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Europe’s Hardball Tactics on Trade Put China in a Bind

It seems China is losing the capacity to influence matters inside Europe. Faced with economic headwinds, and possibly concerned about losing European investors in such troubled times, Chinese leaders are sending mixed messages about the European Union’s increasingly muscular approach to bilateral trade.

“Our relationship needs rebalancing to be mutually beneficial, based on transparency, fairness, predictability and reciprocity,” EU trade chief Valdis Dombrovskis said on September 25 during a meeting with Chinese Vice-Premier He Lifeng, part of the 10th EU-China High-level Economic and Trade Dialogue.

Last year, the EU had a trade deficit with China of €396 billion (US$417 billion), up 58 per cent from 2021, according to the EU Commission, the bloc’s executive body. Dombrovskis’ four-day visit to China was basically an admonition against what the EU considers China’s unfair trade practices.

While the two sides agreed to create a couple of working groups to smooth differences over trade and financial services, just one day after the Dombrovskis-He talks, Chinese commerce minister Wang Wentao attacked the EU’s recent decision to launch an anti-subsidy investigation against Chinese electric vehicles.

Beijing is not hiding its frustration over the string of measures the EU has adopted, or is set to adopt, to protect its trade, which are essentially aimed at Chinese exporters and investors. Indeed, the EU is working to introduce stronger controls on the export of sensitive items, strengthen the existing EU-wide mechanism for screening inbound investments and set up a framework to monitor outbound investments.

EU institutions have already reached a political consensus on a new anti-coercion tool to be used against trade restrictions like those imposed by China on Lithuania since 2021.

Regulations to shield European markets from China’s dumping practices and its export subsidies for Chinese companies are also in place. The same goes for an international procurement instrument that the bloc could reportedly use against Beijing’s alleged discrimination towards EU businesses in public tenders for railways and medical technology.

As a result, China may have to be more cooperative in negotiations with the EU as the room for its “divide and rule” tactics is narrowing.

Just look at Germany, China’s main political and economic interlocutor in the EU. Berlin is hardening its stance towards Beijing, even if it wants to avoid an all-out confrontation – for instance, German Chancellor Olaf Scholz appears to be against the European bloc’s probe into Chinese electric cars.

The German government is reportedly going to toughen its investment screening mechanism, a move largely seen as aimed at China and part of an EU-wide attempt to “de-risk” from Beijing and prevent it from getting access to critical European technologies.

Last month, meanwhile, the German interior ministry proposed legislation to force domestic telecoms companies to eliminate all key components made by China’s Huawei and ZTE in their 5G wireless core networks by 2026.

Up to 11 European governments, including Germany, have so far passed or advanced regulations banning Huawei and ZTE technology from their 5G systems, or limiting its use.

There is more. The other EU powerhouse, France, is the primary backer of the bloc’s inquiry into Chinese electric vehicles. And although the Italian foreign ministry said that Rome had received an invitation from China to attend the Belt and Road Forum, and the Italian cabinet “expects to participate”, it is highly likely that Italy will withdraw from the belt and road memorandum of understanding (MOU) signed in 2019.

Italy’s possible attendance at the forum in Beijing this month can actually be viewed as an attempt to ease tensions with the Chinese government ahead of announcing its exit from the MOU.

Even small and medium-sized EU nations are distancing themselves from China, or taking a more cautious stance. The China-CEEC initiative is a case in point. Established in 2012 with countries from Central, Eastern and Southern Europe, it has gone from a 17+1 to a 14+1 format after the exit of Lithuania in 2021 and Estonia and Latvia last year. Often accused by EU leaders of serving as a fifth column in Europe, the grouping is showing signs of fatigue.

The Czech foreign ministry said that “from our point of view, the [CEEC] format is currently not active”. Poland’s foreign office pointed out that it was not planning to leave the initiative. However, the Poles admitted they “are constantly reviewing the utility of this mechanism in the context of the wider geopolitical situation, the EU-China context and, most importantly, Poland-China relations”.

The Slovenian foreign ministry is on the same page. It said Ljubljana was not thinking about withdrawing from the initiative, but was “looking forward to a more result-oriented CEEC-China [cooperation]”.

The EU wants reciprocity and a level playing field for European companies active in the Chinese market. It remains to be seen whether the Chinese leadership is ready to meet Europe’s requests as economic control is part and parcel of the Chinese Communist Party’s rule.

On the other hand, China is currently dealing with more geopolitical headaches than any other great power, from direct competition with the United States, to the status of Taiwan, territorial disputes in the China seas, border issues with India, and the global reverberations of the Ukraine war. Chinese President Xi Jinping, it seems, may not have the luxury of opening a new geopolitical front with the EU.

Source : Scmp

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