Brussels is primarily focussed on reactive and protective measures towards China. What is missing is the active, coordinated shaping of relations under the new geopolitical conditions.

The European Union and China have become closely intertwined economically – especially since China’s accession to the World Trade Organisation in 2001 and its subsequent rise to become the “factory of the world.” In 2003, both sides upgraded their relationship to a strategic partnership.

But the honeymoon period is long over. Since President Xi Jinping took office in 2013, China has taken an increasingly aggressive stance internationally and is exerting more pressure on countries that, in Beijing’s view, cross red lines or hinder China’s political goals. To this end, China is also systematically exploiting the economic dependencies created by close trade and investment relations.

Unequal market access for European companies in China and unfair competition, caused in part by state subsidies, are additional unresolved long-term problems in the relationship and are causing considerable frustration on the EU side.

The EU-China Comprehensive Agreement on Investment (CAI), which was intended to remedy this situation, was put on hold in 2021 due to the human rights violations in Xinjiang and subsequent EU sanctions as well as Chinese counter-sanctions, including against members of the European Parliament. It will stay on hold for the foreseeable future.

However, the Chinese government has never pursued the goal of transforming China into a market economy and democracy modelled on the West. On the contrary, under Xi’s leadership, it is trying to export the Chinese development model and establish it as an alternative to the political West.

This goes hand in hand with the ambition to restructure the international order in such a way that it accommodates Chinese ideas, interests, and goals and enables different systems to coexist on an equal footing without “pointing fingers,” for example when it comes to human rights. Since 2017, the United States has therefore officially recognised China as a key strategic challenge in the 21st century and is determined to counter Beijing’s global ambitions.

The “Kuka Shock” and its Consequences

In the EU, the “Kuka shock” of 2016 provided the first urgent wake-up call when it came to relations with China. On May 8, 2016, the German robot manufacturer Kuka, also known as the “pearl” of German Industry 4.0, became Chinese. The German Ministry of Economics, which had already tried to attract European investors for Kuka in the run-up to the acquisition, sounded the alarm. The purchase price that the Chinese household appliance manufacturer Midea was offering was significantly higher than the market price, meaning that European investors did not come into the picture.

Kuka was also a perfect fit for China’s industrial policy, the high-tech “Made in China 2025” strategy. This defines 10 key technologies, including robotics, e-mobility, and aerospace, in which China aims to be the global leader by 2049 at the latest – the centenary of the People’s Republic. The high purchase price therefore fuelled concerns that Chinese companies were systematically buying up German and European key technologies with the help of state subsidies.

The initial response was a joint Franco-German-Italian initiative at the European Commission with the aim of better protecting European high-tech companies from China’s state-sponsored shopping spree. This was the starting point for an EU-wide mechanism to review foreign direct investment, which came into force in 2019 and can be seen as a prelude to the fundamental revision and expansion of the EU’s foreign trade toolbox.

In hindsight, the “Kuka shock” can be identified as a key moment in the process that led to a rethink within the EU and Germany towards China. The result was that the EU introduced the now much-cited triad of “partner, competitor, rival” in its 2019 China paper to characterise future relations with the People’s Republic.

Nonetheless, Germany only officially recognised this new framework for relations with China in its coalition agreement in 2021 when the new government took office and in the first German China strategy published in 2023. Political awareness across the EU that China is a country with a completely different political and economic system has increased significantly since then.

What this type of systemic rivalry can mean for economic relationships and dependencies was made brutally clear to Europe during the COVID-19 pandemic and, above all, by the Russian war of aggression against Ukraine, reinforced by a Sino-Russian alliance. One-sided critical dependencies and the associated cluster risks in supply chains can be exploited by countries that are systemic rivals in order to restrict the ability of dependent countries to act and making them vulnerable to blackmail.

For Germany in particular, whose economic model was also based on a constant supply of Russian gas, the abruptly necessary decoupling from this favourable energy source was very painful. It impaired Germany’s ability to act vis-à-vis Russia – and also that of the EU.

The war against Ukraine therefore also brought the dependencies on China and the associated Taiwan issue to the forefront of European attention. A blockade or even an invasion of Taiwan would lead to an escalation of the conflict between China and the US as well as to sanctions.

An abrupt break in economic relations between the EU and China would most likely be necessary. However, these ties are much deeper and broader than economic relations with Russia. They include a large number of so-called critical dependencies, for example in raw materials such as rare earths or key technologies for the green transformation such as battery technology.

De-Risking in Focus

In preparation for such a scenario, in 2023 the EU also placed “de-risking” at the top of its China agenda. The aim is to reduce one-sided critical dependencies and cluster risks in the supply chains. Possible instruments for the concrete implementation of the de-risking approach include raw material partnerships with other countries, the development of new technologies, the development of alternative supplier countries or warehousing, and the establishment of local production in the EU or other like-minded countries.

De-risking is also a core component of the EU strategy for economic security presented in June 2023, which forms an important anchor point for European Commission President Ursula von der Leyen’s overarching goal of turning her Commission into a “geopolitical Commission.”

The link between the economy and security is by no means in the DNA of the EU, which is primarily an economic bloc due to its genesis. The EU and its member states must therefore relearn or even make a fresh start regarding economic security, especially, but not only, with regard to China. The revision of the foreign trade toolbox is an important approach in this regard and has brought some unexpected progress, such as the introduction of the Anti-Coercion Instrument, which came into force in 2023.

This enables the Commission to take extensive countermeasures if a member state is put under economic pressure by a third country in order to achieve political goals. This means that the EU will be prepared in future should a case similar to Lithuania’s occur, when China temporarily restricted trade relations and put pressure on companies from other EU states producing in Lithuania due to the opening of a Taiwan office in the country.

The EU is now relatively well positioned in terms of defensive instruments vis-à-vis China. However, it remains to be seen whether it will actually utilise them in the event of a conflict. The fear of Chinese countermeasures and possible interventions by individual member states could stand in the way of this.

Resisting Beijing’s Advances

The complicated and, sometimes deficient, coordination between the EU and the member states, but also between the member states themselves, is a general problem in dealing with China that the new Commission will also face. On the one hand, China is very skilful at playing EU member states off against each other by promising individual states “special relations,” holding out the prospect of special economic conditions or, as happened at the end of 2023, offering visa-free entry, thus making concessions to a small group of member states while the others are left out. On the other hand, member states are quite receptive to China’s advances and tend to prioritise national over European interests.

Coordinated action is urgently needed in many areas to counter China’s “divide and rule” strategy. For example, more joint initiatives are needed in the area of critical infrastructure, such as an EU port strategy. This could prevent Chinese investors who are not successful in one member state from moving on to the next and thus playing off individual EU business locations against each other.

A much more concerted approach would also be needed to protect critical technologies. For example, the Dutch manufacturer of machines for semiconductor production, ASML, is currently subject to the extraterritorial export controls of the US, because of a bilateral agreement reached with the Dutch government. ASML is therefore not allowed to supply its most advanced machines to China. As there is no standardised EU-wide approach to export controls, this decision has been taken out of the hands of the EU, which actually claims to be able to act sovereignly and independently.

Although this has brought export controls into the spotlight, the package of measures on economic security adopted in January 2024 shows once again how difficult EU-wide coordination is when member states have to relinquish a degree of national sovereignty. Instead of concrete measures for the standardisation of export controls, the EU has only presented a non-binding white paper.

In order to achieve better coordination of European interests when it comes to China, a different kind of diplomacy for visits would also make sense: High-level visits to China should be coordinated at the EU level and not take place at the national level alone. Ideally, representatives of several member states and the EU would travel together and hold joint meetings with the Chinese side.

Furthermore, mixed rather than purely national business delegations should travel there. This would allow pan-European rather than national interests to be placed at the forefront of such a visit and emphasise the importance of the single market.

Economic strength is an important prerequisite for geopolitical power. The EU therefore has the potential to become a third major global player alongside the US and China if it powers up. However, this would urgently require a clearer definition of European interests and goals as well as the formulation of a European vision for the future. On this basis, it would also be easier to reach a strong joint stance towards China.

This is also an essential prerequisite for actively managing future cooperation with China. Because what the EU lacks in addition to reactive and protective instruments is an active shaping of mutual relations under the new geopolitical conditions.

What can cooperation with a systemic rival look like in practice? Which communication channels and formats can be continued? Which cannot? Do we need new or different competences? The new European Commission should address these questions as quickly as possible. After all, cooperation with China is of central importance, especially when it comes to global challenges such as climate change.

De-risking remains sensible and necessary, but is currently playing an all too dominant role in relations with China. The impression is that the EU primarily has a plan for working against Beijing, but not with it.

Translated from German by Kate Brown.

About the author

Dr. Cora Francisca Jungbluth is Senior Expert on China and Asia-Pacific at the Bertelsmann Stiftung.

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