Watching China in Europe - December 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 subscribe. 

Transatlantic China Signals

Transatlantic cooperation on China was never going to be easy. Europeans have been traumatized by four years of Trump, are determined not to “choose” between Washington and Beijing, and have begun taking their first tentative steps down the path of strategic autonomy—even as France and Germany spar over how fast and far to go. The Biden administration will be consumed by formidable domestic challenges and, from the looks of it, will take a while to figure out what elements of Trump’s China policy it wants to keep and which to ditch. The president-elect has only just begun putting his national security team together. Trump is still golfing, tweeting, and decoupling—but not conceding. It will take a while for the dust to settle on this exhausting election and for attention to turn to the big foreign policy challenges.

Still, over the past weeks, there have been some early signals on China policy from members of Team Biden and European capitals. Let’s start with what the Europeans are saying—or not saying—behind closed doors. The Financial Times had a nice scoop on Sunday of a European Commission paper on transatlantic cooperation, which included the following line on China: “As open democratic societies and market economies, the EU and the US agree on the strategic challenge presented by China’s growing international assertiveness, even if we do not always agree on the best way to address this.” There are two ways to read this. The first is that the EU is acknowledging alignment with Washington on how they view the China challenge. The second, however, is that the EU sees fundamental differences with Washington over how to respond. That, in the end, may be the more important takeaway.

I got an early peak at another document—draft conclusions on EU-U.S. relations for the upcoming Foreign Affairs Council. The two-page document, broken down into seven sections, talks of working with Washington on climate, of reforming multilateral institutions like the WHO and WTO, and of cooperating on security and defense.But there is not a single mention of China in that document. A third paper I saw—a background note prepared for a meeting of the EU’s Political and Security Committee (composed of ambassadors from member states and EU diplomats)—also dances around China. The note points to a “deep divide” in American society and the risk of continued “antagonism” between a new administration and Republicans. Ongoing domestic strife, it predicts, could lead to a “less ambitious international agenda” from Biden. The note highlights several areas of alignment: Russia, climate change, security cooperation, and Iran. China, however, is relegated to the last two sentences of the two-and-a-half-page paper and described as the area where “strategic alignment has been and will be harder.”

One shouldn’t make too much of documents like these. The main message coming out of Brussels these days is one of relief at Biden’s victory. But it is also clear that Europe, after years of agonizing over Trump’s escalatory China policy, is girding for new demands from Biden. As one German diplomat put it to me: “It is wrong to pretend that we are fully aligned with the United States. We have massive interests in China that we want to preserve.” The message from French President Emmanuel Macron, in his extensive interview with Le Grand Continent, was also sobering to those hoping for more transatlantic cooperation on China. Macron talked instead about the need to prevent a “Chinese-American duopoly” and urged Europe to pursue its own solutions “in order not to depend on American or Chinese technologies.” Macron also challenged the notion that Europe and the United States share the same values. At the moment, it is hard not to pick up a certain wariness in Europe about the looming transatlantic discussion on China.

The Biden team is also lowering expectations. Senior advisers to the president-elect have spread the message in recent weeks that multilateral cooperation on China is likely to be extremely challenging. The two biggest pillars of their China strategy appear to be shoring up the home front (improving U.S. competitiveness vis à vis China) and accelerating a shift of military, diplomatic and intelligence resources to the Asia region (Pivot 2.0)—at the expense of theaters in Europe and the Middle East. Both of these priorities could weigh on, rather than bolster, prospects for transatlantic cooperation. There is lots of talk from the Biden camp about humility and of listening to allies when formulating U.S. strategy. What for years has been an “inward out” approach to foreign policy is likely to become more “outward in.” But beyond this, it is difficult to discern a clear vision of what a post-Trump China policy should look like, particularly on the complex technology questions at the heart of the decoupling debate. As Tom Wright of Brookings pointed out in The Atlantic last week, there are differences of opinion within the Biden camp on what China policy should look like. I would add that there are also differences within the team about what role Europe should play in a new strategy. Some Biden advisers are not inclined to count on Brussels, Berlin, and Paris. As we know, differences exist on the European side as well. In an ideal world, Germany and France would try to bridge these differences in the coming months. Before the two sides sit down at the table, they must sort themselves out first.

 

EU-China Investment Impasse

Meanwhile talks between the European Union and China on a Comprehensive Agreement on Investment (CAI) continue. Angela Merkel spoke with Xi Jinping last week and readouts of the call from both the German and Chinese sides mentioned the CAI, with Xi reaffirming the desire to wrap it up by the end of this year. It was also discussed on a separate call between the EU’s top diplomat Josep Borrell and China’s Foreign Minister Wang Yi. But Europeans who are privy to the negotiations tell me that they have all but given up on the prospect of a deal. “My sense is that China is just entertaining us,” one told me. In return for granting the Europeans greater market access, the Chinese side has apparently been demanding the right to buy into what the EU defines as critical infrastructure—water treatment plants and energy grids. Although some member states have allowed such acquisitions in the past, this is now a no-go for the European side. At the same time, European officials say, China’s new dual circulation strategy, which emphasizes Chinese self-reliance, appears to be in direct conflict with EU demands for market access in information and communications technology (ICT) sectors.

Even if there are last-minute concessions from the Chinese side, there is little hope in Brussels that a deal would be approved by all 27 member states and the European Parliament, which has grown increasingly hawkish on China. Officials pointed to a recent letter written by 100 MEPs to European Commission President Ursula von der Leyen and Trade Commissioner Vladis Dombrovskis demanding that the EU impose an import ban on Chinese companies using forced labor in Xinjiang. “In this kind of environment, it is totally naïve to think you can push a deal with China through the Parliament,” I was told.

That puts Europe in an awkward position. Following the cancellation of Merkel’s Leipzig summit with Xi in September, European Council President Charles Michel promised China’s president a replacement meeting in Brussels with all 27 EU leaders in the first half of 2021. Without any CAI deliverables and with China cracking down in Hong Kong and waging a trade war against Australia, the optics of such a summit are looking increasingly problematic, some EU officials now acknowledge. In March of next year, the EU has promised a review of its strategic outlook on China. That could lead to an updated list of action points to push back against Beijing’s distortive economic policies. Around the same time, the EU is expected to be engaged in its first substantive talks with a new Biden administration. Portugal, which takes over the EU presidency from Germany in January, has signaled that it plans to invite Indian Prime Minister Narendra Modi for a summit with all of the EU’s leaders in May. It is increasingly unclear where Xi fits into this puzzle.

 

Germany Kicks the 5G Can (Again)

The wait for Germany’s new IT Security Law has been excruciatingly long. Over the past year, as other European capitals rolled out rules restricting the presence of Huawei in their 5G networks, technocrats in Berlin were agonizing over legalistic formulations. Would the choice of 5G suppliers be a purely technical exercise, with no consideration of geopolitical realities? Was it possible for the government to define “trustworthiness”? And could a mechanism be developed to resolve stubborn disagreements within the government on the inclusion of “high risk” suppliers? These are the questions that have taken the government roughly a year to resolve. Late last month, the Interior Ministry finally delivered a 92-page document that all ministries in the German government can apparently live with. It could be approved by Merkel’s cabinet this month and would then go to the Bundestag for debate, which could stretch beyond next spring. Changes are still possible, but key lawmakers from the Social Democrats, who had balked at Merkel’s plans to include Huawei, have already voiced their support for the compromise, making substantive changes unlikely.

So where has Germany come down on the first of what promises to be a series of critical decisions related to technology and security in an era of great power competition? That, unfortunately, is still not entirely clear. I spoke to nearly a dozen people in the government, parliament, and telecommunications sector who have been following the German 5G debate closely. And the consensus is that the new text kicks the can yet again—providing no real clarity on where the government will end up on Huawei. A German official who was involved in putting the compromise together put it to me this way: “We designed an instrument for the government that leaves everything wide open. What this means for Huawei remains to be seen.” Crucially, the new law does not offer the SPD-led Foreign Ministry, which has been more hawkish on Huawei, a fail-safe path for preventing the company’s inclusion in the 5G network. A new “escalation mechanism,” which pushes debate up to the cabinet if relevant ministries (Foreign, Interior, Economy, and Chancellery) are unable to reach a consensus, seems to be of limited use. If the cabinet is unable to resolve differences after 30 days, suppliers of critical components would be automatically approved. As such it is unclear why the Foreign Ministry, which had for months insisted on veto powers for such components, agreed to the compromise.

The language of the draft law is also vague in key parts, including on the definition of what constitutes a trustworthy supplier. That could open the government up to lawsuits from Huawei and telecoms operators like Deutsche Telekom if the Chinese company is excluded, several experts told me. As reported in Handelsblatt, the operators are not inclined to phase Huawei out of their own volition based on this text. “This is a bad compromise. It’s a typical German solution which attempts to smother the difficult choices in complex procedures. No one knows how this will end,” said Martin Schallbruch, director of the Digital Society Institute at the ESMT business school in Berlin and a former head of digital, IT and cybersecurity at the German Interior Ministry. After two years of intense debate within the German government, with conservative Norbert Röttgen leading a cross-party rebellion against Merkel’s plans to include Huawei, she appears to have won the day. Unless parliament can muster the energy to change the text of the law, there will be neither an overt nor a covert exclusion or phasing out of the company on her watch. The final decision of whether Huawei is in or out—deep breath here—may have to wait for the next German government. Berlin’s strategic ambiguity will not make transatlantic cooperation with Biden any easier.