’ motives and the political dynamics and/ or institutional options relating to a specific issue – provide an insight into strategies that may be able to reduce the dissension on China within the EU. Lastly, on the basis of this analysis of bilateral relations and specific issues, the AIV systematically lays out possible solutions and ways to strengthen European unity and capacity to act, both institutionally and substantively. The AIV then sets out its conclusions and ten recommendations (chapter V). Three general comments serve to place this advisory report in context. First, the political context: in May 2018, through a motion by MP Bente Becker and others, the House of Representatives asked the government to draw up a ‘China strategy’ for the Netherlands.1 This led to the request from the Minister of Foreign Affairs to the AIV last autumn to produce an advisory report on the European dimensions of the Netherlands’ China policy. On 15 May 2019 the government published a policy document on China entitled ‘The Netherlands and China: A New Balance’.2 Announcing its publication, the Minister of Foreign Affairs had an important message: ‘Without Europe, we cannot deal with China’.3 The AIV would like to situate this report, which was published in Dutch about a month after the policy document on China, explicitly on the terrain that the government seeks to explore in a European framework in the coming years in order to better promote the Netherlands’ interests and values. How can the European Union support the Netherlands and other member states in their relations with China to be (in the government’s words) ‘open where possible’ and ‘protective [of our way of life] where necessary’? The AIV hopes that this report will help politicians and policymakers in the Netherlands make strategic choices about China and give the broader public a greater insight into the situation. Second, a comment on methodology: dividing the world from a Dutch and/or European viewpoint into separate policy areas, in relation to the government’s first question, may be conceivable and useful, but is also part of the problem. As China links the economy and strategy, trade and geopolitics, such a fragmented approach immediately places us at a disadvantage. The Americans, too, see everything as interconnected, more and more explicitly.4 By placing all our choices in separate policy areas, Europe is making itself invisible as a geostrategic actor, whereas playing a geostrategic role is one of our key tasks. The strategic choices that the rise of China is forcing us to make, the difficult dilemmas it is presenting us with – between prosperity and security, between export growth and our commitment to human rights – can only be made and resolved with a comprehensive outlook. The not unlikely scenario of a direct confrontation between the US and China also calls for such an outlook, partly to address a number of crucial questions. Does China primarily offer opportunities or pose a threat? And if, in a country like the Netherlands, the answer to this question varies in different policy areas, who makes this judgment, in which forum, at national level and in the EU? To address these questions, the AIV makes recommendations in this report of both a substantive and institutional nature. Lastly, a note on the timing of this report. Current developments and events have been included up to 15 June 2019. In some of the areas discussed, such as the trade war between China and the US and the situation in Hong 1 Parliamentary Papers 33 694, no. 16. 2 Parliamentary Papers 35 207, no. 1. 3 See Alonso, S., ‘Stef Blok: zonder de EU kunnen we China niet aan’, NRC, 15 May 2019 (in Dutch). 4 See ‘Einde handelsoorlog VS en China nu mogelijk echt in zicht’, Financieel Dagblad, 6 May 2019 (in Dutch). This news report makes a direct link between two US navy ships patrolling in the South China Sea in the vicinity of the Spratly Islands and the trade talks between China and the US, which were due to resume at the start of May. China claims the largest part of the area near the Spratly Islands (see IV.10). Kong, things are changing rapidly. This does not, however, affect the AIV’s advice. In line with the request for advice, the AIV seeks to support the government and parliament in making specific, practical, immediate decisions: for example, on whether to do business with Huawei and how to cope with EU member states that obstruct EU statements on human rights. At the same time, with this report the AIV seeks to help orient participants in the debate in finding answers for the Netherlands to China-related questions that have not yet been formulated but will probably face us in one way or another in the near or not too distant future.