A turning tide?

After years of denial and political inactivity European leaders have at last started to stand up to China.  For the past few years it has been Trump and the US China trade war which has grabbed so many of the headlines in the media but the EU, as the world’s largest trade bloc, has, like the US a slew of complaints against China and the highly distorting trade practices and restrictions it puts in place towards European goods and services.  The high toll which Covid-19 has taken across European countries and how China has tried to benefit from Europe’s misfortune has proved to be a catalyst for action for many European leaders.

European business people in China have long understood the uneven playing field within China and numerous reports from business groups and think tanks have repeatedly highlighted the shortcomings but Europe has traditional chosen to play a less confrontation role when compared with the US.  Since last year, the EU has started to refer to China as a “systemic rival” but active push back has been limited.  Part of the reason is the inherent weakness in the EU governance structure.  Europe is a geographic region not a country, neither is the EU a country but a supranational body bringing together 27 member states, previously it was 28 until the UK left, and the EU can only be effective with the consensus of all of its members.  Some of the countries use the Euro yet some do not.  Some have open borders to all EU states others, do not.  Economically significant certainly but not a body which can speak with one voice and indeed when it came to China it didn’t.

In addition to long standing economic issues and market access to China the growing list of human rights abuses by the Chinese state has become too great for Europe to ignore.  The cultural genocide in Tibet and Xinjiang, also known as East Turkestan, the unreasonable demands to keep Taiwan isolated on the global stage and the harsh crackdown and introduction of the National Security Law in Hong Kong has become too much and European leaders are speaking out.  In addition to these concerns climate change and sustainable energy are central to European policy yet China once thought of as a key partner in that field has failed to keep it promises and it continues to expand its coal based energy production at home and abroad.

The past few weeks though have hardened European views towards China as Chinese foreign minister Wang Yi, travelled around Europe on a “charm offensive” trying to create some good will as Europe slowly moves closer to the US in terms of China policy.  Wang Yi failed on the charm bit but did the offensive bit very well.  Wang Yi’s approach was to threaten his hosts when confronted with things he didn’t like.  Norway was threatened if the Nobel Peace Prize was awarded to any Hong Kong related protesters or protest groups, then at a press conference with the Germany foreign minister Heiko Maas, Wang Yi said that in response to a visit to Taiwan by the Czech State President’s the Czech’s would pay a “heavy price”.  This earned an immediate rebuke from Maas who told Wang that “threats don’t fit in here” and that isn’t how Europeans conduct relations between countries.  What a change from 16 months ago when Volkswagen CEO Herbert Diess claimed to be unaware of the detention camps in Xinjiang.  The new tone out of Europe is a breath of fresh air.

Divide and rule

Even when European leaders, political or economic, have previously tried to push back against China they have been limited because of divisions within Europe.  The EU structure has led to China focusing much of its energies on Germany industrial bosses and with Germany so dependent on its exports to China it has meant that Germany has been reluctant to criticize its biggest customer.  China too has looked to build alliances of smaller groupings of European states, such as the 17+1 group, which comprises 17 Central and Eastern European states and China.  The group, recently enlarged to include Greece, has little to show in terms of investment and significant projects except for major port investments in Greece, yet China’s courting of these countries has gained it friends and seen both Hungary and Greece blunt wording in EU statements which have looked to criticize China.  But such “friendships” can be ethereal, European states can look to China as a way of showing displeasure with how they are treated by the leading EU members rather than any real affinity for China.

The biggest coup yet for China in sowing dissension within Europe is Italy’s signing up to China Belt and Road Initiative, or better described as Globalization with Chinese characteristics.  Italy, a founding member of the EU and the only developed European country to sign up is indeed a success for China but it will be short lived.

European leadership may have been slow to respond to the “systemic rival” threat of China but Italy’s inclusion in the BRI, the massive investments in Greece shipping and ports infrastructure along with this years misinformation and outright lies from the Chinese state in the wake of the Covid-19 outbreaks in Europe has only brought suspicion when dealing with China.

Britain’s departure from the EU is yet another complication in China European chessboard.  A decade ago, China and the UK were hailing the dawn of a golden era of China UK relations as David Cameron and George Osborne put economics and investment front and centre of their China policy.  While Brexiteers present otherwise the reality was that the UK was a driving force within the EU especially when it came to establishment of the single market and had many, especially Northern European states, very much in its corner during internal EU debates.  Not only is the UK no longer in the EU and can not influence policy directly it has now become a major critic of China.  Its about face regarding Huawei in its 5G roll out came as a shock to China but the surprisingly robust position taken when it came to defending Hong Kong and its willingness to provide a path to citizenship for perhaps as many as 3 million Hongkongers has infuriated China.

Same but different

Part of Europe’s reluctance to act is because of the dislike, by a broad swath of Europeans, especially the political elite, of Donald Trump.  Europe and the US have many common issues of complaint when it comes to China, but the America First policy has meant that Europe too has been on the receiving end of Presidents Trump’s wrath.  This column has lamented how Trump failed to bring a group of common minded countries together to present a coordinated policy towards China, and Europe should have been his first call.  Instead years have been wasted in terms of a joint policy response.

A willingness to push back against China could too easily be seen as siding with Trump and Pompeo, something which few leaders wanted to do.  They understood the State level concerns but were uncomfortable with the rhetoric and posturing of the Trump approach.  When Secretary of State Pompeo comes and tells European leaders to ban Huawei in their domestic networks else face being cut out of American intelligence and military cooperation no one wants to be seen to be responding to threats even if they agree not only with the security concerns around Huawei but also the very limited market access which European competitors Ericsson and Nokia have in China.

As the US and the EU (including the UK) come closer together on China policy there is still significant room for disagreement.  The Phase 1 trade deal between the US and China has rattled the Europeans who see it running counter to the idea of open and free trade and that its companies and industries will be disadvantaged as America ringfences significant Chinese demand.  Just as importantly, and seemingly contradictory from any US China trade deal is the question of decoupling.

No one on the European side is talking about EU China decoupling.  Trump just this week again talked about decoupling the US and Chinese economies (notwithstanding the trade deals).  The Europeans are seeking trade, and investment and lots more of it, but it needs to be on significantly more equal terms than at present.

A new relationship

Wang Yi’s trip was to rekindle good will after a difficult few months of China pushback across Europe and lay a foundation for a upcoming virtual meeting between CCP General Secretary Xi Jinping and Angela Merkel, German Chancellor and current European President about to finish her 6 month stint in the rotating role.  Xi will also meet with European Council President Charles Michel and European Commission President Ursula von der Leyen.  He will hardly cause the offence that Wang Yi did but expectations should be kept extremely low, the best news from this virtual summit is the minimal carbon footprint!

For those wanting to focus on trade and an improved investment environment the long outstanding CAI, Comprehensive Agreement on Investment, requires major work from the Chinese side.  China needs to fundamental change the way it arranges its economy and why should anyone think that is happening?  Under Xi’s rigid control the State and Party have imposed themselves into evermore parts of the economy.  Nothing is changing Xi’s position on that.  He may make fine sounding statements about mutual benefit or shared future and the like, but nothing of substance will change.

Xi though will likely be challenged on his actions in Hong Kong.  Germany, like Britain, the US and others have withdrawn their extradition treaty with Hong Kong over the new National Security Law.  Here even less progress will be made.  Xi’s sees the Hong Kong issues as a purely internal matter and an absolute core interest of the People’s Republic of China.  The National Security Law won’t be withdrawn nor will he try and clarify the vague language around it.  The entire approach of the Beijing authorities towards Hong Kong over the past 4 months has shown the willingness to override any concern of local Hongkongers or of the international community.

Xi will be unable to offer anything but he must know the world is changing and it isn’t changing favourably towards his China.  Europe was late to start speaking up about China’s trampling of international norms but a change of words is only a start.  EU High Representative for Foreign Affairs Joseph Borrell, who just took over the role late last year has proposed some ideas which will be familiar to readers of this column.  A need for a US EU bilateral dialogue and the need to work with like minded democracies as there are a growing number of rising authoritarian regimes in the world.  Borrell explicitly reference Russia, Turkey and China.

The question though is, can the EU bring about such a grouping, and then formulate meaningful policy, with Trump as president?  Or does a closer EU and US stance on China depend on a Biden presidency who would be personally more to European leaders liking?  Who can tell at this stage?  The problem facing the Europeans is that the need to confront China can’t wait another four years.  The Europeans need to act soon and should be acting with the US.  The Covid-19 pandemic will have economic and political shockwaves for years to come and the need for like-minded democracies to work together is essential.  China will no longer have the freedom and welcome it once did in Europe, times have changed.  But restricting selected deals or individual statements condemning China for its international abuses are not a China policy worthy of the largest trading bloc in the world.  Europe can show a different style of engagement and pushback when it comes to China, but it is far short of doing so.  It should follow through on Borrell’s advice and realize more unties the EU and the US than separates them especially in responding to China’s rise.