Europe is adopting a tougher stance on China, using words and arguments reminiscent of US President Donald Trump. The last European Council of 21-22 March overhauled the EU’s China policy of the last decades and for the first time voiced harsh criticism on issues ranging from the Belt and Road Initiative and Chinese investments into the bloc, to the challenge posed by Beijing state-backed companies to Europe’s competitiveness and prosperity.
The European Commission and the European External Action Service (Europe’s diplomatic body) published a policy paper on 12 March calling China an ‘economic competitor’ and ‘systemic rival promoting alternative models of governance’. In the document, the EU accuses China of withholding its domestic market for its national champions and restricting European companies’ access to it; subsidizing domestic competitors; and failing to protect intellectual property rights. Brussels is also urging EU member states to fight takeovers by Chinese state-backed companies. It is a hard-hitting position which has been heavily influenced by Germany and France.
French President Emmanuel Macron in his manifesto addressed to the ‘citizens of Europe’ on 4 March 2019 – and published by 28 European newspapers - puts forward plans to combat aggressive Chinese competition with new interventionism and protectionism at the EU level. The French President views Europe to be caught in great power rivalry between China and the United States. Consequently, Macron believes that Europe needs to act by enforcing policies that allows the EU to defend its technological sovereignty and create European industrial champions.
Macron’s proposals are shared by German political and business elites. Peter Altmaier, German Federal Minister for Economic Affairs, in an interview with the Financial Times warned that China posed a threat to Germany’s well-being,and called for EU competition laws to be revised in order for mega-companies to be able to compete with Chinese state-owned enterprises (SOE).
Fostering European champions
A recent report by the European Political Strategy Centre (EPSC) - the European Commission’s in-house think tank – lends support to this revamped Franco-German protectionism which includes plans by Paris and Berlin to merge the rail assets of France’s Alstom and Germany’s Siemens. This is viewed as Europe’s only way to avoid being outcompeted by Beijing-backed CRRC (a publicly traded rolling stock manufacturer), which is the world’s largest train maker.
In January 2019, the Alstom-Siemens merger was vetoed from the EU’s competition commissioner. Consequently, France and Germany are now working on a proposal for a new European industrial strategy which would give national leaders the right to overturn merger decisions by Brussels. The declared short-term objective is to revise EU law so as to be able, in the medium-to-longer term, to create European industrial champions that can compete with Chinese SOEs. These plans are linked to a new piece of legislation aimed to dissuade Chinese companies’ from acquiring European technology.
Screening Chinese investments
The last European Council gave the green light to the EU screening mechanism, a new regulation intended to help the European Commission and EU member states to evaluate whether a foreign investor is in reality controlled by a third country government. This is clearly aimed at Chinese SOEs as the new legislation makes it more difficult for them to acquire expertise and technology that could be used to produce goods sold at lower prices.
The screening mechanism has been supported by many industrial associations across Europe, including the powerful German business federation which put forward a proposal in January aimed to limit market access for Chinese companies receiving big subsidies and to block their ability to buy European companies in key technological and strategic sectors.
Europe’s new, Trumpian-style position on China owes much to the transatlantic cooperation which has occurred in recent months. The White House has welcomed the EU’s newly-found assertiveness towards Beijing, as it strengthens the US in its tug-of-war with China over trade and global leadership. Yet, when the West seemed united in addressing China’s growing economic and political clout, cracks have appeared, coming – quite remarkably – from one of the closest allies of US President Donald Trump: Italy.
On 23 March 2019, Italy became the first G7 nation to sign a Memorandum of Understanding on the Belt and Road Initiative. Various factors explain the decision by Rome’s populist coalition government to embrace China’s massive infrastructure and connectivity project, including Italy’s desire to increase market access in China for Italian companies and “Made in Italy” products, an “Italy First” - Trumpian style - approach that puts the national interest above all else.
Following on the footsteps of their mentor in the While House, Italian populists have not hesitated to undermine EU unity. For instance, ahead of the visit of Chinese President Xi Jinping in Italy on 21-24 March, the Italian government played hardball on the screening mechanism during the vote on the draft text in the EU Council on 5 March 2019. That day, 26 out of 28 EU members approved the screening mechanism, including countries such as Hungary and Greece traditionally considered close to Beijing’s interests. The two outliers were the United Kingdom - which is halfway out of the bloc - and Italy. In so doing, Italian populists reversed the position of the previous centre-left government, which had joined Germany and France in sending a letter to the European Commission in February 2017 to back calls for an EU-wide investment screening mechanism.
Trump and Xi split Europe
Brussels, Paris and Berlin have strongly criticized Rome’s unilateral approach towards Beijing, accusing Italy to reduce the chances of Western powers ‘ganging up’ against China. When Xi Jinping arrived in France – the other EU member state that the Chinese President visited this time - President Emmanuel Macron was joined by German Chancellor Angela Merkel and the President of the European Commission Jean-Claude Juncker, in a rare show of European unity vis-à-vis the Asian giant. Yet, behind the façade, Europe remains divided.
The leaders of the 16+1 - a grouping of sixteen Central and Eastern European countries which includes 11 EU member states and is seen in Brussels, Paris and Berlin as China’s Trojan horse for dividing the bloc - met the Chinese premier Li Keqiang in Croatia, following the EU-China Summit in Brussels on 9 April.
On China, Europe is increasingly split along the populist/liberal and core/periphery cleavages. On the one hand, there are the liberal democracies of core Europe, around the Franco-German axis. They are promoting a tougher stance on China. On the other hand, there are various populist governments - mainly in Europe’s periphery - who openly support US President Donald Trump but that are ready to embrace China, despite opposition from Washington.
Trump and Xi will certainly observe with interest the outcome of the elections for the European Parliament in May, as the US-China tussle for global influence is increasingly being played out in Europe.