Can EU Derisk Its Beijing Bet?

Srikanth Kondapalli

China’s objectives towards the EU, enunciated in a Communist Party leader’s 1977 editorial in the party mouthpiece People’s Daily, are mostly fulfilled.

Structural readjustments are in the offing in the China-European Union (EU) relations. Last year, China skipped the 50th anniversary of ties in Brussels and has restrictions in place on critical mineral exports to the EU. The union suspended the Comprehensive Agreement on Investment signed with China in 2021. Now, more tensions are rising.

While several European leaders recently visited Beijing, including German Chancellor Friedrich Merz, Spanish Prime Minister Pedro Sanchez, and United Kingdom Prime Minister Keir Starmer, seeking Chinese investments and collaboration, escalating geopolitical and technological competition is threatening the China-EU equilibrium.

China’s objectives towards the EU, enunciated in a Communist Party leader’s 1977 editorial in the party mouthpiece People’s Daily, are mostly fulfilled. First, Beijing wanted to explore the EU’s common market and has emerged richer with EU investments, technology, market access, and managerial techniques. Economic integration intensified after China was admitted to the World Trade Organisation (WTO) in 2001. China became the EU’s second-largest trading partner with a trade surplus of over $4 trillion over the last two- and-a-half decades. Bilateral trade last year hit $826 billion. Nearly three million Chinese live in Europe.

Second, Beijing wanted to create fissures in the trans-Atlantic alliance by advocating multipolarity with France and other countries. The wars in Ukraine and Iran have disrupted the unity of NATO, which will help China’s rise militarily. Third, the disruption of the dollar-centric global financial system, by encouraging the Euro and furthering a cross-border payment system. This project is not complete, but some EU countries are interested.

The EU, on the other hand, wanted to “deepen political dialogue” with Beijing, “support China’s transition to an open society based upon the rule of law and respect for human rights”, intensify China’s integration into the global trade system, and raise the EU’s profile in China. These objectives are half-fulfilled. After a series of 25 intense summit meetings, relations are undergoing major shifts. The EU ‘Strategic Outlook’ of 2019 termed China as a “partner for cooperation and negotiation, an economic competitor and a systemic rival”.

China’s material support to Russia on Ukraine rattled the EU, which is now funding Ukraine’s military operations. The EU’s arms embargo on China following the Tiananmen Square massacre and sanctions pegged to human rights in Xinjiang and Tibet enraged Beijing, which responded with a ‘Wolf Warrior’ diplomacy. Lithuania bore the brunt of strengthening its ties with Taiwan.

In May this year, the EU considered the trade surplus in favour of China as “unsustainable” and called for strengthening the “de-risking” measures. These de-risking measures, aimed to reduce the bloc’s economic dependence on China, include a diversification of trade (such as the Free Trade Agreement with India), the demand for reciprocal trade access, the launch of anti-dumping investigations and tariffs on China’s Electric Vehicles, and an attempt to enact the Industrial Accelerator Act to restrict the import of China’s EVs and batteries.

However, the EU is a divided house: Germany is concerned about its trade relations with Beijing, while Italy advocates stiff measures against China. Italy has also pulled out of China’s Belt and Road Initiative. Central and Eastern Europe have eyed Chinese investments in infrastructure but have also wanted to address Beijing’s coercive behaviour.

On the other hand, Hungary and Slovakia have courted Beijing; Hungary, especially, under its former leader, Viktor Orbán. China has invested more than $219 billion in the EU, mostly in Germany, Hungary,

Mediterranean ports, and the railways. It is fishing in troubled EU waters by exploiting the union’s incoherent trade policies and national security postures.

China has launched seven cases against European products at the WTO, while the EU launched 11 against China’s intellectual property rights violations, state subsidies, non-reciprocal market access policies, and export restrictions on critical minerals since 2020. Both have resorted to the WTO’s dispute resolution mechanism since 2009.

Beijing’s export controls on 12 critical minerals, including graphite, germanium, and gallium, have hit Europe’s EV manufacturing, solar, wind, and hydrogen industries. As a temporary measure, the bloc has established a “special channel” to secure these minerals from China, but the progress remains tardy and reciprocal gestures costly.

The EU is also concerned about the cybersecurity risks from Chinese inverters that could enable remote grid disruptions. Several EU countries have stalled the integration of Huawei and ZTE telecom equipment, citing cybersecurity issues.

The road ahead for China-EU ties remains uncertain. While both camps are trying to manage the unbridled competition, geopolitical differences are intensifying, despite economic interdependence