In the January edition of Watching China in Europe, Noah Barkin looks at trade tensions, the first trip to Europe in five years from Xi Jinping, and EU and US elections that may overshadow all else.

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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Keep the Seatbelts Fastened

When peering into the Europe-China crystal ball, it is tempting to dismiss 2024 as a year in which relations will enter a form of suspended animation. In a few months, the legislative wheels in Brussels will grind to a halt and Europe will be consumed by parliamentary elections and horse-trading over top jobs in a new European Commission. Then the focus will shift to the United States and the close-your-eyes-and-hope-for-the-best presidential rematch between Joe Biden and Donald Trump. Until the dust settles on both elections, my expectation is that neither Europe nor China will want to lean too far out the window. “If the EU is in a full-blown confrontation with China when Trump is elected, then that will be bad for Europe,” one EU official told me. Another, pointing to the conciliatory tone from Chinese leaders at the EU-China summit in early December, said: “The Chinese don’t want a fight. They will only bite if they feel they have to.”

Still, I am not expecting a quiet start to the new year. A lot can and will happen in the months before election season begins in earnest. On January 13, Taiwan will hold a consequential presidential election of its own, in a test of increasingly strained cross-strait ties. On January 24, the European Commission (EC) will unveil a package of economic security measures that could have major implications for Europe’s future trade and investment relationship with China. A week later, senior EU and US officials will meet in Washington for the fifth edition of their Trade and Technology Council, amid rising frustration in Brussels with the lack of transatlantic momentum on trade. In the months that follow, Chinese President Xi Jinping is expected to make his first visit to Europe in five years, returning to Paris (his last stop in 2019) to celebrate the 60th anniversary of relations between France and the People’s Republic of China (PRC).

Before the summer break, the EC is expected to slap duties on electric vehicle imports from China—a harbinger of what is likely to become an increasingly strained trade relationship between Brussels and Beijing in the years ahead as the EU girds itself for a flood of green technology products from China. Also on my radar is the NATO summit in Washington in early July, where the United States and Europe may struggle once again to contain their differences over the alliance’s role in the Indo-Pacific. “When the Americans tell us there will be no surprises on China, it’s like a dentist telling you that it won’t hurt,” one French diplomat told me. So no one should unbuckle their seatbelts just yet. Below are some of the key themes on my mind as we head into 2024.

The Future of Europe’s Economic Security Agenda

EC President Ursula von der Leyen has become the face of European China policy over the past year, pointing the way forward with her China speech in March, and following that up with an economic security strategy in June, sandwiched between two visits to Beijing. Later this month, she will present a package that includes a legislative plan for reforming Europe’s inbound foreign direct investment (FDI) screening regime, proposals for closer European coordination on export controls, a roadmap for consultations on outbound investment restrictions, and a white paper on dual-use research security. Most interesting to me will be the Commission’s language on inbound greenfield investments, at a time when Chinese EV and battery firms are ploughing into Europe (more on this below), and how it squares the circle on export controls amid pushback from big member states such as Germany and France that oppose any centralization of policy.

The past months have underscored the need for Europe to adapt its approach. The United States has ratcheted up pressure on the Netherlands in recent months to restrict sales of advanced chip machines to China and an annual meeting of the Wassenaar Arrangement (the multilateral forum for export controls on dual-use goods) in late November failed for the second consecutive year to reach a consensus on emerging technology controls. “If you put together the failures of the multilateral regime with the vulnerabilities created by our current fragmented approach, then the only solution is more coordination,” one Commission official told me. “No one can put their head in the sand any longer.” Momentum behind the broader economic security agenda will hinge, in part, on whether von der Leyen returns as Commission president after EU elections on June 6–9. If her conservatives emerge as the largest group in parliament, a second term seems assured.

Another April Surprise from Macron?

There is no fixed date for Xi Jinping’s spring visit to Paris, but I am told that late March or early April is most likely. “It is clear that he will come,” one French official said. Other European capitals, including EU institutions in Brussels, will be watching nervously after French President Emmanuel Macron’s bungled messaging on a trip to Beijing last April, in which he appeared to play down Europe’s stake in the fate of Taiwan and suggested that Washington was provoking a conflict with China over the island. The message infuriated members of the Biden administration and sparked strong reactions from members of Congress. Similar signals from Macron this spring, in the midst of a US election campaign, could add fuel to the narrative in some Republican circles that Europe is not worth defending.

The bigger risk is if Macron uses the visit to announce a bevy of business deals with China, as he did in Beijing last year. Senior French officials have been telling the country’s multinationals since last summer that the 60th anniversary celebrations offer a chance for them to make new inroads into China. At the same time, Macron’s government has been pushing aggressively for Chinese investments in France, particularly in the electric vehicle space, where French firms fear they could be cut out of supply chains. But the results have been mixed. Chinese telecommunications group Huawei may be pressing ahead with plans to build a mobile phone network equipment factory in France. But the country lost out on a bigger prize in December, when Chinese EV giant BYD announced that it would build its first European production plant in Hungary. French Finance Minister Bruno Le Maire had visited BYD headquarters in Shenzhen last year to try to convince founder Wang Chuanfu to invest in the Hauts-de-Seine region north of Paris.

The BYD setback shows the limits of a strategy that has mixed cloying rhetoric from Macron on the depth of Franco-Chinese friendship with a targeted campaign to exclude Chinese exports from the European market. A new French subsidy scheme for EVs was designed in part to force Chinese firms to set up shop in France. But BYD can presumably qualify for the scheme by producing cars in Hungary and then shipping them to France. At a more basic level, von der Leyen has understood what Macron has not: Europe gains leverage with both Beijing and Washington by working closely with the US administration. If Europe goes down its own path, its influence in the superpower capitals is likely to wane. The return of Trump, of course, would seriously challenge this maxim.

The Budapest-Beijing Connection

If I were to hazard a guess about which other European countries Xi might visit on his spring trip, then Hungary would be at the top of the list. The BYD announcement, which comes one and a half years after Chinese battery giant CATL unveiled plans to invest over €7 billion in a plant in eastern Hungary, looks like something of a game changer in terms of Hungary’s relationship with China. Illiberal strongman Viktor Orbán has been the best friend of China within the EU for years. Hungary was the first Eastern European country to sign on to Xi’s Belt and Road Initiative (BRI), and Orbán is the only European leader to have attended all three BRI forums, including the last one in October, where he stoked outrage by meeting with Vladimir Putin. His government has blocked EU aid to Ukraine, opposed European efforts to de-risk from China, and last month was the only EU country not to sign a declaration that vowed to shield the European wind industry from unfair competition from China. Like France’s Le Maire, Orbán paid a visit to Shenzhen last year, visiting not only BYD but also Huawei, which operates its biggest logistics hub outside of China in Hungary, with a staff of over 2,000.

The Chinese leader has not been to Hungary since 2009, when he held the post of vice president. With the 75th anniversary of relations between the two countries looming, and the Budapest-Belgrade railway—a flagship BRI project in Europe—due to be completed next year, a second visit would make sense. For Orbán, whose support for China has been more rhetorical than substantive in years past, the massive Chinese investments in his country could herald a shift to something more ominous: a new role for Hungary as a hub of Chinese influence in the EU. Ironically, China’s closest ally in Europe happens to be the best friend of the anti-China Republican right in the United States. How Orbán would juggle these contradictions should Trump return to power next year is unclear. I suspect that for The Donald, politics would trump geopolitics.

A Perfect Storm in Germany

It has been nearly half a year since Germany unveiled its new China strategy—and we have heard little from Berlin since then. That is partly because the government has been preoccupied with other things: a stalling economy, a budget crisis, plunging opinion poll numbers, and conflicts in Ukraine and the Middle East. As I have written in these pages before, a decision on whether to phase Huawei out of the 5G network appears to have been kicked into the long grass by Olaf Scholz’s chancellery. And new laws designed to protect critical infrastructure and overhaul inbound FDI screening are unlikely to be ready for months.

But behind the scenes, there is movement. Germany’s Economy Ministry has been reaching out to leading companies seeking details about their China dependencies. A three-page questionnaire sent out in late October presses firms for details on their presence in the country, the revenues and profits they make there, their risk management practices, and their plans for future investments in China. “What would an end to your China business, either on a temporary or permanent basis, mean for your company’s ability to continue to operate?” one question asks. Firms are apparently shying away from providing the government with information that is not already in the public realm. “They are providing the bare minimum,” one senior industry official said. A government report card on the China strategy, expected by the one-year anniversary in July, will make for interesting reading.

Against this backdrop, I am told that Scholz is considering a second trip to China in the first half of the year. Xi, who has not visited Germany since attending a G20 summit in 2017, seems unlikely to stop in Berlin when he passes through Europe in the spring. As I see it, the big question for Germany, as we head into 2024, is whether the government is prepared to live with greater tension in its relationship with China. My guess is that the perfect storm of economic and political challenges that Germany faces—and the prospect of another Trump presidency—will make Scholz more risk-averse than ever in the year to come. But in the end, shifting economic dynamics between Germany and China will force Berlin’s hand. “We need to prepare for a world in which we provide less and less of what China needs,” one German official told me. “We will play an ever-smaller role in their market. And there is a risk, if we do nothing, that they will come to dominate ours.”