Watching China in Europe - June 2020

Welcome to Watching China in Europe, a new monthly update from GMF’s Asia 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 veteran journalist based in Berlin and a senior visiting fellow at GMF—will provide his personal observations and analysis on the most pressing China-related developments and activities throughout Europe. Click here to receive the newsletter version. 

Escalation Anxiety

Anxiety levels in European capitals are rising steadily as the U.S.-China confrontation shifts into overdrive. With Washington and Beijing lobbing threats and insults at each other on an almost daily basis, European governments are realizing there is little they can do to contain this conflict, and that increasingly—as EU foreign policy chief Josep Borrell conceded last week—they will be forced to choose sides. I spoke with officials in several capitals who said they were particularly concerned about the prospect of a U.S. election campaign in which both candidates are trying to out-hawk each other on China. The worry is that this would make a return to a more measured U.S. approach, even in the event of a Joe Biden victory, next to impossible. There are also concerns about how Beijing is reacting to the ever-hotter rhetoric from Washington. China’s decision to impose tough new security legislation on Hong Kong, undermining the “one country, two systems” principle that has governed the territory for over two decades, is being seen as a desperate move from a Chinese leadership that finds itself under pressure on many fronts and feels the need to reassert its authority, distract from its troubles, stoke the nationalist flames—or possibly all three. “We see a real danger of a self-perpetuating downward spiral in U.S.-China relations,” a senior European official told me.  “At some point, possibly soon, it becomes irreversible. You don’t know how it ends.”

Global Equilibrium

The approach in Brussels, Berlin, and Paris has been to continue to reach out to both Beijing and Washington. EU Trade Commissioner Phil Hogan wrote to his U.S. counterpart Robert Lighthizer in late April in an effort to kick-start what EU officials described to me as a “positive trade agenda” with Washington. But in an election year, with Washington consumed by China and the pandemic, there is little hope of any movement. Hogan, I’m told, is still waiting for a reply. Europe’s dialogue with China has also been slow-moving. Can Chancellor Angela Merkel’s mid-September summit in Leipzig, which would bring together all EU leaders and Chinese President Xi Jinping, still take place? It depends who you talk to. Some German officials whisper that a cancellation is around the corner. Others suggest the summit could be delayed until December, a move that would give negotiators more time and conveniently push the festivities beyond the U.S. presidential election. Delaying the summit could also make it easier for Merkel and the EU leadership in Brussels to follow through on their pre-pandemic plan to travel to Beijing to seal the deal with Xi. “The leaders need to sit down with each other. Otherwise it won’t get done,” a German diplomat told me. Officially, it is still happening in September, with everything on the table—an EU-China investment deal, joint climate action, development cooperation in Africa and global health, a late addition to an agenda that was already looking highly ambitious. Talk to officials in European capitals and you will find some who think the summit was a horrible idea to begin with. Opposition parties in Germany are now demanding that Merkel cancel the meeting because of China’s actions in Hong Kong. But a French diplomat who knows Germany and China well, told me that he saw the meeting as absolutely essential to restore an “equilibrium” to world politics at a time when relations between Beijing and Washington seem to be veering out of control. “Leipzig is an opportunity to rebalance the geopolitical landscape, to send a signal that Europe wants to continue to work with China. One can’t just throw away such a summit.”

Merkel's Message

What does the host think about all this? As far as she’s concerned, this meeting is happening. That was clear from a speech she gave at an event hosted by the Konrad Adenauer Foundation last week. It is not often that Merkel speaks at length about China in public. But when she does, there are recurring themes that shed light on how she thinks about the emerging superpower. This speech was one of those rare occasions. And she had four main messages: 1) China sees itself returning to its rightful place on the world stage and it is determined to play a role in shaping the global architecture 2) Europe has deep differences with China on issues of democracy, the rule of law and human rights 3) These differences are no reason not to talk and cooperate with a country that is too big to be ignored or isolated and 4) Dialogue is all the more important at a time when the confrontation between Washington and Beijing is reaching fever pitch. For Merkel too, this summit is an attempt to restore some global balance. Don’t expect her to give up on it easily.

5G Earthquake

Back to the issue of choosing sides. For over a year, European countries have been agonizing over whether to include Huawei in their 5G networks. Often this was framed as a choice between the United States and China. Now, all of a sudden, Washington may be taking that choice away from them altogether. New U.S. export controls, designed to prevent Huawei from getting the advanced chips it needs, are being seen as a potential game changer in the drawn-out European 5G debate. Even before the controls, the tide in Europe seemed to be turning against Huawei. A Conservative backbench rebellion had been building against Prime Minister Boris Johnson’s plan to include Huawei in the British 5G network. Johnson has now been forced to backtrack and wants to phase out equipment from the Chinese group by 2023. But the new U.S. rules could give other countries across Europe—including Germany and France—no choice but to rethink their plans to include Huawei. The EU’s 5G Toolbox warns member states against choosing suppliers that may be unable to deliver on their commitments. If Huawei is unable to get the chips it needs to build its base stations, then its 5G hopes in Europe could go up in smoke. “To us it looks like the entire business model of Huawei is now in danger,” a senior German government official told me. “If the U.S. follows through on this, we would see it as a major step towards decoupling. It points to a world where countries like Germany will have to decide whether they want to use U.S. or Chinese technology.” A year ago, when Huawei was first put on the U.S. Entity List, there were also predictions of its demise, only for the Trump administration to grant a series of exceptions to ensure rural U.S. operators who depended on Chinese gear were not cut off. In the meantime, Huawei suppliers that were based abroad, such as Taiwan’s TSMC, continued to sell to the Chinese company. A year before that, President Donald Trump personally intervened, following a plea by Xi Jinping, to give a reprieve to Huawei’s domestic competitor ZTE, which was facing collapse due to U.S. sanctions. These precedents have made European governments wary about taking the administration at its word. But this time does look different.

Hong Kong

A final word on Hong Kong. Europe’s initial reaction to China’s national security legislation was weak at best. It took days for the EU to put out a rather toothless statement. Meanwhile, capitals like Berlin and Paris stayed silent. But the backlash against China’s plan has been building steadily, blowing wind in the sails of politicians across Europe who have been arguing for more robust pushback against China. Expect the EU to tread carefully for now. After a meeting of EU foreign ministers last Friday, Borrell made clear that while the EU had “grave concerns” about developments there, it was not contemplating sanctions or other punitive measures against China in response. European politicians have convinced themselves that Hong Kong is primarily a British issue. Brexit has undermined prospects for a more joined-up European response.  But a deterioration of the situation in Hong Kong would deal another blow to China’s image in Europe, already damaged by its response to the coronavirus. This will narrow the political space for those leaders, including Merkel,  who argue that engagement and dialogue with Beijing is the only way forward. In that sense, Leipzig does feel like a crucial moment—a last chance to keep the relationship from veering off track. Still, the next stage in Europe’s slow-moving China policy rethink won't begin in earnest until early 2021. By then, a number of “known unknowns" will have been clarified, including who will be sitting in the White House for the next four years, and who is likely to replace Merkel as German chancellor next year. If the situation in Hong Kong deteriorates in the second half of 2020, it will surely shape this debate.