Watching China in Europe - April 2022

Welcome to Watching China in Europe, a 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 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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Tilting Toward Rivalry

The exchange did not descend into mutual recriminations like the one between top US and Chinese officials in Alaska one year ago. But the back-and-forth between European Union leaders and their Chinese counterparts last week was as fraught as it has ever been—and points to a new phase in the relationship which will be dominated by strategic competition and rivalry. According to officials privy to the conversations between European Commission President Ursula von der Leyen and European Council President Charles Michel on the one side, and China’s President Xi Jinping and Premier Li Keqiang on the other, there was no progress on any of the issues dear to the EU—Ukraine, Lithuania, and China’s sanctions against EU lawmakers. “We did not receive any reassurances. I don’t think we got them to move, and there are reasons to doubt whether they will digest and reflect upon the messages we delivered. But they were delivered,” one EU official said of the exchange on Ukraine. “The systemic rival box is now full to overflowing.”

The EU side went into the meeting with a three-pronged strategy for engaging with China on Ukraine. First, they confronted Xi and Li with the brutal realities of the war, including the Russian army’s targeting of civilians. Second, they appealed to China’s purported support for the principles enshrined in the United Nations charter—from territorial integrity and human rights to the peaceful resolution of disputes and respect for international law—making clear that Beijing was aligning itself with a regime that has displayed a wanton disregard for those principles. Lastly, they highlighted the economic costs of Russia’s aggression, debunking the Chinese narrative that sanctions imposed on Moscow are primarily responsible for the surging food and energy prices that are weighing on China and other countries across the globe.

Geopolitical Muscle

But the EU also flexed some of the geopolitical muscle it has so often shied away from using in the past. Von der Leyen issued a thinly veiled warning to China that it was risking an exodus of foreign investment by siding with Russia. She took a not-so-subtle dig at China’s struggles to stamp out Covid-19 despite draconian lockdowns, alluding to the effectiveness of Western vaccines and offering Europe’s help. She and Michel also threw back at Xi a message that he had used at the last EU-China summit in June 2020. China’s president had warned at the time, months before the US election, that siding with Washington would have long-term negative consequences for Europe. At the summit last Friday, Xi was told the same in relation to Russia. “What you are not doing or saying now, your silence, the words you are not using—all that is understood as support for Russia. And this will have long-term consequences for your geopolitical standing,” the EU official said, summing up the message to the Chinese side. “Von der Leyen teetered on the brink of threats,” the official added.

China’s leaders refused to engage on any of these messages, I was told, instead rolling out win-win platitudes about how united the EU and China are on everything from globalization and the pursuit of peace to multilateralism. “The verbal gymnastics were impressive. It was as if we were in two parallel meetings,” said the EU official. “China was trying to steer us toward the positive vision of the summit that they wanted—one in which there was no war in Ukraine.”

Lithuania and CAI

On Lithuania, China’s leaders suggested that the trade embargo imposed on Vilnius for embracing closer ties with Taipei could be resolved easily by a change in the name of the Taiwan representative office – while at the same time denying that such an embargo was really in place. This is the same message that Chinese officials have given in their first dispute consultation sessions with the EU at the WTO (due to China’s veto, they have taken place without the participation of countries like Australia, Canada, Japan, the UK, and the United States, which had sought to join the EU’s complaint). At the same time, EU and Lithuanian officials say China has begun allowing more Lithuanian goods into the country. China’s leadership may be easing the restrictions because it senses that other EU members are unlikely to follow Lithuania’s lead. Allowing in more Lithuanian goods also undermines the EU’s case at the WTO. “That pot will be left to simmer,” an EU official said of the dispute.

So will the sanctions standoff that has doomed ratification of the Comprehensive Agreement on Investment (CAI). At the summit, the Chinese side tried to put the sanctions ball squarely in the EU’s court, with Xi wheeling out one of his favorite sayings: “He who tied the bell to the tiger must take it off.” But Michel made clear that there was next to no chance that the EU would remove its Xinjiang sanctions so long as it was unable to verify that China had put an end to its repression of the Uyghurs.

One Eurasian Theater

Where does this leave EU-China relations? The two sides will continue to talk. A high-level economic dialogue is planned for the end of June. And regular consultations on climate issues will continue. I was told that Beijing is also pushing for an EU-China business summit later this year—an attempt to shift the debate back to economic ties and away from inconvenient issues like war. But the relationship has sunk to a new low, EU officials acknowledge, with no obvious paths for reversing a downward spiral that has been spinning for several years and is now accelerating because of Ukraine. Although the tone at the summit was cordial, a video call between Chinese Foreign Minister Wang Yi and the EU’s Foreign Policy Chief Josep Borrell three days beforehand was described to me as unusually tense, with Wang furious about the EU’s refusal to sign up to a feel-good summit agenda, replete with warm and fuzzy (not to mention empty) deliverables. This may be a sign of things to come.

I spent the past week in Washington, where confidence in transatlantic convergence on China is at an all-time high (more on this below). The big new idea is that the United States and Europe are confronted with a single Eurasian theater—rather than distinct fronts in Europe and the Indo-Pacific—that will demand ever closer cooperation as Moscow and Beijing seek to build out their zones of influence. But not everyone in Europe sees it this way. To no one’s surprise, one of the biggest question marks surrounds Germany, where Chancellor Olaf Scholz has declared a “Zeitenwende” (or historic turning point) in international relations but has yet to explain what this might encompass. In private conversations in recent weeks, his top advisers have sent signals that a shift in China policy may not be part of their foreign policy revolution. And some are resisting the idea that China and Russia pose a common threat—despite Xi and Putin’s “no limits” cooperation pact of February 4, Beijing’s support for Russia’s narrative that NATO triggered this war, and its silence in the face of Russian atrocities.

​Defining the Zeitenwende

Indeed, a battle is looming in Berlin to define Scholz’s Zeitenwende. In the foreign ministry, there is a feeling that the war in Ukraine and China’s embrace of Russia offer a chance to make long overdue changes to Germany’s foreign and security policy, including a recalibration of ties with Beijing. There is already frustration at what some in Foreign Minister Annalena Baerbock’s entourage view as a failure by Scholz to build on the momentum generated by his landmark February 27 speech in the Bundestag and explain to ordinary Germans what this new era really means. “This crisis is a window of opportunity, but the window can close fast,” one German diplomat told me. “Scholz doesn’t seem to have grasped this.”

Baerbock, laying out the guiding principles of Germany’s new national security strategy in mid-March, made clear how she feels. She said that Germany must not only rethink its relationship with Russia but also, in a nod to its ties to China, “rigorously address” its economic dependencies. “For a long time, we held to the principle of the more economic ties, the better. We are now seeing that one-sided economic alignments in fact make us vulnerable. Not just with regard to Russia,” she said, in remarks which triggered a call of protest from the Chinese embassy in Berlin.

A growing number of German businesses with operations in China seem to agree. A survey published by the German Chamber of Commerce in China in late March showed that 57 percent of companies expect changes in their approach to the Chinese market in response to Putin’s war in Ukraine, while 32 percent expect investments and other business deals in China to be put on hold. “The vast majority of German companies understand that this is much bigger than Russia,” a senior German industry official told me. “And the companies that are still closing their eyes to this are coming under huge pressure.”

Transatlantic Convergence

How Germany and its companies position themselves on China will help shape the course of transatlantic relations, which are looking stronger than they have in years. Ukraine has focused minds. The two sides clinched a preliminary deal on personal data flows last month, and transatlantic tensions over the EU’s crackdown on Big Tech and carbon border tax plans have eased in recent months. In the run-up to the EU-China summit, European and US officials consulted closely on the messaging. As one senior EU official put it to me: “Americans are re-embracing the importance of Europe. They see the benefits of an ally that can deliver messages to Beijing in a way they can’t.” In response to the war, Washington and Brussels have moved up their regular bilateral dialogue on China. Deputy Secretary of State Wendy Sherman is expected in Brussels on April 21-22 for meetings that will also touch on Lithuania, Taiwan, Indo-Pacific strategy, Chinese disinformation, and transatlantic cooperation in multilateral forums, according to US and EU officials.

Three weeks later, the second meeting of the Trade and Technology Council (TTC) will take place in Paris. Officials told me that draft conclusions had received a thorough scrubbing in response to the war in Ukraine. There will be a new focus on shoring up supplies of critical minerals given the importance of Russia for global supply chains. And there are thoughts about creating a more permanent real-time exchange mechanism on export controls, following what both sides are calling a huge leap forward in transatlantic cooperation on Russia sanctions over the past months. There is even a suggestion that the two sides could discuss outbound investment screening—an idea that senior officials in Biden’s National Security Council and members of Congress are pushing in relation to China. One aim of the tool is to address the risk that companies, which face controls on the export of certain technologies to China, could decide to set up shop in the country and produce them there. A few months ago, this was being dismissed in European capitals as an extreme American idea. That may be changing. “Outbound investment screening is an issue that could have a home in the TTC,” one EU trade official told me.