Europe and China in 2023: an agreement to disagree?

A belated Happy New Year to all readers of the weekend edition of Europe Express. I’m at tony.barber@ft.com.

European news often gets off to a slow start in January, but this week my attention has been caught by the EU’s offer to China of free Covid vaccines – a helping hand Beijing has said it doesn’t need, despite surging infections after the Communist government has ended its zero-Covid policies.

This somewhat frosty exchange was a reminder that troubled relations with China will be a dominant theme of European public affairs in 2023, extending to domestic issues such as health and education, as well as diplomacy and trade.

Let’s take these areas one by one.

China and the war in Ukraine

China’s ties with Europe were cooling even before the Russian invasion of Ukraine last February. In 2019, the EU designated China for the first time as “a systemic rival promoting alternative governance models” as well as “an economic competitor seeking technological leadership”.

Yet the EU has tried to avoid the appearance of a confrontation by pointing out that in some areas, such as climate change, the two sides had “closely aligned goals”. This three-pronged approach to China as a rival, competitor and partner is now being challenged, and even seen as rather outdated in Brussels, in light of Beijing’s support for Russia in the Ukraine war.

However, a complete breakdown of EU-China relations in 2023 is unlikely. A good and succinct analysis appears in this Brookings Institution briefing by Célia Belin, James Goldgeier, Tanvi Madan and Angela Stent.

The authors point out that the EU’s rapid energy decoupling from Russia, which has come at a high economic cost, is likely to make European leaders wary of risking their extensive trade and investment relationship with China (the value of bilateral trade of goods in 2021 reached almost 700 billion euros, according to EU data).

At the same time, Beijing is adopting a less intimidating stance towards Europe out of fear of pushing it even closer to the United States, China’s main rival, the authors argue. This interpretation of the Chinese attitude towards Europe is widely shared by Alicja Bachulska in her recent article for the Mercator Institute of China Studies (Merics).

EU-China economic relations

Several recent examples illustrate how, despite a trend towards tighter restrictions in some countries, Europe continues to attract large-scale Chinese investment.

Putting aside resistance within his own government, in October German Chancellor Olaf Scholz approved the acquisition of a 24.9% stake in a Hamburg container terminal by Cosco, a giant Chinese shipping company .

The map below, produced by Merics, illustrates how Cosco’s holdings in European ports stretch across the continent, from Rotterdam in the Netherlands and Valencia in Spain to Piraeus in Greece.

The second example is the Pelješac bridge in Croatia, which opened in July and is shown on the map below. Connecting mainland Croatia to its southernmost coast, this strategically sensitive infrastructure project was financed largely with EU regional aid funds (around €357 million out of a total cost of €536 million, according to Allison Carragher, whose report for the Carnegie Europe think-tank is the most detailed on the subject).

The project was undertaken by China Road and Bridge Corporation, a state-owned giant, which won the tender with a bid 20% lower than that of Strabag, an Austrian company.

Two questions arise. One is whether cheap loans and other forms of state aid give companies like CRBC an unfair advantage in tenders, as the EU Chamber of Commerce in China complained in a 2020 report.

Datenna, a Dutch information services company specializing in China, estimates that around 40% of all Chinese investment projects in Europe between 2010 and 2020 had medium or high levels of involvement from the Chinese state.

The second question is what does China expect in return for such large infrastructure investments in Europe. In her study of the Croatian project, Carragher comments:

“[Chinese] Government officials were visibly present at every major milestone in the bridge’s construction, and a sign posted on the bridge during construction read “Construction of Pelješac Bridge Builds Friendship Between Croatia and China”. . . . But some fear that this alleged friendship could translate into pressure on Zagreb to side with Beijing on issues such as Taiwan and human rights.

Chinese influence in Central and Eastern Europe

China has been particularly busy investing in Central and Eastern Europe. In August, China’s CATL, the world’s largest car battery maker, announced plans for a €7.3 billion plant in the Hungarian city of Debrecen.

But China’s regional involvement goes beyond civilian industrial projects. Earlier last year, Serbia showed off its newly acquired Chinese surface-to-air missile defense system. Coupled with Belgrade’s refusal to align with the West on policy towards Russia, this acquisition underscored Serbia’s unequal role in the Balkans – a region presumably on track for full EU membership – and its pursuit of an independent national security policy, balanced between the West, Moscow and Beijing.

However, other countries are distancing themselves from China. In August, Estonia and Latvia withdrew from a forum for Central and Eastern European economic cooperation with Beijing, once known as the “17+1” club. Since Lithuania was already gone in 2021, I guess now it’s better to call it “14+1” club.

In another sign of China’s regional distrust, Prague’s mayor canceled a sister city deal with Beijing in 2019 and signed one instead with Taiwan’s capital Taipei. Depending on your point of view, this was a bold or provocative move, considering the ever-increasing military and political pressure China is exerting on Taiwan.

Universities and ‘police stations’

The Prague mayor’s action followed an uproar over the discovery that the Chinese embassy in the Czech capital was secretly funding a Czech-Chinese institute at the city’s prestigious Charles University.

Since then, other European universities have come under pressure to cut their links with China, particularly on research projects with potential military applications.

But Hungary is forging ahead with a plan to open a Budapest campus of the Shanghai-based Fudan University, the first Chinese campus in Europe.

Bence Nemeth, who teaches in the defense studies department at King’s College London, wrote in 2021:

If Fudan’s project in Hungary becomes a successful model, there is a high probability that other globally competitive Chinese universities will follow Fudan’s lead and set up campuses in the EU.

Well, anything is possible, I suppose.

But it seems to me that such an expansion of Chinese “soft power” in Europe could face difficulties due to the growing levels of concern among most EU governments on issues such as technological espionage, cyber security and last but not least importantly, the unofficial Chinese “police stations” in Europe.

What do you think? Is Chinese economic influence and soft power too strong in Europe? Vote here.

Read more on this topic

Investors Beware: Europe’s Top Companies Have Strong Exposure to China – Says a Report by Ties Dams and Xiaoxue Martin for Clingendael, the Netherlands Institute for International Relations

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