Watching China in Europe - March 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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What Did Xi Know?

What did Russian President Vladimir Putin tell his Chinese counterpart Xi Jinping about his plans to invade Ukraine when the two met one month ago in Beijing and vowed “no limits” to their cooperation? We may never know for sure. But in European capitals the assumption is that Putin did give Xi a signal about his intentions. Weeks later, with the Beijing Winter Olympics out of the way, Russian troops stormed into Ukraine from the north, east, and south. China’s awkward rhetorical dance since then—voicing support for Ukraine’s territorial integrity but refusing to criticize Russia, and suggesting the invasion was provoked by the United States and NATO—will not be forgotten soon in Europe. The more death and destruction in Ukraine over the coming days and weeks, the more damaging China’s equivocations are likely to be for its international image. “China is the one country that can exert influence over Russia. But in this case, it doesn’t appear to have done much to dissuade Putin from starting a war in Europe,” one German diplomat told me. “We’ll see how Beijing positions itself now. But this certainly has the potential to do further damage to an already strained relationship with China.

The events of the past days have triggered a fundamental foreign policy rethink in Europe, and particularly in Germany, whose political establishment had been clinging to a post-Berlin Wall end-of-history vision of the world even as the facts on the ground pointed in a more Hobbesian direction. In the old world, Germany could depend on Russia for its gas, on China to buy its cars, and on the United States to take care of its security. The first of these pillars crumbled over the past week. The second pillar is beginning to show cracks. And the third is likely to depend on having a president in the White House who believes that the transatlantic alliance is worth fighting for. Hence, the foreign policy revolution witnessed in Germany over the past days, in which postwar taboos have been shattered, one after the other: the death of the Nord Stream 2 pipeline and the decision to Russia-proof energy supplies through major investments in new LNG terminals; a €100 billion defense fund and commitment to meet NATO’s 2 percent goal faster than anyone thought possible; the decision to send arms to Ukraine. Make no mistake, this is momentous change.

“Today Russia, Tomorrow China”

This newsletter is about Europe and China, so while it is tempting to paint with a broader brush, let us zero in on that part of the picture. How will Russia’s invasion of Ukraine affect Europe’s relationship with China? Much will depend on China’s behavior over the coming weeks and months. But there is no question that the conflict and the joint China-Russia declaration of February 4 have strengthened those in Europe who frame the coming geopolitical challenge as one of systemic competition between democracies and authoritarian states. As a second German official put it to me: “Today it’s Russia. Tomorrow it could be China. We can’t be naïve any longer. We need to say goodbye to our old model. It worked for a long time. But not anymore.”

The current crisis comes at a time when the European Commission is putting the finishing touches on its Strategic Compass, NATO is working on its Strategic Concept, and the new government in Berlin is embarking on the process of writing a National Security Strategy and a China strategy. All of these strategic documents will be seen in a new light now. The historic policy shifts  in Germany in response to Ukraine will resonate across Europe and NATO—and the relationship with China will not be immune. In a speech to the German parliament on Sunday, Social Democrat Rolf Mützenich called out Xi, urging him to denounce Putin’s aggression or risk lasting damage to China’s credibility. It was one thing for Foreign Minister Annalena Baerbock to issue such a warning at the Munich Security Conference last month, but quite another to hear it from the Social Democrats’ leading foreign policy dove.

Strategic Dependencies 

A second consequence of this crisis will be a renewed focus on strategic dependencies. In the span of a few weeks, Europe has taken the decision to end its reliance on Russian gas. The next step will be to broaden the dependencies debate to focus on Europe’s vulnerabilities in relation to China. While there is no appetite for a full-blown decoupling of the European and Chinese economies, the crisis could be the trigger, several German officials told me, for a deeper reflection on how to mitigate the risks of China weaponizing its economic ties to Europe, as it has done with Lithuania over the past months. In Germany, it will be impossible to ignore the elephant in the room: the outsized reliance of some of the country’s largest companies on the Chinese market and how this has shaped the political dynamic between Berlin and Beijing. German officials began talking about the need for economic diversification several years ago. But the needle has barely moved. German foreign direct investment in China approached record levels last year, while trade between the two countries surged by 15 percent to a new peak of €245 billion.

A recent report from the Kiel Institute for the World Economy highlighted the risks of these ever-growing ties. “German companies, especially in the automotive industry, have made profits in China for many years, and now their dependence on the Chinese market may become a problem,” Rolf Langhammer, the author of the report, wrote. “They have provided Chinese companies with the necessary know-how to be replaced by them in the future, thus helping China to gain a more powerful negotiating position in the geopolitical competition.” In formulating its China strategy, I am told, Germany’s government could look for ways to address these risks through a combination of carrots and sticks: targeted government incentives for companies to invest in other markets and tighter restrictions on technology transfers, including through export controls and heightened scrutiny of research and development collaboration. There does not seem to be much appetite in Europe for an outbound investment-screening mechanism, like the one currently being debated in the US Congress. But this debate, too, may make its way across the Atlantic.

Indo-Pacific

The wild card in all of this is Europe’s broader engagement in the Indo-Pacific. Drowned out by Russia’s invasion of Ukraine was the Indo-Pacific ministerial hosted by France last week. Days before that, the German frigate Bayern returned from a months-long deployment to the region, with the defense minister not there to receive it. We all remember how the unveiling of the EU’s own Indo-Pacific strategy last year was hijacked by the announcement of the nuclear-submarine deal and AUKUS security pact between Australia, the United Kingdom, and the United States. What role can the Indo-Pacific play in the EU’s security calculations at a time when war is raging in its immediate neighborhood? The likelihood is that the crisis will force it to focus on the home front. That may not be a bad thing from Washington’s perspective. But it would be wrong for Europe to pull in its horns and pare back engagement with Indo-Pacific partners like Australia, India, and Japan as well as with Taiwan. Even after Ukraine, this engagement remains a key plank of any European strategy to respond to China, preserve a rules-based order, and diversify economic ties.

Anchorage Light

A final word on the EU’s looming summit with China on April 1. According to one EU official I spoke with, views on China have hardened significantly in Brussels since its joint declaration with Russia on February 4 and the invasion of Ukraine. If the summit does take place—people involved in the preparations are not ruling out another delay—it seems unlikely to produce anything of substance. Instead, some officials worry that it could turn into “Anchorage Light”—a venue for underlining the growing list of grievances between Brussels and Beijing, from China’s coercion against Lithuania, to its human-rights record and position on Ukraine. I am told China offered to hold a human-rights dialogue with the EU in the run-up to the summit but only on the condition that European officials refrain from criticizing Beijing at the month-long United Nations Human Rights Council that begins this week. The EU refused to agree. “We want this summit to happen,” the EU official said. “We don’t want to end up in a place where there is no cooperation or dialogue with Beijing. But this won’t be a normal summit.”