Watching China in Europe - April 2023

April 04, 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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The Speech

Europe was powered for decades by a Franco-German engine. But lately, the bloc seems to move forward despite, not because of, Berlin and Paris. This has been the case with the war in Ukraine, where eastern European countries have done much of the leading, with a helping hand from the United States, while the Germans tie themselves into knots over weapons deliveries, and the French lament the death of strategic autonomy in real time. It has also been true for China policy. The German government is deeply divided on relations with Beijing, has yet to unveil its new China strategy, and is struggling to deliver on its promise to nudge Europe toward a more united stance. France, meanwhile, seems primarily concerned with distancing itself from Washington. Ahead of President Emmanuel Macron’s visit to Beijing this week, a French official told me: “We have no intention of joining a US campaign to isolate China. We want to create a shared future with them.”

Enter European Commission President Ursula von der Leyen, whose China speech last Thursday was a bold attempt to fill the leadership gap on one of Europe’s most acute foreign policy challenges. Like the 2019 strategy paper from her predecessor Jean-Claude Juncker, which labeled China a “systemic rival”, von der Leyen’s speech was designed to cut through the thickening fog around Europe’s China policy and chart a clear path forward. Herding 27 member states will not be easy. Support from Berlin and Paris will be crucial but is far from guaranteed.

Von der Leyen has put forward an agenda that will define the China debate in Europe this year and force capitals to respond. As a former German defense minister whom Macron nominated for the Commission presidency and whose father once ran the state that Volkswagen calls home, she is uniquely placed to sell a tougher line to key European capitals. No national leader could ever give a China speech as frank as the one she gave. “One thing is clear. She is taking risks, leaning out the window, showing real leadership,” a senior EU diplomat said of the speech. Another senior EU official put it this way: “This speech was badly needed. What frightens me is the follow-up. She will need to get the big member states on board. If she does, then the smaller states will follow. But I would not underestimate the challenge.”

Losing Sight

The speech contained two main messages. The first is that Europe needs to stop deluding itself about China’s trajectory under President Xi Jinping. In unusually stark language for a leading European figure, von der Leyen spoke of Xi’s ambitions to turn China into “the world’s most powerful nation”, his support for Russian President Vladimir Putin in spite of his “atrocious and illegal” invasion of Ukraine, and Beijing’s readiness to weaponize its economic ties with other countries to “ensure that China gets what it wants”.>

In recent months, von der Leyen’s team grew worried that leading European politicians and senior EU figures in Brussels were losing sight of the lessons from Russia’s invasion of Ukraine. Some appear to have convinced themselves that deeper engagement with China is the proper response. But if you are traveling to Beijing to try to convince Xi to use his influence on Putin, why muddy the waters by bringing a business delegation along or choosing to speak at a business forum? It has begun to look unseemly. At the same time, Chinese diplomats in Europe have been pressing for a revival of the EU-China Comprehensive Agreement on Investment (CAI), receiving positive signals from some European officials. “There was concern that if we didn’t point member states in a certain direction, there was a risk that we would be heading in the wrong direction,” one European Commission official told me.

The second message from the speech is that Europe needs to get serious about the risks arising from its close economic relationship with China, particularly when it comes to the transfer of advanced technologies. The “de-risking” approach laid out by von der Leyen is an attempt to bridge what has begun to look like a widening transatlantic gap on technology engagement with China while charting a course distinct from Washington’s. “We’re sick of copy-pasting what the Americans are doing,” one EU official told me. The challenge the Commission faces is simple: powers to control exports and investments remain in the hands of the member states. Without their buy-in, Brussels can do little to overhaul policy. The hope is that capitals such as Berlin and Paris come around to the view that a more proactive and coordinated European approach is needed to avoid a repeat of the recent case in which the Netherlands, under pressure from Washington, introduced export controls on semiconductor manufacturing equipment. Those controls are just the beginning: New US controls on quantum computing are in the pipeline, as are restrictions on US outbound investments in China.

After Wassenaar

Paralysis in the Wassenaar Arrangement, the multilateral export control regime that counts Russia as a member, is another reason why the Europeans may be forced to reconsider their approach. Last week in Washington two meetings took place that could ultimately pave the way for important changes in the way the United States, Europe, and their allies coordinate controls on critical technologies to China. The first was a Multilateral Action on Sensitive Technologies (MAST) meeting hosted by the State Department, a Trump-era forum that met for the first time since Joe Biden took office. The second was an informal gathering of a newly created G7 working group on export controls. Among the discussion points, I was told, was a reconfiguration of the international system on export controls away from Wassenaar and toward a plurilateral grouping of like-minded countries. “Some countries are more enthusiastic than others,” one European official told me.

The absence of European Commission representatives at these meetings is a sign that EU member states remain wary of giving Brussels a bigger role on export controls. Resistance to an outbound investment regime, which von der Leyen also backed in her speech, is likely to be just as fierce. In the chancellery in Berlin, officials are uneasy with terms such as “economic security” and “de-risking” in relation to China. Still, they are finding it hard to avoid them. Japanese officials gave their German counterparts an earful during German-Japanese government consultations in mid-March. “It was China, China, and more China,” one diplomat told me. “It was a real eye-opener for those in the German government who have not been paying attention.” Von der Leyen and her team have understood that only by developing a European approach to economic security can the EU hope to sit down with close allies such as the United States and Japan and have a conversation at eye level. If European capitals keep their heads lodged firmly in the sand, by contrast, they will be forced to react on the fly to policy developments in Washington. If that is the path they choose, they shouldn’t go running to Brussels for help when the going gets tough.

Le Re-Risking

It is against this backdrop that Macron and von der Leyen are traveling to Beijing this week. The French president invited the head of the EU’s executive body to send a message of European unity akin to the one sent back in 2019, when he invited her predecessor, Juncker, and German Chancellor Angela Merkel to Paris for a meeting with Xi. But after von der Leyen’s address last week, the challenge of singing from the same song sheet has grown. She dismissed in her speech the idea that Xi could be counted on to play a constructive role in the Ukraine conflict and pushed for a de-risking of Europe’s economic relationship with China.

Paris sees it differently. French officials close to Macron have indicated in recent weeks that he is considering offering Xi a deal along the lines of this: France will resist US pressure to decouple from China if Beijing invests diplomatic capital in bringing about peace in Ukraine. To drive home the point, I was told that a large Airbus investment in China could be announced during Macron’s visit. This looks a lot like re-risking à la française. “Don’t mistake this for a good cop, bad cop act,” one German observer said of Macron and von der Leyen. “That would presume coordination on the messaging.”

Packed Spring

The Beijing trip will be the first test of whether von der Leyen’s economic security agenda can succeed, but it will be followed by a series of other meetings in the run-up to the summer that are likely to reveal much more. G7 leaders will meet in May in Hiroshima, with economic security high on the agenda. This will be followed by an EU-US Trade and Technology Council meeting at the end of that month in Sweden. The big test, however, is likely to come at a European Council meeting in June, when the Commission is expected to present the initial elements of an economic security strategy to member states. Building on this discussion, von der Leyen’s cabinet will work with the White House on an agenda for an EU-US summit that is tentatively scheduled for October. An EU-China summit will have to wait until after that, Commission officials say, despite a push from European Council President Charles Michel to hold it this spring.

In Germany, the China calendar is also about to get busy, with the country’s first National Security Strategy—“a sea of platitudes” in the words of one diplomat—likely to be published in late April or early May. German-Chinese government consultations may follow in late May or early June, and the government’s China strategy is likely to be presented in the months thereafter. I will also be keeping an eye on Chinese shipping giant COSCO’s pending acquisition of a stake in a terminal at the Hamburg port, which I am told is being held up in the German economy ministry and looks unlikely to be approved anytime soon. As early as July, the chancellery and German ministries will decide whether to phase Chinese suppliers out of the 5G network. I have been told by government officials that the mood in Berlin has shifted against Huawei. I will believe it when I see it.