By Alicia Garcia-Herrero
Chinese President Xi Jinping’s European tour, his first in five years, was a true reality check for Europeans. Not only did Xi take his time to visit the continent, but his choice of destinations — Serbia, Hungary and France — was telling.
French President Emmanuel Macron was an important target for Xi due to his recent harsher stance on Russia’s war in Ukraine and strong support for the European Union’s economic security strategy, which aims to reduce dependence on China. China’s high levels of official exchanges with Russia have only exacerbated the situation. China’s economic and financial support is now essential for Russia’s aggression in Ukraine. This support includes importing oil and gas from Russia and supplying essential military equipment like trucks, chips and drones.
Macron’s warning to Xiduring his visitregarding potential sanctions on Chinese exporters of ‘dual use’ technology was clear. Following this, the European Union included nine more Chinese companies exporting to Russia within its 14th Russia sanctions package announced on 24 June 2024.
European Commission President Ursula von der Leyen further expressed EU concerns with China’s economic model and its massive industrial policies distorting fair competition in export markets and the European Single Market. EU officials have shifted focus from gaining market access in China, after decades of unsuccessful attempts, to protecting the EU market from China’s industrial policies. But the European Union’s protective measures against China’s support for its own companies can barely protect the internal market. In third markets, the European Union continues to suffer from China’s industrial policy distorting and pushing down prices.
Since the COVID-19 pandemic started in 2020, Chinese imports into the European Union have ballooned. This was the case for pandemic related items such as personal protective equipment but, more recently and clearly more structurally,also green tech for the EU green transition. The European Union faces a large bilateral trade deficit with China, due to growing imports and stagnant or falling exports. President Xi Jinping’s emphasis onChina’s ‘new productive forces’for growth has increased the European Union’s concerns about fair competition for European companies.
China’s economic data confirms Xi’s aspirations as industrial production outpaces consumption and exports increase faster than in 2023 — especially green tech exports, including solar panels,electric vehicles(EVs), EV batteries and even wind turbines which had long been dominated by European companies.
Since Xi’s visit, the United States has raised additional barriers to Chinese green tech, with more import tariffs beyond the previously introducedInflation Reduction Act. These moves discourage Chinese imports of green tech or foreign direct investment in the United States.
China has shown little interest in resolving this problem, indicated by Xi’s position during his visit to France and the even harsher US position against China. Nobody should be surprised by the European Union Commission’s decision, on 12 June, to raise countervailing duties on EVs produced in China as part of its anti-subsidy investigation at the World Trade Organization.
Considering that the European Union is China’s largest export market, China’s attention to the EU decision to impose duties has been largely rhetorical. This includes launching an anti-dumpingprobe into imported European pork on 17 June, rather than implementing rumoured import tariffs on European automobiles.
Despite facing retaliatory pressure, the EU member states’ reaction to the Commission’s decision shows less unity than hoped. Germany and Sweden have expressed concerns about the measure and China’s retaliation may sway more member states. But this is one of many investigations that the Commission has initiated against China through its defensive instruments. The case against Chinese EVs has emerged first since the auto sector is key for Europe, but it will not be the last. The European Union Commission has changed its strategy, from that of championing free markets and defending multilateralism towards a geopolitical and interventionist approach.
It is hard to see a reversal by the European Union for two reasons. The first is that the bloc’s change is a response to the world having changed first. China’s massive industrial policy, combined with the size of its economy, has had enormous consequences for the rest of the world, particularly driving the United States towards its ownindustrial policy and protectionism. The second reason is the increasing populism influencing European governments. Populist governments are bound to push the European Union inward rather than outward, particularly regarding their approaches toward China.
Xi’s visit to Europe was an eye-opener for the continent, which has concluded that rivalry with China is on the rise and protective measures are necessary to safeguard the EU industrial base and to address the issue of China’s support for Russia. It is uncertain whether any change is to be expected from China, but both Xi Jinping’s tone in Europe as well as his push for the new productive forces do not bode well for such change.
- About the author: Alicia Garcia-Herrero is Senior Research Fellow at the Brussels-based think tank Bruegel and Adjunct Professor at the Hong Kong University of Science and Technology.
- Source: This article was published by East Asia Forum