London
CNN Business
—
Europe is changing into more and more reliant on China for commerce, and lots of of its high corporations are keen to speculate on the earth’s second greatest financial system regardless of the disruption brought on by Covid lockdowns.
But a souring relationship with an more and more unpredictable Beijing, remorse concerning the worth Europe has paid for getting too near Russia, and rising geopolitical rigidity has some EU officers contemplating whether or not the bloc ought to begin to scale back its publicity.
It’s a calculation EU Council President Charles Michel is weighing up Thursday as he visits Chinese chief Xi Jinping for talks geared toward shoring up diplomatic ties.
Quite a bit has occurred for the reason that final time an EU president — appointed by the leaders of the 27 EU member states — met with Xi in particular person 4 years in the past.
The Covid-19 pandemic, Russia’s invasion of Ukraine, and tit-for-tat sanctions between China and EU lawmakers have strained relations since. The United States, which imposed controls on exports of semiconductors to China in October, is reportedly exerting strain on Europe to undertake a equally arduous line.
Michel’s spokesperson, Barend Leyts, stated in a press release final week that Michel’s go to supplies a “timely opportunity” for Europe and China to have interaction on issues of “common interest.” He didn’t specify which topics could be mentioned.
But some inside Europe are rising cautious of shut relations with China. The bloc has been badly burned this yr by its historic reliance on Russia as its major power provider, and diversification has shot up the political agenda.
Those considerations bubbled up final month when German Chancellor Olaf Scholz flew to Beijing with a delegation of high enterprise leaders to fulfill Xi, a transfer supposed to shore up Germany’s second greatest export market after the US.
The bloc is in the same bind.
“Any problems you have from a political and strategic level [between the EU and China], they tend to spill over to the economic level,” Ricardo Borges de Castro, affiliate director on the European Policy Centre, instructed CNN Business.
Both sides have so much invested of their partnership. The complete worth of the products commerce between China and Europe hit €696 billion ($732 billion) final yr, up by almost 1 / 4 from 2019.
China was the third largest vacation spot for EU items exports, accounting for 10% of the full, in response to Eurostat information. China is Europe’s greatest supply of imports, accounting for 22% in 2021.
“The European market’s importance as a destination for Chinese exports is around double that of the Chinese market for Europeans,” Jörg Wuttke, president of the EU Chamber of Commerce in China (ECCC) wrote in a September report.
Overall, the connection is just “too big to fail,” in response to Borges de Castro. Europe just isn’t searching for to decouple from the profitable Chinese market, he added.
“I don’t see [the EU’s strategy] as a decoupling strategy. I think the EU strategy, for the moment, is a diversification strategy… the lesson [from Russia] is that you cannot have a single provider,” he stated.
Machinery, autos, chemical substances, and different manufactured items account for the huge bulk of products traded between the 2 powers, in response to Eurostat.
“European companies have done extremely well here and the overall long term outlook is very positive,” ECCC Secretary General Adam Dunnett instructed CNN Business, including that he expects European firm revenues to continue to grow in China over the subsequent decade.
There are areas the place Europe depends on Beijing, specifically for the availability of uncommon earth metals required to make hybrid and electrical autos, and wind generators. Europe’s photo voltaic panels are additionally principally manufactured in China.
But these dependencies shouldn’t be exaggerated, Dunnett stated.
“When you look at some of the broader things that China exports to the EU such as furniture and consumer goods, a lot of those things you can get elsewhere,” he stated.
Even so, the United States might exert extra strain on Europe to tug away from China, Borges de Castro famous. In early October, Washington banned Chinese corporations from shopping for its superior chips and chip-making gear with no license.
Benjamin Loh, the top of Dutch chipmaker ASM International, instructed the Financial Times on Wednesday that the US was “putting a lot of pressure” on the Dutch authorities to take a equally powerful stance.
The strain might already be starting to point out. Germany final month blocked the sale of one among its chip factories to a Chinese-owned tech firm due to safety considerations.
Economic ties between Brussels and Beijing, although mutually helpful, have frayed in different methods in recent times.
Last yr, Chinese direct funding into the European Union dropped to its second lowest degree since 2013, solely behind 2020, in response to evaluation by the Rhodium Group, a analysis agency. It has fallen virtually 78% since 2016.
“The level of Chinese investment in Europe is now at a decade low,” Agatha Kratz, director at Rhodium Group, instructed CNN Business, citing Beijing’s strict capital controls and higher scrutiny by EU regulators.
EU funding into China has additionally change into extra concentrated. Between 2018 and 2021, the highest 10 European buyers in China, together with these from the United Kingdom, made up virtually 80% of the continent’s complete funding within the nation, Rhodium Group information exhibits.
And simply 4 German corporations — automakers Volkswagen
(VLKAF), BMW, and Daimler
(DDAIF), and chemical substances big BASF
(BASFY) — made up a couple of third of all European funding in these 4 years.
An funding deal between Beijing and Brussels was shelved final yr after EU lawmakers slapped sanctions on Chinese officers over alleged human rights abuses, prompting China to retaliate with its personal penalties.
The deal, agreed in precept in 2020 after years of talks, was designed to degree the taking part in subject for European corporations working in China, who’ve lengthy complained that Beijing’s subsidies have put them at a drawback.
EU diplomats stated in April {that a} “growing number of irritants” had been hurting relations, together with China’s tacit acceptance of Russia’s battle in Ukraine. They have described China as “a partner for cooperation and negotiation, an economic competitor and a systemic rival.”
The most urgent subject for European companies in China, in response to Dunnett, is its stringent zero-Covid coverage.
“For the last year, it’s been the Covid carousel, [the] Covid rollercoaster,” he stated. “Every time you think [it was] about to open up, something pulls us back,” he added.
Over the weekend, hundreds of protestors took to streets throughout China in a uncommon collection of demonstrations towards the nation’s strict Covid controls. Some restrictions have since been lifted in Shanghai and different main cities.
Beijing’s uncompromising strategy helps to additional dampen overseas funding within the nation, particularly amongst smaller corporations, Raffaello Pantucci, a senior affiliate fellow on the Royal United Services Institute, a safety analysis group, instructed CNN Business.
“The general business environment in China is perceived as becoming harder to navigate, and while companies still feel they have to engage given its size and potential, increasingly small to medium sized companies are giving up,” he stated.
— Laura He contributed reporting.