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China: The Common Competitor

October 06, 2020
by
Transatlantic Task Force
8 min read
China is a growing market, a source of investment capital and technology, an economic and technological competitor, a potential military and environmental disrupter, and a systemic rival for Europe

China is a growing market, a source of investment capital and technology, an economic and technological competitor, a potential military and environmental disrupter, and a systemic rival for Europe and the United States that challenges transatlantic values and human rights norms. 

In a little over two decades China has evolved from a relatively insignificant player in the global economy to become the third-largest trading partner of the United States and the second most significant one for Europe. Both the European Union and the United States run politically troubling merchandise trade deficits with China. And the disruption of commerce resulting from the coronavirus pandemic highlighted the downside of U.S. and European dependence on global supply chains involving China. 

China has also evolved from a consumer to a producer of advanced technologies, thanks to massive subsidies and theft of intellectual property, with ambitions to become a major developer of emerging technologies, with competitiveness implications for U.S. and European firms.

At the same time, for the last two decades China has been the world’s fastest-growing domestic market. European and U.S. firms have heavily invested there. But these companies have encountered multiple shared obstacles: direct and indirect market-access barriers; forced transfer of their technology or trade secrets in order to maintain market access; lack of transparency, predictability, and fairness in government regulation; and inadequate protection for intellectual property. 

"Over the years, China has also transformed itself from a major recipient of foreign aid into a growing provider of investment and financial assistance to developing countries."

Meanwhile, China has become a major investor in the European and U.S. economies, with the vast majority of that capital flowing into mergers and acquisitions, not job-creating greenfield investment.29 In the last few years, Chinese investment in Europe and the United States has plummeted, because of China’s slower growth and Beijing’s new controls on the export of capital. What continues to grow are research and development partnerships, threatening leakage of sensitive U.S. and European technologies and know-how.

Over the years, China has also transformed itself from a major recipient of foreign aid into a growing provider of investment and financial assistance to developing countries. Beijing’s Belt and Road Initiative, a global infrastructure investment plan to build rail, road, and sea links stretching from China to Central Asia, Africa, and Europe, is President Xi Jinping’s signature foreign-policy project. Much Chinese lending is on terms markedly more onerous than those of World Bank loans, and is tied to procurement from Chinese firms.30 The debt burden created often outweighs the growth effects for some borrowers.

Beijing’s habitually poor record in protecting human rights has dramatically worsened in recent years. A million Uighurs have been detained in “reeducation camps” in Xinjiang, where their prison labor is often used to produce goods for export, including to satisfy the global demand for face masks during the coronavirus pandemic.31 China has imposed a new national security law on Hong Kong that tightens controls on journalists, social media, and schools, claims extra-territorial reach, and effectively ends Beijing’s 1997 promise of preserving “One Country, Two Systems” for Hong Kong until 2047.32 A crackdown on domestic dissent has been coupled with new restrictions and uncertainty for Western non-governmental organizations and journalists operating in China.

"Transatlantic cooperation in dealing with China faces obstacles because European and U.S. interests frequently diverge."

China is also becoming a major regional and global military power. While military outlays by the United States and its NATO allies have decreased since 2010, Chinese military spending is up 85 percent.33 China has accelerated modernization of its military through reforms and spending on advanced technologies, with the goal of becoming a major maritime power. In the Asia-Pacific, Beijing has intensified pressure on Taiwan, turned atolls in the South China Sea into naval stations with docking and runways, and claimed jurisdiction over adjacent international waters. China has built its first overseas military base in Djibouti, in a bottleneck between the Red Sea and the Western Indian Ocean, and has established ports in Sri Lanka and Pakistan. Expansion of China’s naval presence and capabilities could present a particular challenge for Europe, as the South China Sea and the Indian Ocean are passage ways for more than a third of European external trade in goods.34 

China’s unfair trade practices, its growing competitiveness in advanced technologies, patterns of Chinese investments in critical sectors across Europe and the United States, Beijing’s record on human rights, its growing military capabilities, and Beijing’s use of disinformation and propaganda to reshape global narratives, which has grown even more aggressive around its early suppression of information about the coronavirus, have all contributed to growing concern about China’s influence. A majority of Americans and Europeans now hold an unfavorable view of China.35 And two-thirds or more of the public in France, Germany and the United States have a negative view of China’s rising influence.36 The United States has increased tariffs on Chinese products, while Europe has taken steps to counter China’s unfair trade practices. And both have tightened screening of Chinese investment. 

Transatlantic cooperation in dealing with China faces obstacles because European and U.S. interests frequently diverge. Europe’s export dependence on the Chinese market is greater than that of the United States. Washington has security responsibilities in Asia that Europe does not. Before the coronavirus pandemic soured public views of China37 on both sides of the Atlantic, some opinion surveys showed that Europeans’ disapproval of China was largely driven by concern about Beijing’s human rights abuses, while Americans’ disapproval came from worry about economic competition from China. Americans and Europeans differ over priorities in dealing with China. A majority of French and Germans want their governments to get tougher on Beijing with regard to climate change, human rights, and cyber security.38 Half or fewer of the U.S. public agrees. And European governments prefer to deal with China multilaterally, while the U.S. government has recently favored bilateralism.

Nevertheless, despite their differences, Europe and the United States need to cooperate with China in reducing greenhouse-gas emissions if the global community is to have any chance of slowing climate change, containing future pandemics, and reviving the global economy.

Closer transatlantic cooperation and coordination in dealing with China will require policies that take into account both these shared and divergent interests. The single most important thing the United States and Europe can do is to pursue a unified approach. 

To that end the Task Force recommends: 

Pursue Reciprocity in Economic Relations with China: The United States and Europe should agree to reciprocity of opportunity as the organizing principle in their treatment of China in areas of common interest: market access, investment, protection of intellectual property, treatment of Western journalists, and the operation of Western non-governmental organizations in China. Such insistence on reciprocity must be backed by concerted action when it is not forthcoming.

Establish a Vice-Presidential Level Transatlantic Working Group on China: Europe and the United States should establish an ongoing, high-level transatlantic working group, first proposed as simply a dialogue in 2020 by the European Union and agreed to by the United States, chaired by the U.S. vice president and comparable officials in the European Union and major European countries, as well as national ministers of defense, foreign affairs, trade, finance, and commerce, to share intelligence, planning, and preparedness for the common economic, political, and strategic challenges posed by China.

Present a United Front on Human Rights: The United States and Europe should present a united front in dealing with Chinese threats to human rights. They can do so by developing parallel financial regulations that require full transparency about U.S. and European investment in China, prohibiting importation of products made with forced labor in Xinjiang and elsewhere, and agreeing in advance what actions they will take if China further erodes rights and freedoms in Hong Kong or threatens the integrity of Taiwan.

Counter Chinese Influence in the Developing World: Europe and the United States should work more closely to counter Chinese influence in third countries by providing political, economic, and technical assistance to develop alternative financing mechanisms for infrastructure projects so that they are less dependent on Chinese capital and less likely to incur debts for Belt and Road projects. 

Cooperate in Screening Chinese Influence: The United States and Europe should agree to comparable standards for screening Chinese investment and scrutinizing Chinese ties with Western universities and think tanks, for vetting of Confucius Institutes and Chinese researchers at European and U.S. universities, and for registration of Chinese media in Europe and the United States.

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29 “Pandemic and Politics: US-China Investments Hit Nine-Year Low,” Rhodium Group, September 2020.

30 Scott A. Morris, “China in Africa: Testimony before the U.S.–China Economic and Security Review Commission,” Center for Global Development, May 8, 2020

31 Jen Kirby, “Concentration Camps and Forced Labor: China’s Repression of the Uighurs, Explained,” Vox, September 25, 2020.

32 “Hong Kong’s National Security Law: 10 Things You Need to Know,” Amnesty International, July 17, 2020.

33 “What Does China Really Spend on its Military?”, ChinaPower, 2020.

34 Julian Weber, “China’s Expansion in the Indian Ocean Calls for European Engagement,” Mercator Institute for China Studies, October 11, 2019.

35 Laura Silver, Kat Devlin, and Christine Huang, “Attitudes toward China,” Pew Research Center, December 5, 2019.

36 GMF, “Transatlantic Trends 2020–Transatlantic Opinion on Global Challenges before and after COVID–19.”