Watching China in Europe—February 2024

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China Tug-of-War

European policy toward China has evolved in recent years in the shadow of a tug-of-war between the European Commission and the bloc’s member states. Since the Commission published its 2019 strategic outlook paper that described China as a systemic rival, the EU executive has been doing its best to herd member states toward a more realistic assessment of China and the economic, technological, and security challenges its presents. And at each turn, member states have bristled, spooked by the rise in tensions with Beijing and seduced by drip-fed promises of a win-win bonanza. When German Chancellor Angela Merkel left the political stage in late 2021, her parting message to her successor, Olaf Scholz, and to France’s Emmanuel Macron was to do everything in their power to keep relations with Beijing on an even keel.

Over the past year it has been the Commission, under President Ursula von der Leyen, which has dictated the China agenda in Europe. Sensing a leadership vacuum on China policy, she gave a major de-risking speech in March, unveiled an economic security strategy in June, and an anti-subsidy probe into Chinese electric vehicle (EV) imports in October, before ending the year with a warning to China’s President Xi Jinping on trade at the EU-China summit in Beijing. But 2024 is likely to be different. The big member states are intent on wresting back control of the China narrative. And Beijing, with its recent gifts to Ireland on beef and Belgium on pork, is happy to lend a helping hand. “One of our top priorities this year will be to make sure that China does not pick off the member states one by one,” one EU official told me.

Fast-Track to Slow-Roll

Governments across Europe have been overwhelmed by the war in Ukraine, spreading conflict in the Middle East, stagnating economies, and an ominous surge of the far right. The terrifying prospect of a return of Donald Trump to the White House is also beginning to sink in. Against this backdrop, forceful pushback against Beijing has moved down the list of diplomatic priorities. That was evident from the economic security package that the Commission presented in late January. After spending the better part of a year trying to convince recalcitrant member states to establish red lines in their economic relationships with China, von der Leyen was forced to rein in her ambitious plans to overhaul Europe’s fragmented export control policies and introduce a European-style outbound investment screening regime. What looked like a fast-track approach in June has morphed into a slow-roll strategy.

The EU will not take a decision on whether to introduce an outbound regime until the end of 2025 at the earliest. And a Commission white paper makes clear that the bloc would prefer to address the risks associated with outbound investments using existing tools, rather than develop new ones. On export controls, the Commission is pressing member states to coordinate more closely at the political level and reduce the EU’s reliance on multilateral regimes such as the Wassenaar Arrangement, where Russia has blocked agreement on restricting emerging technologies. But it is unclear whether European capitals will budge. The only sure thing in the package is a change to the EU’s inbound investment screening regime to harmonize the approach across all 27 member states and close loopholes. “The Commission realized that it could not foist its economic security agenda on the member states. They are parking the matter and giving it time to ripen,” a veteran EU diplomat told me.

Unholy Alliance

There are four overlapping camps in Europe—the diplomat referred to them as an “unholy alliance”—that are resistant to the Commission’s economic security agenda. Germany leads a group of liberal free traders opposed to the idea of more trade and investment restrictions on companies. France leads a smaller group that is dead set against the idea of copy-pasting the US approach to China. A much larger collection of countries is concerned about Commission power creep. And another group of countries that do not produce the critical technologies that the Commission is targeting are questioning why they should allocate time and resources to the hugely complex task of monitoring them. All these groups are missing the bigger picture. If Europe fails to move swiftly to define its own approach to economic security, individual member states will come under ever-greater pressure from Washington and Beijing.

That is especially true of Germany, which only six months ago was celebrating the publication of a tough new China strategy. Fast forward half a year, and core elements of the strategy are being sabotaged by the Free Democrats (FDP), the junior partners in Scholz’s fractious three-way coalition. The FDP, which once cultivated a tough-on-China image, is now on a mission to ease any and all burdens on German industry, burning bridges in Berlin and Brussels along the way. At home, the party has blocked a phaseout of Chinese suppliers from the country’s telecommunications network to shield operators such as Deutsche Telekom from the costs of replacing Huawei gear. Scholz has shown little interest in resolving the impasse, and some officials now expect the government to wait until after the US election to take a 5G decision that is five years overdue and counting.

EVs and Medical Devices

At the European level, the FDP is threatening to torpedo EU legislation, years in the making, that would force companies to vet their supply chains for human rights abuses. The coalition explicitly backed the due diligence legislation in its China strategy. And, in December, the European Council, Commission, and Parliament finalized negotiations on turning it into law. But an eleventh-hour reversal by the FDP means Berlin may be forced to withdraw its support in a final vote next week. This could have a domino effect on other member states, killing what appeared to be a done deal. This comes after Berlin was forced last month to abstain from a vote in the Council to green-light negotiations on an EU ban on forced labor due to FDP reservations. The ban ended up passing despite a German abstention.

The party will not be able to stop the Commission from imposing duties on Chinese EVs later this year, a move the big German carmakers oppose because they fear Chinese retaliation. Nor can it stop the EU executive from deploying other tools in its China toolbox that are likely to deepen trade tensions with Beijing. I understand, for example, that EU action to respond to China’s discriminatory public procurement practices in the field of medical devices is imminent. China has done little to address long-running EU concerns about its treatment of foreign med-tech firms, officials say, despite EU warnings at the December summit in Beijing and at a meeting between von der Leyen and Chinese Premier Li Qiang in Davos.

Scholz to Beijing

But the pushback from Berlin is symptomatic of a broader trend that is likely to permeate 2024, a year in which member states will be engaging with Beijing and the Commission will be pulling back in the months before and after European parliamentary elections in June. Scholz is expected to make his second trip to China in a little over a year on April 15-16, with a business delegation in tow. And Xi is likely to visit France at some point in the spring to celebrate the 60th anniversary of French relations with the People’s Republic of China. Macron gave a taste of what to expect during his appearance in Davos last month, where he singled out Serbian President Aleksandar Vučić for praise (at 28:25 in this video) for striking the right balance between relations with the United States and China.