Watching China in Europe - January 2023

Welcome to Watching China in Europe, a monthly update from The German Marshall Fund of the United States’ (GMF) Asia Program. Now more than ever, transatlantic China policy needs clarity and cohesion. In this monthly newsletter, Noah Barkin, GMF senior visiting fellow and Rhodium Group managing editor, provides his personal observations and analysis on the most pressing China-related developments and activities throughout Europe. 

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Known Unknowns

I have been following the ins and outs of Europe’s relationship with China for the past five years. Still, as 2023 begins, I am cautious about predicting where this relationship is headed. The known unknowns are increasing and the horizon has become disconcertingly blurred. In the final weeks of 2022, we saw China suddenly abandon the draconian COVID-19 restrictions that had come to define the country over the past three years—a policy reversal that has unleashed a deadly wave of infections across the country. We enter the new year with no end in sight to Russia’s brutal war in Ukraine and with fears of a conflict in the Taiwan Strait on the rise. There are worrying divisions in Germany’s government over China policy, which are poisoning the European debate, and cracks in the transatlantic relationship that risk deepening as the Biden administration presses ahead with new measures to restrict trade and technology ties with China. I am struggling to discern a clear path forward in 2023, but I have spent the past weeks speaking with a wide range of policymakers, diplomats, and executives in Europe, China, and the United States to assess the mood and to attempt to cut through the fog.
 
The biggest unknown of all concerns developments in China. If the overarching theme of the past three years, leading up to Xi Jinping’s “coronation” in October, was that ideology trumped economic considerations, is it safe to assume that the abrupt end of the zero COVID-19 policy has tilted the balance back in the other direction? If so, how sustainable is this rebalancing at a time when hundreds of thousands of Chinese are at risk of dying from the virus? The manner in which China’s leadership has veered from one extreme to the other on COVID-19, without preparing the ground for such a shift, should be reassuring to no one. It is not an indication, as some might believe, that Beijing is returning to its senses but rather the latest sign of how unpredictable policy has become under China’s new leader for life. If the all-powerful party-state could keep COVID-19 contained for three years, why could it not come up with a sensible exit plan that included a nationwide vaccination program and investments in China’s underdeveloped healthcare infrastructure? This should have been at the top of China’s policy priorities in 2022 and in prior years. Instead, the country is going through its own version of the Trumpian pandemic chaos the United States experienced in 2020, with a three-year delay.

New Charm Offensive

The European diplomats with whom I have spoken to believe that concerns about the state of China’s economy (see this recent note from my Rhodium Group colleagues for more on this topic), rather than the brief outburst of popular dissent in late November, are behind Xi’s COVID-19 U-turn. These same concerns appear to be driving a new charm offensive toward Europe, epitomized by China’s gregarious new ambassador to the EU, Fu Cong. He spent the final weeks of 2022 reassuring his interlocutors in Brussels—through a flurry of meetings, interviews, tweets, and op-eds—that Beijing is committed to improving relations. “China and the EU are the world’s two major forces, markets, and civilizations,” Fu declared, adding that there was “high-level political support” in Beijing for closer bilateral ties. 
 
Crucially, however, none of the European diplomats with whom I spoke said that China shows an inclination to budge on issues of substance. “They have adjusted their rhetoric, there is no question about that,” a senior EU diplomat told me. “But will China actually move on the issues that are important to us? That is the big question for 2023.” This diplomat spoke of reengagement on a new, sober basis without the illusions of the past. “No one believes in China’s win-win propaganda anymore. The Chinese have to realize that there will be no return to business as usual,” he said. But that does not rule out the possibility that some European capitals will interpret the new dulcet tones emanating from Beijing as something more meaningful. A French diplomat with whom I spoke described China’s COVID-19 reversal and the reengagement of its leaders with the outside world as a “paradigm shift”. This diplomat, pointing to President Emmanuel Macron’s upcoming trip to Beijing, added, “We have a window to relaunch the bilateral relationship and the broader EU-China relationship.”

The China-Russia Reality

In the chancellery in Berlin, one hears similar noises. Some officials are still congratulating themselves for having secured, during Chancellor Olaf Scholz’s trip to China in November, a statement from Xi opposing any nuclear escalation by Russia in Ukraine. But if one looks beyond the rhetoric, there is every reason to be concerned about China’s position. Over the holidays, as Russian missiles rained down on Ukraine in one of the fiercest air attacks since the start of the war, China and Russia conducted joint naval exercises in the East China Sea, and Xi held his traditional end-of-year call with Russia’s President Vladimir Putin. In that call Xi hailed their countries’ comprehensive strategic partnership as “more mature and resilient”. It is not wrong of European leaders to urge Xi to use his influence with Putin to end the war, as they have been doing since the invasion began nearly a year ago. But they should not assume that he will do so or that Beijing can be pried away from Moscow. Alexander Gabuev of the Carnegie Endowment described such hopes as “magical thinking” in an excellent Twitter thread just before Christmas. A December article by Lingling Wei and Marcus Walker describing Xi’s ambitions to deepen economic ties with Russia should also be required reading for European leaders such as Scholz and Macron.

Scholz Warns Xi on Taiwan

One pleasant surprise over the final months of 2022 was Europe’s position on Taiwan. Following China’s extreme reaction to the visit to the island by US House of Representatives Speaker Nancy Pelosi in August, I was concerned that European countries would become risk-averse and rein in their engagement with Taipei out of fear of provoking China. But the opposite has happened, with a flurry of visits, some public and others below the radar, taking place. We learned last month that Germany’s Education Minister Bettina Stark-Watzinger is considering a trip to Taiwan in early 2023. This would be the first visit by a German minister in more than a quarter of a century. One German diplomat described the message to China as: “If you continue down the path of confrontation, then you are going to see more, and not less, engagement with Taiwan.”
 
I learned from several officials who were briefed on Scholz’s conversation with Xi in Beijing in November that the chancellor was unusually frank with China’s leader about the consequences of a military intervention in Taiwan for the bilateral economic relationship. “It was an incredibly clear message,” one diplomat told me. “No Chinese leader has ever heard anything like this from a German chancellor on an issue of core interest to Beijing.” I was told that European Council President Charles Michel delivered a similar message on Taiwan when he met Xi a month later. This reflects a growing sense in the big European capitals that Taiwan’s future is of vital interest to them, too. Over the second half of 2022, Europe learned that it cannot afford to remain on the sidelines and leave the heavy lifting to the United States. Taiwan will be an increasingly important theme in the EU-China relationship this year as the January 2024 presidential election on the island approaches, Washington will ratchet up military support for Taipei, and Japan will put Taiwan on the multilateral agenda during its G7 presidency. Behind the scenes, the United States is encouraging Europe to do more. “The question is whether Europe is ready to move beyond the talk and symbolic steps on Taiwan and to take action,” a Brussels-based diplomat from a non-EU country said. “I’m not sure they are there yet.” 

Transatlantic Scars

What of the broader transatlantic relationship? My sense is that the “Made in America” tax credits in the Inflation Reduction Act (IRA) are likely to leave deep scars in Europe, even after adjustments by the US Treasury Department designed to assuage European concerns about the legislation. This will inevitably have an impact on EU-US alignment on China. “I think the EU and US are closer on China than they’ve ever been,” the Brussels-based diplomat said. “But if the underlying relationship is not firing on all cylinders, then agreement on the big foreign policy challenges becomes more difficult.” I found the recent comments by EU Trade Commissioner Valdis Dombrovskis especially striking. A staunch supporter of the transatlantic relationship, Dombrovskis warned that the massive subsidies in the IRA could end up driving European companies into the arms of China. At a time when Beijing is whispering sweet nothings in the ears of Europeans, this message should worry Washington, where officials are preparing to roll out an outbound investment screening regime to complement tough new technology controls aimed at China. In 2023, there is a significant risk that transatlantic differences over how to recast the economic relationship with China, which have been simmering for years, will boil over.

Strategy Struggles

My newsletter would not be complete without an update on the China debate in Berlin, where there are also reasons for concern. On the positive side, the chancellery has agreed to postpone government consultations with China, initially planned for January 9, until a new Chinese government is in place in the spring. But internal negotiations over the new national security strategy are not going well, according to several people with whom I spoke. It was reported last week that Scholz and Finance Minister Christian Lindner put a hold on talks on the security strategy in mid-December due to differences with the foreign ministry over content, including the language on China. This could delay the unveiling of the strategy beyond the Munich Security Conference in mid-February. Talks on the China strategy are also proving problematic. People who have spoken with officials on Scholz’s team say they would like to cut the 60-page draft from Foreign Minister Annalena Baerbock in half, tone down its language, and excise several policy proposals. “We have a consensus in Berlin on a lot of questions,” one official told me. “The differences are over how fast we move and how far we go.” Meanwhile, Beijing has seized on the divisions and, according to several officials with whom I spoke, launched a campaign to sideline Baerbock. It would be disastrous if Scholz allowed that to happen.

Whatever It Takes

Finally, a word on Global Gateway, European Commission President Ursula von der Leyen’s stillborn answer to China’s Belt and Road Initiative. I have detailed in past newsletters the problems with the initiative, including the lack of new money, the bureaucratic infighting over strategy, and the lack of ownership in Brussels. (For a good, recent summary of these problems, see this story.) There is now a plan afoot, I am told, to tackle the ownership problem, through the appointment of a Global Gateway czar, who would have the authority and autonomy to get the project back on track. “We need a czar,” a senior European diplomat told me. “The idea is to have a former head of state, someone very visible.” The preferred candidate is Mario Draghi, the former president of the European Central Bank and, until last October, Italy’s prime minister. I understand that, at a Global Gateway board meeting in December, there was strong support for the idea of appointing a czar, though Draghi’s name was not explicitly mentioned. If he could save Europe, the thinking goes, perhaps he can save this initiative. The only question is whether “Super Mario” will say yes.