Is Europe willing to sustain economic ties with China?

The EU drastically adopted an aggressive stance against China in 2019 by labeling it as “an economic competitor in the pursuit of technological leadership and a systemic rival promoting alternative models of governance".

US Europe

As the global geopolitical sphere shapes up into a battleground between the US and China, Europe will have to ally either an erratic Donald Trump or a dubious Xi Jinping.

The bright side of the Sino-European relationship

Trade between the European Union and China has been booming and continues to be the least worrying aspect of their economic relationship. In 2019, China was the third-largest importer of EU goods (9%) and the largest exporter to the EU-27 (19%). The most-traded products between the two were industrial and telecommunication equipment. Amongst the EU states, the Netherlands was the biggest importer and Germany, the biggest exporter to China in 2019.

Joerg Wuttke, the President of EUCOC in China, said that European companies are fully confident of doing business in China.

Over recent years, much to the dismay of the US, European companies, especially German companies, have started to increasingly rely on the Chinese market. For instance, Volkswagen sold over 350,000 cars to the US and 4.2 million cars to China in 2018. The VW group has also established 3 joint ventures in China with JAC, SAIC, and FAW automobile company.

Dr. John Gong, professor at the University of International Business and Economics, believes that VW’s joint ventures with Chinese companies testify to European companies’ confidence in Chinese markets. A Business Confidence Survey by EU-COC in China states that China, for foreign investment, is in the top 3 destinations for 60% of its members.

Before 2004, direct investment from China into Europe was negligible. 2011 onwards, the EU became one of the biggest recipients of Chinese capital, with annual investments surpassing the $10 billion mark – ranging from industrial companies to football clubs.

Italy became the first G7 country to sign an MoU on China’s remunerative BRI project in 2019. 29 deals, worth a whopping $2.8 billion, were signed to help the Italians overcome economic stagnation.

Cracks in the Sino-European relationship

Despite the lucrative relationship between the two, cracks have started to grow and deepen in the Sino-European relationship. Questions have been raised at China’s intentions. The EU drastically adopted an aggressive stance against China in 2019 by labeling it as “an economic competitor in the pursuit of technological leadership and a systemic rival promoting alternative models of governance.”

Chinese global investments in Europe have been continually dropping since 2016. In 2019, a sharp fall of 27.7% in the outbound investments brought the total back to 2013 levels.

China’s ‘mask diplomacy’, ‘wolf warrior diplomacy’, disinformation campaign, and attempts to soften the EU’s COVID-19 report have only raised skepticism and distrust among the Europeans

More so, one of the biggest hindrances is the one-sidedness in their trade relationship. EU’s trade deficit with China has increased to EUR 163 billion. Germany, Ireland, and Finland were the only 3 countries, from the EU-27, to have a trade surplus with China last year. The remaining 24 countries had a negative balance of trade with China; the largest deficit being held by the Netherlands followed by Italy and then Spain.

The President of the European Commission, Ursula Von Der Leyen said, ”We continue to have an unbalanced trade and investment relationship (with China)”. Lack of free market access, unfair government subsidies, and the state-owned companies give China a huge edge over their trading partners. 45% of the European Union members report facing market access barriers in China.

COVID-19 has catalyzed the deterioration of the Sino-European relationship. China’s lack of openness and transparency about the virus’ origins raised widespread suspicions. According to Tony Blair Institute’s report in 2020, the Chinese government is seen as the most responsible for the severity of the pandemic; whereas, 60% of the people in the UK and France, and 47% of Germans view China as a bad actor.

Read more: China eyes eastern Europe investment as US trade war sizzles

A wave of backlash rose throughout the international community when China capitalized on the situation by passing a controversial security law in Hong Kong. Mustering 53 countries to its support in the UN, the European powers glimpsed at China’s authoritarian dominance.

China’s ‘mask diplomacy’, ‘wolf warrior diplomacy’, disinformation campaign, and attempts to soften the EU’s COVID-19 report have only raised skepticism and distrust among the Europeans. According to “transatlantic trends 2020”, when resurveyed in May after January 2020, 58% of the French population (up from 48%) and 61% of the German population (up from 51%) viewed Beijing’s influence as increasingly negative.

The EU has also amped up its efforts of pushing China on human rights issues this year. During the Chinese Foreign Minister’s week-long European tour in August, German FM Heiko Maas and Italian FM Luigi De Maio pushed China over its treatment of Uyghurs and Hong Kong’s autonomy. Angela Merkel also urged EU unity against the Chinese exportation of its authoritarian model. She said that for open dialogue, the “rule of law, human rights, and the future of Hong Kong” cannot be ignored.

Read more: Pakistan playing balancing act between China and US: report

Experts like Dr. Matias Dopfner, the owner of Axel Spring SE, believe that America’s democratic values compared to China’s authoritarian values make the choice very clear – Europe should side with the US.

My way or the Huawei

America has been consistently haranguing the European countries to bar Chinese firms, especially the largest telecom equipment company – Huawei, from 5G networks over security concerns. Mike Pompeo’s statements such as, ” Every investment by a Chinese state-owned enterprise should be viewed with suspicion” and, “Chinese government strongarms nations to do business with Huawei” clearly shows the US’ stance on Chinese technological advancements.

While the UK has officially banned Huawei products, implemented after 2020, other European countries have adopted a subtler approach.

This idea is why China will have to do more than symbolic deliveries of aid and reassurances on the international stage

Germany started to share this sentiment, after overcoming its initial hesitation, when China started buying stakes in European technological firms during the pandemic. In response, Berlin strengthened its corporate defenses vulnerable to the opportunistic Chinese buyers to preserve its technological autonomy.

Although France has not outright banned Huawei, it is discouraging its operators from using it to decline the renewal of contracts in the future.

Other countries like Romania, Czech Republic, Latvia, Poland, and Estonia have all signed joint statements with the US – refusing foreign state interference in their markets. Despite the pressure by the US and other European countries, Ireland, Sweden, and Hungary will be building their 5G networks using Huawei’s equipment.

Read more: US China Dialogue in Washington: US denies waging ‘Cold War’

For the US and China, technology has become a new battleground for global supremacy. However, the complex web of interdependency in this sector will be hard to disentangle.

Options for Europe: humanitarianism over business?

Since the induction of China to the WTO, China’s contribution to the GWP has risen from 7.84% to 19.24% in 2019. It has faced an average growth of 9% compared to America’s and Europe’s estimated 2%. However, a faceoff with the entire EU bloc could be disastrous for China’s post-pandemic economic recovery.

Read more: Opinion: To Subdue China US might start Arms Race between Pakistan & India

According to OECD, there will be at least a 6% shrinkage in the global economy; hence, Europe and China’s markets remain a vital aspect for their economic rejuvenation and technological expansion.

Europe’s basic law is enshrined in liberalism, democracy, and humanitarianism. This idea is why China will have to do more than symbolic deliveries of aid and reassurances on the international stage.

Unless there are reforms on a political level regarding trade transparency, adherence to WTO rules, funding state-owned companies, protection of intellectual property, constructive engagement with multilateral institutions, and human rights violations then China will continue to lose its pull with Europe.

Mohammad Jamal Ahmed is a business and management graduate from the University of London. Currently, he is a freelance columnist and a digital marketer. The writer can be contacted at jamal17_m@hotmail.com. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.

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