{"id":31024,"title":"A Gloomy Outlook for EU-China Relations: Divergence, Distancing, Decoupling","link":"https:\/\/bst-europe.eu\/de\/europe-in-the-world\/a-gloomy-outlook-for-eu-china-relations-divergence-distancing-decoupling\/","date":"8. September 2022","date_unix":1662632596,"date_modified_unix":1754482196,"date_iso":"2022-09-08T10:23:16+00:00","content":"

The relationship between the EU and China is at a historical low point. This blog post explains how this happened, what Covid, Lithuania and Putin have to do with it, and why, for the time being, the EU-China honeymoon is over – while rifts and tensions are here to stay.<\/em><\/p>\n

The European Union and China are closely interconnected through trade and investment \u2013 especially since China\u2019s WTO accession<\/a> in 2001 and its subsequent integration into global value chains. And it has long been considered a mutually beneficial development.<\/p>\n

In 2021, the EU and China even were the largest trade partners in goods<\/a>. EU-China investment relations, however, are still asymmetrical, with the EU investing much more in China than vice versa. If only considered from an economic viewpoint \u2013 there is still untapped potential.<\/p>\n

\"graph:<\/a><\/p>\n

EU perspective on China: From economics to geopolitics<\/strong><\/h2>\n

However, the EU perspective on China has changed over the last three years. In 2019, the EU, for the first time, officially acknowledged China as a \u201csystemic rival.\u201d<\/a> This assertive move can at least partially be traced back to, what I call, the \u201cKuka shock.\u201d<\/p>\n

In 2016, Chinese manufacturer of household appliances, Midea acquired the German robot manufacturer Kuka at a far higher price than its market value suggested and higher than European competitors would have been willing to offer.<\/p>\n

One of the reasons for this was that Kuka\u2019s technology exactly fit China\u2019s industrial policy strategy, \u201cMade in China 2025,\u201d<\/a> which aims to turn China into the world\u2019s leading high-tech power by 2049. Government subsidies and acquisitions of foreign high-tech companies are included as a means to achieve this goal.<\/p>\n

\"graph:<\/a><\/p>\n

The case of Kuka triggered a heated debate in Germany and the EU on Chinese firms systematically buying up European key technology, \u2013 while at the same time, European companies still faced substantial hurdles in the Chinese market. To put it short: a Chinese Kuka would not fall into foreign hands.<\/p>\n

Shortly after the Kuka case, the EU received another shock from the other side of the Atlantic: Donald Trump got elected as US president. He made rivalry the focus of US-China relations and triggered a trade war with China.<\/p>\n

But he did not stop there and even moved against the EU, calling this longstanding trusted partner a \u201cfoe\u201d of the United States. Both China and the EU were showered with tariffs, and in the case of the EU, were only removed by the Biden administration.<\/p>\n

As a result of these two shocks, the EU started to embrace the geopolitical dimension in its external relations, with a strong focus on China \u2013 but not neglecting the changing quality of its relations with the United States either.<\/p>\n

This also meant acknowledging that close economic interconnectedness implied critical dependencies<\/a> that might be exploited politically. The EU has therefore started to revise its toolbox of defensive instruments to increase its capacity to manage these dependencies<\/a> \u2013 a process which is still ongoing.<\/p>\n

The pandemic shakes things further up<\/strong><\/h2>\n

When the pandemic hit the continent, the EU prioritized dealing with the virus and its economic consequences. So other issues moved into the background for a while. China, though assumed to be the origin of the virus and criticized for lack of transparency in this regard, initially did astonishingly well with its \u201czero-Covid policy\u201d to contain the pandemic and limit economic damage.<\/p>\n

It even achieved economic growth in 2020, albeit comparably low – the only large economy worldwide to do so. Some Western observers were awed by these achievements, as China\u2019s quick recovery helped the global economy, including in the EU \u00a0\u2013 especially export-driven ones like Germany \u2013 to mitigate the impact of the pandemic at home \u2013 at least to some degree.<\/p>\n

It is therefore not surprising that the EU concluded in principle negotiations for the Comprehensive Agreement on Investment (CAI)<\/a> with China at the end of December 2020 under Germany\u2019s Presidency of the Council. Things even looked rosy again for EU-China relations at this point.<\/p>\n

However, things turned out quite differently: in the course of 2021, the EU\u2019s relationship with China deteriorated quickly. It became more apparent that China had delayed<\/a> initial notification of the novel coronavirus.<\/p>\n

With more contagious variants of the coronavirus developing \u2013 especially Omicron \u2013 China\u2019s zero-Covid policy also proved fatal for the country\u2019s own economy and, given China\u2019s role in global supply chains, to become a liability for the world economy. Moreover, the new US administration under Joe Biden revived the transatlantic axis and reinforced alliances with like-minded partners.<\/p>\n

With his first-ever Summit for Democracy<\/a>, Biden committed to strengthening democracy worldwide. This cast another shadow on EU-China relations, as China considers the thought of a transatlantic alliance against Beijing unsettling and hopes for the EU to \u201cform an independent China policy,\u201d<\/a> that is, a China policy independent from that of the United States and thus potentially more favourable for China.<\/p>\n

\"EU<\/a><\/p>\n

Mutual sanctions and economic coercion further increase tensions<\/strong><\/h2>\n

In March 2021, the EU, for the first time in 30 years, put sanctions on China, finally penalizing the systematic violation of human rights in Xinjiang province, where 1-2 million<\/a> Uyghurs are estimated to have been put into prison-like reeducation camps. China immediately imposed countersanctions, targeting, for example, members of the European Parliament<\/a>.<\/p>\n

The initially much-celebrated CAI has been put on ice ever since. In November 2021, the EU extended its sanctions and was proven right to do so by the leak of the Xinjiang Police Files<\/a> in May 2022. These delivered unprecedented evidence of the suppression of the Uighurs by the Chinese government.<\/p>\n

The next moment of diplomatic distortion was created by China\u2019s reaction to Lithuania\u2019s opening of a Taiwanese representative office. China saw this as a violation of its One China<\/em> principle. As a result, Lithuania was temporarily removed from China\u2019s customs registry, de facto halting<\/a> mutual trade relations.<\/p>\n

China also economically coerced EU companies, the supply chains of which included Lithuania, for example, by blocking them at Chinese ports. The EU initiated a WTO dispute<\/a> complaint against China in January 2022, which is still ongoing.<\/p>\n

China\u2019s dithering on Ukraine brings EU-China relations to a low point<\/strong><\/h2>\n

And as if the above developments were not enough, China and Russia entered a friendship \u201cwith no limits\u201d on February 4, 2022. This hugely disturbed EU member states and other democracies worldwide, especially the United States, as it made fears of a fully-fledged alliance of autocracies and a permanent systemic rivalry, maybe even a Cold War 2.0, more real.<\/p>\n

A few weeks later, these fears turned out to be more justified than ever imagined, as Putin invaded Ukraine and China did \u2026 nothing. A diplomatic shilly-shally<\/a> from the Chinese side followed, which brought the EU, expecting China to take on responsibility for dialogue and maybe even act as a mediator, to the end of its patience.<\/p>\n

It is not surprising, therefore, that the EU-China virtual summit on April 1, 2022, characterized by eloquent speechlessness, constituted a distinct low point in mutual relations: never had the differences between the two on crucial issues, such as Ukraine, been more apparent.<\/p>\n

The High-level Economic and Trade Dialogue (HED)<\/a> was one of the few results of the summit and was deemed a success merely because it took place a few months later. But we should not be mistaken at this point: the EU-China honeymoon is over. Rifts and tensions are here to stay.<\/p>\n

Outlook<\/strong><\/h2>\n

Russia\u2019s War against Ukraine has intensified the notion of systemic rivalry, which was already growing in the years before. While it will still be important for the EU to keep open channels of communication and cooperation with China, e.g. regarding climate change mitigation, and to not give up on multilateralism, it is very likely that, for the foreseeable future, rivalry is likely to become the defining factor in EU-China relations, as it has already been the case for US-China relations for quite some time.<\/p>\n

In the future, the EU\u2019s relationship with China will be characterized even more strongly by divergence rather than convergence of systems, distancing rather than partnership, and decoupling (in the sense of a reduction of critical economic dependencies)<\/a> rather than market competition.<\/p>\n

About the author<\/strong><\/p>\n

Cora<\/span>\u00a0is a senior expert in the\u00a0<\/span>Europe\u2019s Future Program<\/span>\u00a0at the Bertelsmann Stiftung. Her research focus is foreign direct investment and international trade (especially the role of emerging economies).<\/span><\/span><\/p>\n

Read More on EU-China Relations<\/em><\/strong><\/p>\n

The war against Ukraine \u2013 5 take-aways for China and their implications for the EU \u2013 Takeaways 4 and 5<\/a><\/p>\n

Caught between Russia and the West? China\u2019s Struggle for a Position on Ukraine<\/strong><\/a><\/p>\n

How the War Against Ukraine can Change the Global Economy<\/a><\/p>\n","excerpt":"

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