Watching China in Europe - December 2023
Welcome to Watching China in Europe, a monthly update from GMF’s Indo-Pacific Program. Now more than ever, the transatlantic partners need clarity and cohesion when it comes to China policy. In this monthly newsletter, Noah Barkin—a senior visiting fellow at GMF and managing editor at Rhodium Group—provides his personal observations and analysis on the most pressing China-related developments and activities throughout Europe.
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Denial to Acceptance
The five stages of grief laid out in Swiss-American psychiatrist Elisabeth Kübler-Ross’ 1969 book On Death and Dying—denial, anger, bargaining, depression, and acceptance—provide a useful, if imperfect, prism for understanding the ebbs and flows of Europe’s relationship with China. For years, Europe was in a state of denial about the direction China was taking under President Xi Jinping. Looking back, peak denial may have been reached in 2017, when Xi spoke at the World Economic Forum days before Donald Trump’s inauguration in Washington. Europeans in Davos swooned as Xi sold China as a champion of free trade that was prepared to play a bigger, more constructive role on the world stage. An EU commissioner who was in the audience told me at the time: "If we want to try to maintain a world economic model based on openness and free trade, it could be led by the EU and China if we do it smart.” Peak denial indeed.
By 2019, however, Europe was moving into the anger stage. China had not opened up as Xi had promised in Davos. On the contrary, European governments and companies were feeling the economic distortions from the country’s state-run capitalist model with increasing force, all while Xi was cracking down mercilessly in Hong Kong and Xinjiang. In March of that year, the EU labeled China a “systemic rival” and began developing its defensive toolbox—a series of legislative initiatives designed to level the economic playing field with China. Next came the bargaining stage in the form of the Comprehensive Agreement on Investment (CAI). This was a last-ditch attempt by former German Chancellor Angela Merkel to do a deal with Xi in the hope that this would right the wrongs in the relationship and prevent it from descending into competition and confrontation. This stage would prove short-lived. Within months, it gave way to what would be a prolonged period of depression, as the CAI imploded in a flurry of sanctions, Xi’s zero-COVID policies isolated China from the world, and his bromance with Vladimir Putin soared to limitless heights even as the Russian president was launching an illegal war of aggression on Europe’s doorstep.
Since European Commission President Ursula von der Leyen’s China speech of March 2023—and the de-risking agenda and anti-subsidy investigation into electric vehicle imports from China that followed—we have moved into the acceptance stage. Make no mistake, there are politicians in Brussels and other European capitals who seem stuck in a perpetual state of denial. But the story of the past year is one of increasing realism in Europe’s approach to China. And that realism will be on display next week, when the EU and China hold their first in-person summit since April 2019. “We are not going into this expecting to get much, but we will be asking for a lot,” one EU official told me. “Our message, broadly speaking, is this: If China doesn’t address a series of problems in the relationship, with the trade imbalance and Russia ties at the top of the list, then we will be forced to take action.”
Directly with Xi
Ahead of the December 7–8 summit, China has sent a number of conciliatory signals, as it did ahead of Xi’s meeting with US President Joe Biden on the margins of the APEC summit in San Francisco last month. Last week, Beijing announced visa-free travel for five European countries and, according to the Lithuanian foreign minister, it has quietly dropped some of its punitive trade measures against Vilnius, imposed at the peak of the depression phase in EU-China relations in late 2021. In preparatory talks, EU officials say Beijing has also shown a readiness to move on procedural matters. Expect a proliferation of market-access working groups to be rolled out, on everything from cosmetics and wine and spirits to financial services. But there is little hope that Beijing will move on the bigger issues—and so the EU is preparing its response.
I am told that the European Commission has completed all the preparatory work needed to launch a case against discriminatory procurement practices in the medical devices sector in China. Brussels has held off on announcing the case as it awaits new public procurement guidelines from Beijing. In the wind sector, reluctance from an industry that relies heavily on Chinese inputs has hampered the launching of a trade defense case. But officials could turn to their new foreign subsidies regulation to tackle the competitive distortions. And Chinese entities that the EU accuses of circumventing its sanctions against Russia could find their way into the bloc’s next sanctions package. Officials say they were removed at the last minute from a Commission proposal in mid-November so that EU leaders could address the matter directly with Xi before taking action.
Clash of Civilizations
How will the Chinese side respond to this tougher approach? The messages that Chinese officials and state media have been sending in the run-up to the summit have been interesting. Alongside the conciliatory signals, government proxies have derided the EU as arrogant, weak, self-absorbed, and engulfed in what a Global Times op-ed called a “clash of civilizations” as the far-right makes gains across the continent. Another piece, published in the days after von der Leyen delivered a tough China speech in Berlin, derided her for “submissiveness” to the United States and suggested she was more interested in securing support for a second term than in pursuing the long-term interests of the EU (which, as one might guess, happen to involve ever closer ties with China). The attempt to single out von der Leyen for blame for the problems in the relationship shortly before she travels to Beijing has not gone unnoticed in the buildings surrounding the Schuman roundabout in Brussels.
Some of the harshest messages were delivered by Victor Gao, a Chinese lawyer and academic who was given free rein to lob thinly veiled threats at his European hosts at a Friends of Europe conference in Brussels last month. Gao made a bold (and far-fetched) prediction that the Chinese economy would grow to twice the size of the US economy within 20 years, and urged Europe to “position itself well, in a timely manner” for this new world, before offering his thoughts on the poor state of infrastructure in the Belgian capital. “I was really shocked at the quality of the roads in Brussels. And I do personally want to help. But if you refuse Chinese help, be my guest. The loss is not on China, but [on] the Europeans,” he said, as the unctuous moderator chuckled awkwardly. And so, a dual message is emanating from Beijing. On the one hand, Chinese officials are scrambling to conjure up a successful show of Europe-China unity for Xi. And on the other, they are rightly worried that this summit may end up delivering the opposite.
Political Navel-Gazing
While Europe may not be on the verge of civilizational conflict, it has been rocked by a series of political thunderbolts in recent weeks that could affect policy toward China in indirect ways. In Spain, Pedro Sanchez secured a new term as prime minister, but only after clinching a controversial amnesty deal with Catalan separatists, leaving his coalition fragile and the country deeply divided. The Netherlands is reeling from the shock election victory of anti-Muslim populist Geert Wilders. And in Germany, a budget crisis has rocked Chancellor Olaf Scholz and his unhappy coalition government, deepening political and economic cracks in the EU’s largest member. The common thread in all these countries is that they are now likely to be engulfed in a prolonged period of political navel-gazing, which risks distracting them, and the EU, from longer-term policy challenges.
The German budget crisis has raised questions about whether the government can deliver the €15 billion in subsidies it has promised to TSMC and Intel to build chip plants in Dresden and Magdeburg. There is also talk that a long-delayed decision on whether to phase out Chinese suppliers from the German 5G network could be kicked into the long grass. I was told that a months-old proposal from the interior ministry for a soft phase-out has been discarded, sending the ministry scrambling for a new solution. Apparently Deutsche Telekom has been informing some of its suppliers not to expect a change in the government’s stance anytime soon. “Our reading is that nothing is going to happen, that Scholz has adopted Angela Merkel’s dodge-and-delay strategy,” one industry insider told me. Members of parliament from the ruling parties are now organizing to try to force the government’s hand in a surreal, Groundhog Day-like repeat of German 5G debates from 2019 and 2020.
De-Risking Package
The economic security debate in Europe is also dragging, although delays there have more to do with member-state pushback against the European Commission’s ambitious timeline than with any political turmoil. I understand that the Commission recently decided to push back the announcement of its de-risking package into early next year, and that it is now preparing for a lengthy consultative process with member states as they complete their risk assessments on critical technologies. The positive news is that the major European capitals appear to be fully engaged in this work. If the debate on export controls and outbound investment restrictions extends into the next Commission, von der Leyen will have achieved her goal—whether or not she is still sitting on the 13th floor of the Berlaymont herself.