European Union (EU) - China Policy

On 07 May 2022, the European Parliament at its plenary session adopted the report on the EU and the security challenges in the Indo-Pacific, stating that China poses a threat to the EU's interests in the region, criticizing China's position on Ukraine, Taiwan, Hong Kong, Macao and Xinjiang-related issues, and calling for the EU to enhance the existing partnership with Taiwan.

With China thousands of miles away, separated from Europe by nuclear-armed Russia, most Europeans do not see China as a security threat, and have constructive trading relationships with it they want to protect. But as the Chinese boycott of Swedish fashion retailer H&M over its human-rights criticisms had shown, Europe can't avoid the great power rivalry between the US and China. The EU's efforts to stand up to an increasingly assertive China have been stymied by a lack of unity among its 27 member states, many of which have been courted assiduously by the Asian giant. Proposed new EU legislation in 2020 was aimed at ensuring foreign firms backed by heavy state subsidies do not distort competition in Europe. There is particular concern about Chinese companies swooping in to buy European companies weakened by the coronavirus-triggered recession.

On the China issue, there is a split in the European Union between old member states and new member states. In 17+1 there were a number of U.S. allies that are more receptive to American goals. "Europe can be picked apart by China, because the EU is not a unified state. Germany is the one that is most deferential to China, even though it has the goods that China wants more than any other European country. Nearly 50 percent of EU exports to China are from Germany, followed distantly by France. In the year 2020, China was the main trading partner for the EU. This result was due to an increase of imports (+5.6%) and exports (+2.2%). At the same time trade with the United States recorded a significant drop in both imports (-13.2%) and exports (-8.2%).

The United States, the European Union, Britain and Canada imposed sanctions on Chinese officials on 22 March 2021 for human rights abuses in Xinjiang, in the first such coordinated Western action against Beijing under new U.S President Joe Biden. "It is not by attacking academic freedom, freedom of expression and fundamental democratic freedoms that China will respond to the legitimate concerns of the European Union, nor that it will foster dialogue with the 27" countries in the EU, ministry spokeswoman Agnes von der Muhll told reporters in a daily briefing. The EU has sought to avoid confrontation with Beijing and Monday’s sanctions were the first significant measures since the 1989 Tiananmen Square crackdown, although Brussels targeted two computer hackers and a technology firm in 2020 as part of broader cyber sanctions. The steps were praised by the United States. While mainly symbolic, the EU sanctions mark a hardening towards China, which Brussels regarded as a benign trading partner but now views as a systematic abuser of rights and freedoms.

Beijing’s reprisal was swift. Chinese Vice Foreign Minister Qin Gang summoned EU's envoy to China Nicolas Chapuis to protest and denounce the EU's latest sanctions on China. Qin also declared China's countermeasures which include sanctioning 10 individuals and four entities that have spread rumors and lies about Xinjiang. Retaliation included sanctions on European lawmakers, the EU’s main foreign policy decision-making body known as the Political and Security Committee and two institutes. Also included was Adrian Zenz, a German scholar whose research was cited by the State Department last year when highlighting alleged abuses in Xinjiang.

The EU's restrictive measures targeted four Chinese nationals and one entity. "Our countermeasures may have come as a surprise to Brussels, as they probably expect equal sanctions, yet we anted up our punitive measures," Cui Hongjian, director of the Department of European Studies at the China Institute of International Studies, told the Global Times.

Chinese leader Xi Jinping chaired a long-delayed summit with Central and Eastern European countries amid growing division in the region over how to view Beijing's growing influence. The 09 February 2021 virtual meeting that took place via video link focused on access to COVID-19 vaccines and post-pandemic economic recovery as Beijing convened the 17+1 bloc -- a format launched in 2012 for China to engage with Central and Eastern European nations, of which 12 are European Union members. Many Central and Eastern European countries have grown frustrated with China's unkept promises for trade and investment. In a sign of growing skepticism in the region toward China, six countries -- Bulgaria, Estonia, Latvia, Lithuania, Romania, and Slovenia -- elected to send ministers instead of their head of state or government. China's efforts to shore up its ties in Central and Eastern Europe come after a largely successful U.S. campaign to persuade European nations to restrict Chinese operators from Chinese 5G networks.

Germany announced plans in March 2021 to sail a frigate through the South China Sea. “We will send a frigate to the Indo-Pacific from August 2021 to February 2022,” the ministry tweeted. “In doing so, we are implementing the guidelines and are showing ourselves more strongly as a creative actor in the region.” The U.S. State Department praised the decision as an example of Germany's commitment to the "rules-based international order." Germany's operation came after NATO members France and the U.K. conducted their own freedom of navigation operations (FONOPs) in the Pacific. These actions encouraged some in Washington to argue NATO should become a bulwark against China in Asia.

Brussels and Beijing signed a new investment agreement in 2020 intended to guarantee a stable framework of conditions for trade and investment in each other's markets. The EU-China Comprehensive Agreement on Investment (CAI) was signed in December 2020 after seven years of negotiation.

EU Commission Vice President Valdis Dombrovskis said 05 May 2021 that efforts to win approval for the deal were effectively on ice. "We now in a sense have suspended ... political outreach activities from the European Commission side," Dombrovskis said in an interview. "It's clear in the current situation with the EU sanctions in place against China and Chinese counter sanctions in place, including against members of European Parliament (that) the environment is not conducive for ratification of the agreement," Dombrovskis said. A spokesperson for the European Commission told DW that the ratification process had not begun, and was subject to a legal review. The spokesperson said the ratification process was now effectively paused as it "cannot be separated from the evolving dynamics of the wider EU-China relationship." Chinese sanctions were "unacceptable and regrettable," the spokesperson added.

The EU rolled out an updated industrial strategy plan in May 2021 that aimed to cut the bloc’s dependency on foreign suppliers in a spate of strategic sectors following the COVID-19 pandemic-induced economic meltdown. The sectors include raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors, as well as cloud and edge technologies. The 19-page document pointed out that the EU measures could include "diversifying supply and demand relying on different trading partners whenever possible, but also stockpiling and acting autonomously whenever necessary”. The blueprint did not specifically mention China, but the plan was unveiled after Brussels and Beijing exchanged tit-for-tat sanctions over human rights concerns, which brought bilateral relations to a low point.

The signing of the European Union-China Comprehensive Agreement on Investment (CAI) in late December 2020 marked a geopolitical win for China and sent a message to Washington that Beijing’s connections to Europe would be a more permanent fixture, despite lingering concerns over the deal in the European Parliament. The Comprehensive Agreement on Investments (CAI) between China and the European Union, which wrapped up negotiations on the deal this week, sparked concerns that it will give the Chinese Communist Party (CCP) a free pass on human rights and labor standards, while locking the E.U. into allowing market access to Chinese companies. There are concerns that the CCP is highly unlikely to implement commitments in the way that they would be understood in a liberal democracy, especially given its track record of using propaganda and careful orchestration of workers and detainees during inspection tours of contested facilities.

It took seven years and 35 rounds of talks to negotiate the EU-China Comprehensive Agreement on Investment. But just months later, its ratification by the European Parliament was in doubt because of the tit-for-tat sanctions. The agreement was scheduled to be reviewed and implemented in 2021, but three of the main political parties in the Parliament said that as long as the sanctions remain in place, the Parliament will refuse to even open the debate for ratification.

For the EU and Communist Party-led China to conclude in principle negotiations on an investment agreement was a major win for General Secretary Xi Jinping. Neither EU negotiator Ursula von der Leyen nor German Chancellor Angela Merkel seemed to care that further economic entanglement between the EU and China only plays into the hands of the Chinese Communist Party. This was a direct reaction to the election of Biden and an intervention to frustrate a united front of Europe and Washington vis a vis China. Final drafting of the deal has yet to take place, and the deal will need to pass a vote in the European Parliament before it can be signed by E.U. and Chinese leaders.

China became the EU's biggest trading partner in 2020, overtaking the US. Bilateral trade volume between Europe and China topped U.S.$516.8 billion in the first nine months of 2020.

The ratification of the Lisbon Treaty in 2010 was a very important development and the EU would now have more engagement with the PRC. The PRC would now have "two important relationships" (i.e., with the EU and with each member state), but because each member state determined its foreign policy, bilateral relations would remain the central relationship with China. The PRC needed assurance that the EU understood and appreciated China's views on human rights, even when disagreement existed, she said. Furthermore, the EU, in pursuing its own economic interests, had to take into account China's economic development needs.

The External Action Service (EAS) established under the Lisbon Treaty would now serve as the focus for foreign policy coordination and implementation, whereas previously, EU foreign policy coordination was divided between the EU Commission and rotating presidency. Under the Lisbon Treaty, bilateral relations could be circumscribed by the need to conform to EU consensus (which would supersede an individual member state's foreign policy position).

The EU did not possess the negotiating tools of its individual member states, but instead derived its strength from "values," and the PRC was not used to dealing with this construct. The PRC did not want to deal with the EU because it preferred to play one country against another within Europe to achieve its objectives (for example, Spain, which is more accommodating to China on Taiwan and the Dalai Lama).

The European Union (EU) and China are linked by an enduring relationship. They are two of the three largest economies and traders in the world. China is now the EU's second biggest trading partner behind the United States and the EU is China's biggest trading partner. The EU is China's largest trading partner, biggest import and export market and primary source of technology transfer, while China is EU's second largest trading partner. In 2009, the two-way trade amounted to US$364.1 billion, down by 14.5% year-on-year. By the end of March 2010, China had signed contracts worth US$128.907 billion of technologies and US$69.14 billion of direct investment from the EU.

In 2017, the EU was China’s largest partner with a share of 13% of imports of goods in China (EUR 217 billion) and a share of 16% of exports of goods from China (EUR 332 billion). In the same year, China had a share of 11 % in extra-EU exports of goods (EUR 198 billion) and in extra-EU imports of goods China was the largest partner with a share of 20 % (EUR 375 billion).

Both sides are committed to a comprehensive strategic partnership, as expressed in the 2013 EU-China 2020 Strategic Agenda for Cooperation. Yet there is a growing appreciation in Europe that the balance of challenges and opportunities presented by China has shifted. In the last decade, China's economic power and political influence have grown with unprecedented scale and speed, reflecting its ambitions to become a leading global power. China can no longer be regarded as a developing country. It is a key global actor and leading technological power. Its increasing presence in the world, including in Europe, should be accompanied by greater responsibilities for upholding the rules-based international order, as well as greater reciprocity, non-discrimination, and openness of its system. China’s publicly stated reform ambitions should translate into policies or actions commensurate with its role and responsibility.

The 2016 Strategy on China remains the cornerstone of EU engagement, providing the basis for delivering a further EU policy shift towards a more realistic, assertive, and multi-faceted approach. This will ensure that relations with this strategic partner are set on a fair, balanced and mutually beneficial course.

The European Union and China are two of the biggest traders in the world. China is now the EU's second-biggest trading partner behind the United States and the EU is China's biggest trading partner. The EU is committed to open trading relations with China. However, the EU wants to ensure that China trades fairly, respects intellectual property rights and meets its obligations as a member of the World Trade Organization (WTO).

China’s proactive and state-driven industrial and economic policies such as "Made in China 2025" aim at developing domestic champions and helping them to become global leaders in strategic high-tech sectors. China preserves its domestic markets for its champions, shielding them from competition through selective market opening, licensing and other investment restrictions; heavy subsidies to both state-owned and private sector companies closure of its procurement market; localisation requirements, including for data; the favoring of domestic operators in the protection and enforcement of intellectual property rights and other domestic laws; and limiting access to government-funded programmes for foreign companies. EU operators have to submit to onerous requirements as a precondition to access the Chinese market.

The EU has an open procurement market, which is the largest in the world. At the same time, EU companies often encounter difficulties to gain access to procurement opportunities in the Chinese as well as other foreign markets, in particular in sectors where EU companies are highly competitive (e.g. transport equipment, telecommunications, power generation, medical equipment and construction services). This protectionist trend is rising.

China is, simultaneously, in different policy areas, a cooperation partner with whom the EU has closely aligned objectives, a negotiating partner with whom the EU needs to find a balance of interests, an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance. This requires a flexible and pragmatic whole-of-EU approach enabling a principled defence of interests and values. The tools and modalities of EU engagement with China should also be differentiated depending on the issues and policies at stake. The EU should use linkages across different policy areas and sectors in order to exert more leverage in pursuit of its objectives.

The EU is committed to engaging with China to uphold the rules-based international order. China has expressed its commitment to a fair and equitable global governance model. At the same time, China's engagement in favour of multilateralism is sometimes selective and based on a different understanding of the rules-based international order. While China has often repeated its legitimate request for reforming global governance to give greater participation and decision-making power to emerging economies, it has not always been willing to accept new rules reflecting the responsibility and accountability that come with its increased role. Selectively upholding some norms at the expense of others weakens the sustainability of the rules-based international order.

The EU is committed to supporting effective multilateralism with the United Nations at its core. As a permanent member of the United Nations Security Council and a beneficiary of the multilateral system, China has the responsibility to support all three pillars of the United Nations, namely Human Rights, Peace and Security, and Development.

China's maritime claims in the South China Sea and the refusal to accept the binding arbitration rulings issued under the United Nations Convention on the Law of the Sea affect the international legal order and make it harder to resolve tensions affecting sea-lanes of communication vital to the EU's economic interests. They also stand in contrast to China's demands for representation on Arctic issues. China's increasing military capabilities coupled with its comprehensive vision and ambition to have the technologically most advanced armed forces by 2050 present security issues for the EU, already in a short to mid-term perspective. Cross-sectoral hybrid threats including information operations, and large military exercises not only undermine trust, but also challenge the EU’s security and must be addressed in the context of the mutual relationship.

The year 2019 saw an EU policy shift to a more realistic, assertive and multi-faceted approach to China. In a fairly unusual move ahead of the forthcoming EU-China summit, on 12 March 2019, shortly before the EU-China High-Level Strategic Dialogue of 18 March, the EU published a 'strategic outlook' for EU-China relations, to be debated at that week's European Council meeting. The paper refers to a shift in the balance of challenges and opportunities the EU faces in its ties with China; it moves away from portraying China as a strategic partner towards an issue-based, differentiated framing of China as a cooperation partner, a negotiating partner, an economic competitor and a systemic rival. It spells out three goals: to 'deepen its engagement with China to promote common interests at global level', based on clearly defined interests and principles; to 'seek more balanced and reciprocal economic relations'; and to 'adapt to changing economic realities and strengthen its own domestic policies and industrial base'. It sets out 10 actions, and stresses that Member States need to apply a uniform approach to China to achieve these goals.

The European Union has a strong stake in the continued stability and prosperity of Hong Kong under the “One Country, Two Systems” principle. It attaches great importance to the preservation of Hong Kong’s high degree of autonomy, in line with the Basic Law and with international commitments, as well as to the respect for this principle. The Standing Committee of China’s National People’s Congress adopted the National Security Law in Hong Kong on 30 June 2020. The European Union is concerned that the law risks seriously undermining the high degree of autonomy of Hong Kong, and having a detrimental effect on the independence of the judiciary and the rule of law. Both of these principles remain essential for the continued stability and prosperity of Hong Kong, and are therefore of vital interest to the European Union and the international community.

17+1 Central and Eastern Europe (CEE)

China has managed to build a system of interconnected relations in Central and Eastern Europe (CEE), where it was almost absent before. Paradoxically, China has contributed to the conceptualization and institutionalization of CEE as a region. The “17+1” platform was created in 2012 to expand economic cooperation between China and a large group of Central and Eastern European countries. Despite the adverse circumstances, China has not given up on investing in the platform, politically and symbolically. At its birth in 2012, the “16+1” (which later became “17+1 with the inclusion of Greece) had been accompanied by strong hopes and expectations, especially in Central and Eastern Europe. China, a new power with global ambitions, presented itself as a protagonist able to finance the long-awaited and necessary modernisation of the economies of the area under favourable conditions. The EU always viewed the "17+1" with suspicion (12 of the 17 countries in the initiative are EU members), considering it an exercise in Chinese soft-power aimed at bringing the continent's most fragile economies to its side and exercising a policy of "divide and rule" within the European bloc.

Empirical evidence shows that China-CEEC trade had actually jumped prior to 2012, whereas afterwards it increased at a much slower pace, with Chinese exports to CEECs expanding much quicker than CEEC exports to China, thus generating an unbalanced trade that is heavily tilted in favor of China. Foreign direct investment (FDI) data reveal that while Chinese FDI is highly concentrated on the biggest CEECs, it accounts for an extremely low share of total FDI stock. Some smaller CEECs have started to attract Chinese FDI as well, although at comparatively low levels. Some of China's infrastructure construction projects in the CEECs have suffered setbacks in a regional environment governed by EU norms and regulations.

While in 2012 the CEECs had enthusiastically embraced this form of cooperation as a chance to diversify their EU-focused economic relations in the wake of the 2008 financial crisis, by 2018 some of them had voiced dissatisfaction with the economic results it had yielded for them. The 2018 Sofia summit guidelines for the first time stressed the need for a more balanced trade, reciprocity of market access and open tenders in infrastructure construction, thus echoing concerns the EU had repeatedly raised with China.

The Estonian Foreign Intelligence Service published the report "International Security and Estonia 2021" : "the main message is a call to adapt to China’s presence and the rules it has established, even if this means abandoning the values of a democratic society.... China does not use disinformation as actively and as professionally as Russia, but it is likely that it will expand and intensify its activities in this area in the near future. China’s influence operations aim to weaken Europe’s open society by promoting its own propaganda messages."

The Embassy of the People's Republic of China in Tallinn expressed concern over information on China in the Estonican intelligence report. "[The report] is full of hearsay and patchwork, and smears China by citing sources which 'cannot be commented [on]', spreads fake news publicly, and misleads the public with ulterior motives.... This is an extremely irresponsible act which tries to harm China-Estonia relations."

This came at a strained time in the group’s nine-year existence, with China struggling to generate strong interest in the online forum among Central and Eastern European (CEE) leaders. Estonia should leave the China-led 17+1 cooperation framework, an Estonian MEP said 24 March 2021. Riho Terras (Isamaa), former commander of the Estonian Defense Forces (EDF), said the 17+1 format has become too much of a liability in recent times. "It was only last week that an academic caught spying for the Chinese was apprehended. The threat is clearer and more real than ever."

Credible sources reported that Lithuania had given a verbal note to their Chinese partners, stating that Lithuania was leaving the 17+1 format. It's likely that Estonia and Latvia will follow. Slovakia had also expressed doubts about its participation.