It’s summit time! After a promising meeting between Joe Biden and Xi Jinping in November, the EU and China will convene for their annual summit on December 7 for the 1st time in person since 2019. The cautious rapprochement between the US and China has paved the way for a more relaxed atmosphere between the EU and China, too. The eloquent speechlessness that marked their 2022 summit appears to be passé. However, speaking by itself is not enough: The EU should complement its de-risking agenda with a coordinated and concerted approach to actively managing cooperation with China.

In the run-up to the summit, cracks have started to appear in the recently icy EU-China relationship. After the EU’s second complaint to the WTO, China lifted the trade measures against Lithuania in late November.

Starting December 15th, visa-free entry into China will be available (on a one-year trial basis) to residents of China’s largest EU export destinations – the Netherlands, Germany, Italy, France and Spain. China, it seems, is endeavouring to set a positive tone for the summit with one of its largest trading partners.

This is also due to the fact that China’s domestic economy is struggling with pandemic recovery and domestic issues, including a troubled real estate sector, and economic relations with the US, China’s largest export market, remain strained (e.g. US chip embargo.) Beijing, therefore, hopes for and is indeed in need of better and more reliable EU-China relations.

The EU, for its part, has shown, by a series of visits by top politicians from the EU and member states to China this year, that it attaches great importance to keeping open channels of communication. As does the US, as was clear with the announcement of the resumption of high-level communication after the Biden-Xi meeting at the sidelines of the APEC summit.

However, in another parallel to US-China relations, it remains a fact that Brussels and Beijing have a range of serious issues to address that will keep straining their bilateral relations, too in the foreseeable future.

Three things the EU wants from China – and probably won’t get

Russia’s war of aggression against Ukraine and the overturning of Europe’s security architecture as a result is a priority issue for the EU. The impact of China’s response to the war on mutual relations cannot be underestimated. A great deal of the deterioration is due to China’s diplomatic shilly-shally-ing and how more and more it is openly closing ranks with Vladimir Putin.

The EU has sobered up in its initial expectation that China might use its leverage over Russia and play the role of intermediator. But it still wants China to play a more active role and especially wants China to really engage with both sides, not just with Russia. Similar hopes exist for the violent conflict in the Middle East, where the EU and China agree on the “necessity of a political settlement based on a two-state solution“.

Despite China’s mantra-like repetition of its commitment to key principles of the UN Charter, e.g. territorial sovereignty, this lip service will hardly translate into concrete action any time soon. China has as much an interest in keeping Putin’s regime alive and kicking as it has in the two conflicts’ diverting the attention and resources of the EU (and the US) away from the Indo-Pacific and the Taiwan issue.

The latter is also a central topic, where the EU hopes China will take action – or rather, not take action. The EU has made it very clear before that the situation in the Taiwan Strait is not only an issue in the US-China conflict but is of global importance and touches upon key interests of the EU itself.

As one of the largest trading blocs, it is crucial to the EU that peace and stability are maintained in the Taiwan Strait, through which, according to one estimate, 40 per cent of the EU’s trade passes. While the EU is fostering closer ties with Taiwan in all areas possible, it is still firmly committed to maintaining its One-China policy. But at the same time, the EU expects China to stick to the status quo and not try to change it unilaterally by force.

However, it is the explicit goal of the Chinese government under Xi Jinping to complete the nation’s rejuvenation by 2049, including “reunifying the motherland”, which has even been written into the Chinese Constitution. From the Chinese perspective, the status quo has a clear expiration date. The EU has little to no leverage to change this in the long term. China, in turn, has made very clear that it regards the “Taiwan issue” as an internal affair and wishes no interference whatsoever.

A third key issue that has been high on the EU’s agenda for years, yet with little progress made, is market access and a level playing field for European business in China. The Comprehensive Agreement on Investment (CAI) was meant to at least partially solve this issue. But CAI was shelved in 2021 after China sanctioned, among others, members of the European Parliament – and it will remain so for the time being.

The EU thus needs to find other ways of dealing with unfair competition from China and the resulting lack of reciprocity regarding market access. In the case of EVs, it is trying to do so with an anti-subsidy investigation which might result in punitive tariffs on EVs imported from China. As we have argued before, it is questionable if this is the smartest way to address this issue, though it might help a bit in the short term.

With the WTO not fully functioning, the EU and China could ideally find a bilateral solution to address these structural asymmetries in their economic relations. But, the current geopolitical circumstances, given the weakness of the Chinese economy with exports as an apparent panacea, it is highly unlikely that China will make meaningful offers in key areas, such as market access and government procurement.

The EU, therefore, might end up having to choose a tit-for-tat approach, threatening to close market segments to China, where there is no reciprocity. The EU’s overhauled trade defense toolbox with enhanced and new instruments offers room for manoeuvres in this regard and should be used courageously, if necessary.

The EU’s de-risking agenda is strong on paper but hard to implement

As these major differences will clearly remain for the foreseeable future, the EU will continue to put a strong focus on its de-risking agenda vis-à-vis China. As we analysed in a blog post, de-risking rests on the following four pillars:

  • Increasing the competitiveness and resilience of the EU economy and industry, including the reduction of critical dependencies and supply chain vulnerabilities.
  • Better use of existing trade instruments, especially those introduced over the last few years, to address security concerns.
  • Developing new defence tools for some critical sectors, which may involve dual-use purposes of human rights issues.
  • Aligning with other partners regarding the EU’s economic security, especially with G7 and G20 partners, focusing on FTAs, tools like the Trade and Technology Council as well as Global Gateway.

4 pillars of derisking

Thus, de-risking may be regarded not only as the EU’s new approach in dealing with China but also as a reset in its external relations in general garnished with a sober assessment of work to be done at home. This includes strengthening EU markets and businesses, strengthening the EU defensive toolbox, and strengthening the EU’s relations with countries other than China (and, as a matter of fact, Russia).

What looks good on paper, however, will be much more difficult to implement in practice. Since the EU has strong economic ties with China, reducing critical dependencies and diversifying supply chains (pillar 1) will be costly and take time, at least 5-10 years. Efforts to do so have only just started – 2022 data on EU trade with China still points in the opposite direction.

In the categories of raw materials, energy and chemicals, which tend to include critical inputs that should be de-risked, EU imports from China increased substantially. So did overall imports, while exports to China tended to stagnate.

eu trade with china

As for pillar 4, aligning more with other partners, the picture looks bleak when it comes to FTAs and the EU’s ambitious trade agenda. Even with a like-minded country like Australia, the EU was not able to successfully conclude FTA negotiations.

The same holds for the EU-MERCOSUR agreement, which would create one of the largest trade zones in the world. French President Emmanuel Macron and Argentina’s new President-Elect Javier Milei oppose the deal, leaving it with an uncertain future.

A clear approach to actively managing cooperation with a systemic rival is still missing

China will, therefore, remain a key economic partner for the EU for the foreseeable future. Of course, it is still of paramount importance to reduce those dependencies that make the EU susceptible to blackmailing, as they could be weaponised by China to achieve political goals. But it is also crucial to more actively manage those parts of mutual relations where cooperation is still possible and necessary, and where the EU believes that China has an international responsibility. These include:

  • mitigating climate change
  • food security
  • global health and safeguarding against pandemics
  • sustainability of international debt
  • restoring rules-based trade (the EU has not entirely given up hope on WTO reforms)

While the topics for potential cooperation with China are on the table, the how-to is not – or not anymore. The EU and its member states have re-adjusted their relations with China and put virtually all areas under scrutiny.

This was absolutely necessary but also led to great insecurity on how and through which channels to handle cooperation and contacts with China, especially when it comes to research and technology, which could be an important area of cooperation for mitigating climate change.

Earlier in 2023, Germany’s Minister of Education and Research, Bettina Stark-Watzinger, warned, for example, that “the Communist Party can be hiding behind every Chinese researcher.” While it is true that the Party can leverage Chinese researchers abroad for its own benefits, generalisations like this are not helpful in clarifying the red lines while at the same time making room for sensible and fruitful cooperation and exchange with China.

It is understandable that de-risking and re-adjusting relations with China have been a political priority of the EU and its member states in the last three years. However, the de-risking agenda is defensive and reactive in its direct dealing with China.

It should, therefore, be complemented by a fifth pillar, which could be called “actively managed cooperation.”  The EU-China summit could mark the beginning of the development of a concerted and coordinated EU approach on how to actively manage cooperation with a systemic rival.

About the author

Cora Jungbluth is a senior expert in the Europe’s Future Program at the Bertelsmann Stiftung. Her research focus is on China, foreign direct investment and international trade (especially the role of emerging economies).

A Gloomy Outlook for EU-China Relations: Divergence, Distancing, Decoupling

Why De-risking from China May still lead to De-coupling – For Certain Key Inputs, but Also for Some Companies

Xi-Biden at APEC: A reset in relations, but for how long?

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