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. We hope you find it useful, but if you would like to opt out at any time, please do so via the unsubscribe button below.

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It has been a whirlwind few months for Europe-China relations since European Commission President Ursula von der Leyen gave her speech on de-risking in late March. We have seen French President Emmanuel Macron make separate trips to Beijing and the South Pacific, describing China as both a special friend and a predatory power . We have seen German Chancellor Olaf Scholz roll out the red carpet for China’s Premier Li Qiang and endorse his narrow vision of de-risking. And we have seen the Dutch unveil their chip controls, the Commission lay out its economic security plan, the Germans publish their long-awaited China strategy, and the Italians announce that they will exit China’s Belt and Road Initiative. The picture that emerges from all of this is a confusing one. But my sense is that Europe has taken some big steps forward in reassessing the risks of doing business with Beijing.

That does not mean that we won’t continue to see European leaders sending conciliatory signals to China’s President Xi Jinping. Nor does it mean that the path to reducing dependencies on China will be a straight one, as announcements by German carmakers and French Finance Minister Bruno Le Maire’s visit to Beijing have reminded us over the past week. But de-risking has become the prism through which Europe views its relationship with China. Economic security will dominate EU discussions on China for the coming months, if not years. And Germany, the most important country in Europe as far as relations with China go, has endorsed this course in a public document that is much clearer in its language than many, including me, had expected. Now for the hard part: translating intent into concrete policies, in Brussels and Berlin.


Let’s take Berlin first. It was interesting to see Germany’s domestic intelligence agency issue a rare public statement so soon after the country’s China strategy was unveiled, warning German politicians to tread carefully in their interactions with members of the International Department of the Chinese Communist Party. My guess is that the statement, which accused the department of malign intelligence and influence operations, may be a sign of things to come from officials in the German administration who have been pulling their punches on China for years but now feel emboldened to speak out. These officials could now shift from defensive to offensive mode, using the government’s new strategy as cover.

As I wrote in Foreign Policy last week, I see the China strategy as an important milestone, despite the watering down of some language that appeared in a leaked draft last November. No, German companies won’t have to swallow new transparency requirements related to their China exposure or be subject to “stress tests”, as was floated in the prior draft. But firms that are celebrating this as a victory may want to hold off on the champagne. The strategy gives the government a green light to pursue a more restrictive approach, not only to investment guarantees (as was long known), but also export credit guarantees, which could have bigger implications. And it sets the stage for an in-depth dialogue between the government and companies that are particularly exposed to China, while signaling that further policy measures to address dependency risks are in the pipeline.

I understand that the relevant ministries in Berlin plan to make full use of the strategy, even if some of the language seems vague, to press ahead with an ambitious de-risking agenda. Although the focus has been on the public paper coming out of Annalena Baerbock’s foreign ministry, we shouldn’t forget that a much longer and more sharply worded set of internal China policy guidelines (also leaked but to less fanfare) was put together by officials in Robert Habeck’s economy ministry last year. The ministry has been finetuning that document and is now using it as a blueprint for policy action, I am told. Even as Berlin was emptying out for the summer, officials were busy laying out plans for implementation. Expect more news on that as early as September.


The publication of the China strategy does not, of course, resolve all the policy differences that exist within the German government. They are likely to come to a head again as Chancellor Olaf Scholz’s coalition debates whether to exclude Huawei from Germany’s 5G network. A first meeting among officials from the relevant ministries and the chancellery in mid-July highlighted a significant divergence in thinking, I was told, with the foreign ministry pushing for a rapid removal of the Chinese supplier, and the Free Democrat-led transport ministry pushing back against any steps that might compromise German network coverage.

Germany’s big three operators (Deutsche Telekom, Vodafone, and Telefonica) have estimated the cost of ripping out and replacing Huawei gear at €5 billion, I learned, and are pressing the government for damages in the event of a ban. But the chances of that look slim. “A realistic scenario is that we demand that Huawei is out of the core network by the end of 2024 and completely gone within three to four years, or five at the very latest,” one official privy to the discussions told me. “The operators don’t have a case for damages. It was always clear what risks they were taking on by continuing to deploy Huawei in the network.” Another German official said: “Our credibility is on the line here. The Commission has sent strong signals that it sees Germany as a problem child on 5G. We can’t just sit on our hands.”


In the meantime, officials at the European Commission are gearing up for a busy few months in which they will try to nail down von der Leyen’s economic security agenda. The first step will be to agree, by the end of September and in coordination with member states, on a list of critical technologies that could pose risks to European security. Once this diagnostic process is complete, the Commission will try to rally member states around a policy response, having promised proposals by the end of the year on export controls as well as inbound and outbound investment screening.

As I have written before, tweaks to the inbound regime are unlikely to be controversial. The bigger challenge will be convincing capitals to Europeanize their fragmented approach to export controls and to move in tandem with Washington on introducing new rules for outbound investments. Currently, there is robust opposition in the big member states to both. “I’m afraid these proposals will lead to an inconclusive discussion in the European Council,” one senior EU official told me. “All of this has come too late in the day to bring about legislative change under the current Commission.”


But it will be an interesting twist if, as Emily Benson of the Center for Strategic and International Studies suggested in a piece in Barron’s last week, the Biden administration takes a narrow approach to restricting outbound investments in a long-awaited executive order that is expected to land later this month . A minimalist US outbound tool that asks companies to notify the American government of their investments in a narrow set of sensitive sectors but is restrained in prohibiting investments, at least in an initial phase, might have higher chances of winning over skeptics in Europe, even if the hurdles would remain high.

I will be closely watching the build-up to the EU-US summit in October. As I mentioned last month, Washington and Brussels are pushing for complex deals on green steel and aluminum, and on critical raw materials. But they are also determined to send a collective signal on economic security during the gathering in Washington.

One thing seems sure: Europe will need years, not months, to finalize the policy changes that von der Leyen is seeking. Getting big things done before elections to the European Parliament next June looks like a huge stretch. Still, one can begin to see the outlines of a possible transatlantic policy package in the longer term. Whether the two sides can get it done is another question. Success could hinge to a large extent on second terms for both US President Joe Biden and von der Leyen.