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Europe should realize it has leverage to stand up to China

Beijing's need for technologies and investments means Brussels can be bolder

| China
Premier Li Keqiang speaks at a news conference after the EU-China summit in Brussels in April 2019: the EU should stand up for a rules-based economic order and liberal values more generally.   © Reuters

Max J. Zenglein is chief economist at the Mercator Institute for China Studies in Berlin.

Since China imposed its new national security law for Hong Kong on June 30, the U.S. has slapped controls on exports to the city with potential military applications, Canada has suspended its extradition agreement with the former British colony and the U.K. has created a path to citizenship for 3 million of its residents.

Top officials of the EU, meanwhile, have only voiced concerns and called for dialogue.

Theirs was not a reaction that would have grabbed the attention of the Chinese leadership but it fits a pattern.

For too long, the EU has held back from forceful condemnation of, let alone acted against, objectionable Chinese actions for fear that any retaliation would hurt economic ties. Whether the issue was restrictions on market access, unfair subsidies or questionable human rights practices, the EU did little more than tut-tut. In response, China listened, made promises or just ignored Brussels.

The EU still has little appetite to see its relations with China follow the path taken by the U.S. But these dynamic and unsettled times mean that the EU has to bring issues of disagreement to the table more urgently and forcefully. It should also stand up for a rules-based economic order and liberal values more generally.

There is a growing awareness in the EU that China has failed to deliver on many of its previous commitments, that it is a strategic competitor and that it is at best a questionable partner. This rethinking started in 2017 after it became all too obvious that China's economic and political system had grown increasingly incompatible with EU values.

Brussels' recent moves to tighten rules on acquisitions and participation in government contract tenders in the EU by heavily subsidized foreign companies have raised hopes Europe is finally moving beyond words. But its willingness to adopt a more resolute stance toward China remains vulnerable.

Divisions among member states and a fear of economic retaliation still could get in the way of strong measures. Excessive concern for Beijing's potential reaction continues to sometimes generate instinctive self-censorship in Brussels and European national capitals.

Intimidation, moreover, is playing an even greater role in Chinese foreign policy globally.

The Chinese Communist Party expects foreign companies with business interests in China to fall in line with its political positions. Beijing threatened Germany's auto industry during the country's debate over allowing Huawei Technologies to provide fifth-generation, or 5G, networking equipment, warned Czech companies over warming ties between the Prague city government and Taiwan, and menaced Swedish exporters over Stockholm's outspoken positions on human rights issues.

Mayor of Prague Zdenek Hrib and Taipei Mayor Ko Wen-je pose with a signed partnership agreement in Prague on Jan. 13.   © Reuters

  This raises the question of how many fights China can afford to pick and what kind of relationship it envisions with the EU. Its "wolf warrior" diplomats may scare individual countries or companies, but for the EU as a whole, such pressure cannot be tolerated.

Beijing's intimidation attempts should be seen to a large degree as bluffs. While the EU's economic dependence on China has increased over the years, the interlinkage has gone both ways. Some 17.1% of China's exports went to the EU in 2019, making the bloc Beijing's most important foreign market, ahead of the U.S. and the Association of Southeast Asian Nations.

On top of that, the EU and its companies are a vital source of key technologies and investment, a position of growing importance to China as relations with the U.S. sour more by the day. If anything, EU leverage over China is growing which should give Brussels the confidence to make clear that Beijing's threats will be counterproductive and not tolerated, especially if it wants to present itself as a partner on issues like reform of the global trading regime or climate change.

Reflexive subservience has hardly proved the foundation of a healthy relationship between Brussels and Beijing. A relationship that cannot tolerate the open exchange of views is bound to get worse rather than better.

The cancellation of the planned EU-China summit that was to be held in Leipzig, Germany in September could provide the forceful signal both sides need for a reset. The coronavirus pandemic provided official cover to put off the meeting, but it is likely there was little appetite for a glitzy summit at a time when bilateral tensions are on the rise.

The EU has so far resisted pressure both from Beijing and internal interests for excessive concessions in talks on a comprehensive bilateral investment agreement, most recently discussed between Chinese Premier Li Keqiang, European Commission President Ursula von der Leyen and European Council President Charles Michel on June 22.

Brussels must now ensure that Beijing understands its new determination is here to stay. While there will undoubtedly be some rough patches ahead if the EU stakes out a more robust China strategy, the importance of the economic relationship gives Beijing a big incentive to take a pragmatic approach. Even if it responds unfavorably, this will be a reminder to EU members that deeper economic ties with China come at a price.

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