Watching China in Europe - February 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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Breton And The Dutch 

Thierry Breton is not a beloved figure in Washington. The EU’s internal market commissioner is an ardent proponent of European strategic autonomy, a vocal critic of US President Joe Biden’s Inflation Reduction Act (IRA), and a thorn in the side of American platform companies such as Twitter. But he struck a different tone when he appeared last Friday at an event hosted by the Center for Strategic and International Studies. Breton told his audience that Europe was in full agreement with the US goal of denying China access to advanced semiconductors and quantum technologies. He warned against replacing Europe’s fossil fuel dependencies on Russia with green technology dependencies on China. And he proposed a new model of cooperation to secure access to critical raw materials, accusing China of economic exploitation in Africa. Breton even had some nice, if slightly ironic, words for the IRA, saying Europe was looking at the US approach “for inspiration”.

As Breton spoke, negotiators from the US, Japan and the Netherlands were meeting elsewhere in the US capital, putting the finishing touches on an agreement to restrict the export of advanced chip manufacturing equipment to China. There was no news conference in the Rose Garden, no press release detailing what had been agreed, nor any public statements by officials from the three countries involved. But make no mistake, the deal represents an important step on the path to closer multilateral alignment on China policy. It has big implications for Europe, even if the Netherlands was the only EU member state that was directly implicated. The Dutch were reluctant participants in these talks, pressured by the Biden administration to adopt the same restrictions it imposed on US companies last October. With his remarks, Breton gave the Dutch the European cover that they had sought. At the same time, with a few words, he nudged Europe closer to Washington’s vision for technological engagement with (some would say containment of) China. In response, the Global Times dedicated a full story to Breton, dismissing the Frenchman as “arrogant and ignorant”. He may have more friends in Washington now than he used to.

What does all this mean for EU-China relations? I take the chips deal and Breton’s remarks as a sign that the economic security challenge that China poses is being understood in European capitals like never before. Before arriving in Washington, Breton travelled to Namibia, where he visited a lithium mine. German Chancellor Olaf Scholz just completed a trip to Argentina, Chile, and Brazil, where the diversification of critical raw material supply chains away from China topped the agenda. Export controls on chip equipment may be another story altogether, but they fit into the same broad picture, one in which Europe is increasingly aware of the risks arising from its close economic relationship with China and is prepared to devote time and resources to address them. “The China discussion is all about economic security now, about reducing dependencies and paring back dangerous ties,” one EU official told me. “It is no longer about economic fairness. We are not going to change China through the WTO. It just won’t happen.”

Macron Heads To Beijing 

This does not mean that we shouldn’t expect more mixed messages from European leaders in the months to come. French President Emmanuel Macron is due to travel to Beijing in early April, and there are concerns in Brussels and other capitals about the signals he could send during the visit. His goal, according to several French officials with whom I spoke, will be to encourage Chinese President Xi Jinping to play a more constructive role in the Ukraine conflict, including putting space between Beijing and Moscow. In exchange, large corporate investments in China, possibly in strategically sensitive sectors, could be announced during the trip. Beijing would frame this as a vote of confidence in China’s economy and slap at US decoupling narratives. “The question is what Macron will give the Chinese so that they can pretend to give him something on Ukraine,” one astute observer of Macron’s China policy told me. “He has convinced himself that he has a special relationship with Xi, that he can charm him. We’ve seen this before with Trump and Putin. It has been a failure”. 

Later in April, I was told, the EU top diplomat Josep Borrell and German Foreign Minister Annalena Baerbock could travel to China to prepare the ground, respectively, for an EU-China summit and German-Chinese government consultations later in the year. A month before that, in mid-March, German Chancellor Olaf Scholz and senior members of his cabinet are due to travel to Japan for the first edition of German-Japanese government consultations, a format the three parties in the German government promised to launch in their coalition agreement. In May, Scholz will make his third visit to Japan since taking office, when he attends the G7 summit in Hiroshima. Angela Merkel visited Japan five times during her 16 years as chancellor. Still, Scholz and his team are keen to prevent the relationship with China from going off the rails. In a sign of where they stand, I was told that a recent China paper from the Asia-Pacific Committee of German Business (APA), which urged companies to continue to “seize opportunities” in China, drew equal praise from officials in the chancellery and the Chinese embassy in Berlin. The paper includes lines that are straight out of the Chinese Communist Party’s propaganda playbook, urging the German government, for example, to respect historic and cultural differences when engaging with Beijing on contentious issues such as human rights, Taiwan, and Hong Kong. 

It's Economic Security, Stupid

Some officials in Brussels are worried that neither Germany nor France has understood that economic security is likely to dominate the policy agenda in the coming years. Long-held assumptions about trade, investment, and R&D cooperation with China will need to be rethought. The EU did update its dual-use export controls regulation in 2021, giving the bloc more flexibility to address risks from emerging technologies. But the biggest member states remain wedded to a traditional approach that is increasingly out of step with geopolitical realities and a blurring line between civil and military technologies. Efforts by The Hague to convince Berlin and other capitals to work together on a more unified response to US export controls have not yielded results even though German firms such as Zeiss and Trumpf, key suppliers to Dutch semiconductor equipment giant ASML, will be affected by the agreement among the Netherlands, the United States, and Japan.

“Germany and France say we must go our own European way, but they cannot say what that is,” the EU official complained. “It’s not enough to say we won’t follow the US. This position simply isn’t tenable.” Going forward, the big member states and the European Commission will need to invest more resources to get their heads around the risks tied to new technologies, and to coordinate more closely with each other to develop their own view of where the limits of economic engagement with China should be. This would allow Europe to speak to the United States at eye level and push back against measures when it believes that they go too far. For now, Europe is in reactive, defensive mode, unable to have this conversation.

Taiwan Risk

A final word on Taiwan. As I have written in recent newsletters, European capitals are waking up to the risks of a conflict in the Taiwan Strait and the importance of sending clear messages to Beijing about the consequences of any military action. We have seen a flurry of European government officials and parliamentarians travelling to Taipei in recent months. And EU diplomats are trying to organize a more structured discussion in Brussels and among the member states about how Europe might respond to Taiwan conflict scenarios. This week, new Czech President-elect Petr Pavel went so far as to speak with Taiwanese President Tsai Ing-wen by phone. But there is a fine line between standing up for Taiwan and taking steps, or using rhetoric, that is unnecessarily provocative. There is a risk that we will experience some of the latter from the new Republican majority in the House of Representatives in the months ahead, including a visit to the island by House Leader Kevin McCarthy. Europe is closely watching the new Select Committee on China and any action it takes on Taiwan, especially after being unnerved by a US general’s comment last week that a war with China over Taiwan could break out as soon as 2025. The hotter the rhetoric in Washington gets, the less Europe may be inclined to lean forward. That would undermine an emerging transatlantic consensus.