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BEIJING (MNI)

China is likely to avoid economic measures in its tit-for-tat sanctions against the EU as that could broaden tensions and potentially derail a hard-won investment deal with the bloc, advisors told MNI.

The latest expression of Chinese outrage at Western allegations of human rights abuses has played out mostly on social media against brands such as H&M, Burberry, and Adidas. The public backlash, triggered initially by state media reports that picked on H&M for comments it made months ago about not using cotton made in Xinjiang, has included boycott threats. H&M has since been erased from Chinese e-commerce platforms and maps. Still, formal sanctions against European companies are not likely unless tensions escalate further, advisors said.

"China cherishes the deal with the EU," said Ruan Zongze, executive vice president of China Institute of International Studies (CIIS), adding that both sides need it considering the growing bilateral trade and investment.

"Beijing's measures are limited to the political area without formally targeting European companies and their investment in China," said Cui Hongjian, head of European Research at CIIS.

Concluded in December, the Comprehensive Agreement On Investment (CAI), which includes sensitive issues such as labour rights, was widely seen as forestalling a U.S.-EU trade alliance against China and hence a strategic victory for Beijing. The pact has to be endorsed by the European Council and the European Parliament before it takes effect but the EP cancelled a debate on it after China's retaliatory moves earlier this week.

NO SURPRISE

According to Ruan, the cancellation is no surprise as the EU had to respond to China's sanctions.

Beijing has so far announced a blacklist of 10 individuals, including European lawmakers, after the EU sanctioned four Chinese officials alongside the U.S., UK, and Canada for alleged human rights abuses in Xinjiang.

EU Trade Commissioner Valdis Dombrovskis described China's retaliatory move as "regrettable and unacceptable" and said the CAI ratification process cannot be separated from the wider relationship.

Cui said Beijing believes the two sides can still cooperate economically despite the gulf on the human rights issue but the EU will have to figure out whether it is willing to manage differences with China or risk losing the deal for its own reason.

TONE DOWN

Advisors note there is still time for diplomacy to tone down the conflict. Two advisors close to the government said they expect the deal to be ratified only after France takes over the EU Council Presidency in 2022.

China will want to assess whether formal economic sanctions will make the EU change course before it decides to escalate or tone down tensions, said Wang Peng, director of the Research Department at the Center for International Energy and Environment Strategy Studies at Renmin University.

Asked about the EP's decision to cancel the meeting, Gao Feng, a Ministry of Commerce spokesman, told reporters Thursday that China and the EU are continuing with the necessary legal review work. Gao also urged international brands under attack to correct their practices, saying that allegations of forced labour in Xinjiang were "completely fictional."

MNI Singapore Bureau | +65 9 632 1991 | sumathi.vaidyanathan.ext@marketnews.com
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MNI Singapore Bureau | +65 9 632 1991 | sumathi.vaidyanathan.ext@marketnews.com
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