4th Dec 2023

EU trade chief in Beijing warns China of only 'two paths' forward

  • The EU has an annual trade deficit with China of close to €400bn - limiting Brussels' power to manoeuvre (Photo: EC - Audiovisual Service)
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"We welcome competition, but it must be fair," the EU Commission's executive vice-president Valdis Dombrovskis warned in a speech at Beijing's Tsinghua University on Monday (25 September). "And we will be more assertive in tackling unfairness".

The visit comes just over a week after the EU executive announced an anti-subsidy investigation into Chinese electric vehicles (EVs), and is linked to the EU's €396bn trade deficit with China.

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"We are concerned about the imbalance in our relationship" Dombrovskis has repeatedly stressed during his four-day trip to the country led by Xi Jinping, along with a reassuring message: the EU is not looking for "decoupling" (cutting off ties).

"We can choose a path towards mutually beneficial relations, or we can choose a path that slowly moves us apart," the Latvian commissioner stressed.

Reading between the lines of the commissioner's speech, continuing on the path of being partners and competitors (not just rivals) requires action, since while the EU bloc is highly dependent on China, the Asian giant also needs the world's markets.

The EU's main concerns are values and rules (including human rights and climate change), economic and strategic security.

And Dombrovskis insisted that China can do more to redress the current lack of reciprocity in the economic relationship between the two blocs — and to reduce perceptions of risk.

"For every five containers shipped from China to the EU, just one is exported to China," CEPS researchers Malorie Schaus and Karel Landon pointed out earlier this month. "In certain sectors, there is hardly any alternative to China," they warned.

Schaus and Landon point out that the EU is 98-percent dependent on China's production of rare earths, while Chinese solar panel production accounts for almost 90 percent of global production.

These concerns have led to the oft-repeated 'decoupling no, derisking yes' mantra — which simply means reducing deep economic ties with the Asian giant, especially in the most critical areas for the twin green and digital transitions.

Growing discontent from business

Moreover, European companies themselves have felt the volatility and deterioration of these ties. According to the latest survey by the EU chamber of commerce in China, 64 percent of respondents found it harder to do business in China in the past year — the highest-level ever recorded.

In addition, three-out-of-four have reviewed their supply chain strategies in the last two years, and 12 per cent have already moved parts of their supply chain offshore.

The drive for economic diversification and greater assertiveness in EU policy towards China is rooted in this lack of a level playing field, but also in recent geopolitical changes.

The EU has once again reminded China that its position on Russia's invasion of Ukraine is the strongest headwind threatening to drive their relationship apart.

"Russia's war of aggression against Ukraine represents a massive menace, endangering not only human lives but also global food supplies," the vice-president said at a press conference following the 10th EU-China high-level economic and trade dialogue.

Dombrovskis therefore called on vice premier He Lifeng to work more closely with Turkey and the United Nations to bring back the Black Sea grain initiative (which helped to get some 33 million tonnes of grain out of Ukraine) and to stop the weaponisation of food supplies, which particularly affects developing countries.

Since the start of the war, the world has suffered from disrupted supply chains, higher energy and food prices and increased inflationary pressure. This has translated into less purchasing power for major players such as the EU, and has therefore also impacted trade relations with China.

China's failure to condemn Russian military aggression also poses a reputational risk.

"Over a third of EU companies in this country have indicated that China's position on the war is making it a less attractive investment destination," Dombrovskis stressed.


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