Both Europe and China strive to maintain the mutual benefits derived from their flourishing economic relations and supply chains, despite the difficulty of doing so amid the intense polarization characterizing US-China relations and China’s increasing political and economic support for Russia following the war in Ukraine.
Despite the trade volume between China and the European Union reaching $738 billion in 2023, with China becoming the EU’s largest import partner, European capitals remain skeptical of Beijing. The United States has warned against relying on European exports to China as a primary lever for economic prosperity, drawing a parallel to Germany’s reliance on cheap Russian gas imports. This dependency increased Russian political and economic influence, allowing Moscow to negatively impact the European energy market after the war in Ukraine began.
A turbulent history of relations
Sino-European relations have historically been turbulent, stemming from differing strategies in dealing with each other. The modern history of these relations can be divided into four phases. From 1949 until Mao Zedong’s death in 1976, China kept its borders closed and viewed the young European Economic Community as a dangerous form of colonial capitalism.
Although China sought international recognition, any contact with Europe was frowned upon. From 1976 until Jiang Zemin’s rise in 1989, China restructured its ideology and opened up after realizing that its own ideology was a dead end for its economy and that capitalism was resilient. Consequently, a trade agreement between Europe and China was signed in April 1987, the first scientific cooperation program was developed in 1983, and in 1987, the European Commission opened an office in Beijing.
From Jiang Zemin (1990) to Hu Jintao (2002), China increasingly opened its economy and politics, returning to Western science and technology. Sino-European relations regained strength, paving the way for a new political dialogue. Finally, the period from Hu Jintao’s inauguration in 2002 to the present day has been marked by efforts from both sides to develop their mutual relations into a global partnership.
Today, Sino-European dialogue has its institutional framework across all fields. China is the EU’s second-largest trading partner, while the EU considers itself China’s top trading partner. Economic and trade relations have rapidly expanded in recent years and are not limited to goods and services sectors. Another notable point is cooperation in science, research, and technology, such as China’s contribution to the Galileo project, the European satellite navigation system, or the “Double Star” project.
Despite the success of the United States in sowing doubts about the future and sustainability of Sino-European relations, a “broad spectrum” of Europeans, particularly in Germany, France, Italy, and Spain, recognize that the significant growth and prosperity enjoyed by the old continent over the past three decades are not solely due to cheap Russian gas and the outsourcing of European defense tasks to the United States. Rather, it is also because of European exports to the Chinese market and access to affordable production inputs from China.
Turning point: The Ukraine War
Delving deeper into the mutual interests between Europe and China, far surpassing the $915 billion annual trade volume, it is clear that neither Europe nor China benefit from the ongoing Russian-Ukrainian war. Chinese trade flourishes in times of peace and stability, not during wars and conflicts. Europe, on the other hand, is the most adversely affected by the Russian-Ukrainian war across political, economic, and military dimensions. The joint Sino-European efforts in environmental conservation represent a common goal. Both sides recognize that cooperation is more beneficial than competition and conflict, especially given that Western sanctions on the Russian economy, which is valued at $1.8 trillion, have caused significant global economic issues and inflation. Some in Europe argue that China alone is capable of influencing Russia’s decision to end the war in Ukraine.
Despite the broad common ground between Europeans and Chinese, recent disagreements have increased for several reasons, most notably China’s military support for Russia. Western intelligence agencies accuse Chinese state-owned companies of supplying everything that supports the Russian war effort. According to a CIA report, Chinese military aid to Russia is sufficient to arm an entire army. European countries view this as a threat to their national security, prolonging the war in Ukraine and violating China’s public commitments not to support the Russian military. Europe also remembers China’s refusal to condemn Russia’s invasion of Ukraine on February 24, 2022. European leaders see this Chinese support as undermining China’s image as a responsible nation for global peace and security. Additionally, this military support means Chinese weapons oppose the equipment provided by European countries to Ukraine.
Another point of contention is related to NATO’s Asian allies. NATO has announced its readiness for security roles in East Asia and the South China Sea. Since the Madrid Summit in June 2022, NATO has discussed the threat China poses to its member states. The EU’s support for Japan, South Korea, Australia, and New Zealand, all of which have significant disputes with Beijing, further complicates Sino-European relations. The recent expansion of NATO, including the admission of Sweden and Finland, also concerns China, increasing NATO’s perceived threat to its allies.
Europe seeks to repair unbalanced trade relations and address China’s role in the Ukraine war through diplomatic channels. Despite many European companies falling behind due to Chinese competition and increasing national industrial policies, Europe is economically struggling and may currently rely on its largest trading partner, China. Europe’s confidence is bolstered by the belief that China would not risk losing Europe, as European consumers play a crucial role in supporting China’s export-driven economy.
However, future dealings with China are likely to be heavily influenced by the experience with Russia. For Germany and Europe, the guiding principle is “not to repeat the same mistakes,” which involves reducing strategic dependence on China. This is especially pertinent regarding raw materials, including minerals and industrial metals, where China has achieved significant dominance over the past two decades.
Brussels hopes China will pressure Russia to end the war in Ukraine. An EU representative, speaking anonymously, stated, „we know that China does not approve of the war.” At the same time, it is certain that many so-called “dual-use” goods, which can be used for both civilian and military purposes, reach Russia through China.
Europe between China and the United States
Before the war, Europe’s reliance on Russian energy supplies was a vulnerability that the West now seeks to avoid in its dealings with China. Both Washington and Brussels are taking steps to loosen their close economic ties with China, while Beijing is working to increase its self-sufficiency. The war in Ukraine has strengthened transatlantic unity, pushing NATO’s European members to boost their defense budgets, driving Finland and Sweden into NATO’s arms, and compelling the United States to re-establish a stronger military presence in Europe.
However, this situation has also exposed the growing weaknesses within the Western bloc. Europe is still grappling with post-Cold War illusions. Today, the Sino-Russian partnership is geopolitically stronger than the former Sino-Soviet alliance. Meanwhile, the transatlantic unity fostered by the Ukraine war remains fragile. Some European countries are delaying defense spending, advocating for independence from the United States, or opposing efforts to mitigate risks in dealing with China.
So far, diplomatic lines between Europe and China have been more active than between China and the United States. French President Emmanuel Macron has visited China three times in 2018, 2019, and 2023, with the most recent visit accompanied by European Commission President Ursula von der Leyen. European Council President Charles Michel visited China on December 1, and a month prior, German Chancellor Olaf Scholz visited on November 4, 2022. In contrast, China’s defense minister has refused to meet with U.S. Secretary of Defense Lloyd Austin, and China’s engagement has been limited to a visit by U.S. Secretary of State Antony Blinken.
Experts suggest that China views the disputes between Europe and the United States as an opportunity to strengthen Sino-European relations, preventing Europeans from aligning with America in its competition and conflict with China. This is particularly relevant in trade issues, where significant disagreements exist between Germany and France on one side, and the United States on the other. China has been observing these disputes for decades; for instance, France established diplomatic relations with China in 1964, 15 years before the United States did in 1979.
The risks of complete reliance on the United States have led to a growing tendency for “strategic independence” in Europe. Most European countries, especially in Central and Western Europe, seek greater autonomy from both China and the United States amid Sino-American competition. European calculations suggest that Europe could be vulnerable if Sino-American competition escalates into open conflict or a new Cold War. These concerns are deepened by what some Europeans describe as American selfishness, evident in the sale of American gas at exorbitant prices in 2022, threatening to move factories from Europe to the United States, which provides substantial support to American companies in the energy sector. Additionally, many Europeans are discontented with American pressure to increase military spending, which has already reached 2% of GDP for European NATO members, reducing European citizens’ standard of living.
Factors undermining trust between China and the European Union
One of the major political disagreements between China and the European Union is over the “rules-based international order.” European countries, similar to the United States, constantly advocate for maintaining the current global order based on Western rules. In contrast, China, alongside Russia, calls for a multipolar world order based on respecting international law, United Nations principles, non-interference in internal affairs, and respecting the developmental models of different peoples.
Despite the EU’s public recognition of the “One China” principle and its refrain from selling lethal weapons to Taiwan, European countries oppose any Chinese attempts to retake Taiwan by force. European nations have condemned what they describe as China’s attempts to intimidate Taiwan through military aircraft incursions into Taiwanese airspace. This stance aligns with the EU’s rejection of what it calls China’s “economic coercion” and “bullying” of its Asian neighbors.
Europe is working to address unbalanced trade relations, highlighted by a trade deficit of around €400 billion in 2023. Politically, China’s close partnership with Russia dominates the agenda, indirectly supporting continued Russian military operations in Ukraine. Human rights issues, long criticized by Europe, have seen a decline in focus within European leaders’ statements recently.
According to many economists, the most contentious issue between Brussels and Beijing relates to unequal market conditions. Hildebrandt from the German Chamber of Commerce states, “We should no longer allow European companies in China to face competitive conditions that the Chinese economy does not face in some areas, while Chinese companies can fully exploit the European market.”
The disparity is evident in the automotive industry. In the last week of November 2023 alone, BYD, a leading Chinese company, sold nearly 50,000 cars. In contrast, Volkswagen, the only significant foreign supplier apart from Tesla, sold just a tenth of that figure in China, with 5,600 units. Projections indicate that the majority of new cars sold in China will be electric by 2025, raising concerns about the future for European, particularly German, automotive manufacturers. Meanwhile, Europe is soon to be flooded with cheap, technologically advanced electric cars from China, raising the question of how to deal with what is seen as unfair competition due to Chinese government subsidies.
Overall, these issues contribute to a complex and strained relationship between the EU and China, marked by mutual mistrust and significant economic and political challenges.
Europe’s demands and China’s concessions in automotive industry
Europe is pushing for Chinese automotive companies to engage in local joint ventures before accessing the European market, mirroring China’s own practices with foreign brands. However, this demand is practically challenging, as it may violate World Trade Organization rules. Moreover, European companies are wary of being isolated, fearing economic retaliation from the Chinese government. According to Hildebrandt from the German Chamber of Commerce, “We hope that no trade conflicts arise because the German economy needs open markets.”
In contrast, China has made some concessions, albeit surprising at times. For example, it reportedly lifted trade restrictions on Lithuania, which China intended to punish for its close ties with Taiwan. China also allowed visa-free entry for citizens of several European countries.
However, experts argue that China’s concessions indicate a willingness to offer token gestures while maintaining structural imbalances. This could erode trust between the two parties. China resists the EU’s investigation into green industry support, accusing the EU of “reckless distortion” of support definitions in response to a new EU investigation into green technology, specifically wind turbine manufacturing in China.
China claims that the EU’s “reckless distortion” of support definitions and lack of openness and transparency in procedural standards during the investigation harm fair competition. The EU investigation will examine whether Chinese subsidies give wind turbine manufacturers an unfair advantage when competing for projects in five member states: Spain, Greece, France, Romania, and Bulgaria.
China has the largest wind turbine production capacity globally. As these products exceed domestic demand, manufacturers increasingly export to Europe, threatening to drive local competitors out of the market with low prices. Trade defense tools, like anti-dumping or countervailing measures, aim to protect European companies from artificially cheap imports into the single market—prices lower than domestic selling prices or even production costs.
In 2019, anti-dumping duties were imposed to protect the European electric bicycle industry, resulting in over an 80% decrease in imports from China. This suggests that European countries recognize the need for equal competition to survive and thrive.
The Chinese government systematically influences prices and costs to give its companies a competitive advantage in strategic sectors. This was confirmed by an EU Commission report stating that Beijing established a comprehensive monitoring system to guide corporate business strategies, impacting not only electric car prices but also leaving manufacturers little room for research and development spending.
The Commission also believes that China actively promotes surplus export capacity to benefit from local production capacity. The situation is similar regarding battery production: by 2025, China will produce four times what the market needs in batteries, according to the report.
This strategy has made China the world’s largest source of cars by 2023, with the global market share of electric car exports rising from 9% in 2020 to over 60% in the first half of 2023.
For years, the EU’s anti-dumping report has served as a reference for European companies wishing to sue Beijing in Brussels. The Committee receives numerous new complaints each year. In 2023, the anti-dumping investigation opened twelve cases. In addition to dumping practices, the EU increasingly targets government support in China. Since October, the Commission has been investigating whether China supports electric car exports to the EU. European officials said, “If we find that these electric cars are illegally subsidized, we will take countermeasures.” Proving illegal subsidies is more difficult than proving dumping practices because support grants in China are often not transparent. According to a study by IfW Kiel, 99% of listed Chinese companies received direct support in 2022.
Conclusions
- Shift in economic dynamics: The economic relations between the three major economic powers— the European Union, the United States, and China—have rapidly changed in recent years, with significant shifts in dynamics. The new U.S. administration has not altered the tough stance towards China adopted by the Trump administration. Relations between China and Europe have experienced a significant setback following escalatory actions resulting from sanctions imposed by China. Direct consequences include the postponement of the ratification of the EU-China investment agreement. Meanwhile, China revealed its five-year plan, emphasizing the development of its own technological capabilities and reducing reliance on other countries and companies. There is an increasing trend of reducing imports from the West and replacing them with locally produced goods.
- Dependency on German intermediate products: China relies heavily on various German intermediate products. This indicates that China stands to lose significantly in its struggle with the European Union.
- EU trade strategy: The new trade strategy of the European Union reflects its desire to confront challenges with China and represent its trade interests confidently. The EU emphasizes that “building a more fair and rules-based economic relationship with China is a priority.” This is an important message from the EU to both China and the United States, as the United States has long criticized China’s strict market access restrictions.
- Need for alternative cooperation: Although the United States encourages Europe to reduce dependence on China, it does not provide an alternative. Cooperation with the United States will not be smooth, as there are areas of conflict, such as EU support for the agricultural sector, U.S. tariffs on steel and aluminum from the EU, or the dispute over support for aircraft manufacturers.
- Development of a strong foundation for dealing with China: It is crucial for the European Union, the United States, and China to work on developing a strong framework and consensus on how they want to drive the global economy forward, especially in the face of China’s growing power. In particular, facing the escalating dominance of China, especially in the automotive industry, the European Union needs to focus more on innovation. According to a report on EU innovation policy by economists Clemens Fuest and Daniel Gros, European companies primarily allocate their research and development spending to medium-technology sectors, such as the automotive industry. However, high-tech industries have growth potential and could achieve desired superiority over China and its allies.
All publishing rights and copyrights reserved to MENA Research Center.
