Carnegie Europe: Is China Devouring Europe?

A selection of experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe’s role in the world.

Is China Devouring Europe?

KRZYSZTOF BLEDOWSKI – COUNCIL DIRECTOR AND SENIOR ECONOMIST, MANUFACTURERS ALLIANCE FOR PRODUCTIVITY AND INNOVATION:

No, it is not—but it is taking bites, one mouthful at a time.

The United States labels China and Russia “strategic adversaries,” a designation many European nation states do not share. Absolved of security concerns (outsourced long ago to the United States), national leaders only see benefits of Chinese investments, loans, and trade. Costs—strengthening the adversary—do not figure in their calculations because these had been “socialized” through NATO.

In this light, it is little wonder that the Italian public only sees gains from Chinese investments in several of its ports while Hungary and Serbia welcome a joint venture largely financed by China to connect by fast rail Budapest with Athens (and with Piraeus, the Chinese-owned port nearby). These views are not very different from that espoused by the German government, which only counts advantages of the Nord Stream 2 pipeline while externalizing its collateral security costs to the country’s friends.

A very senior French defense official posed a rhetorical question in Washington just a few days ago: “What Europeans are worried about is this: will the U.S. commitment [to Europe’s security] be perennial?” French President Emmanuel Macron partially answered that question while welcoming China’s President Xi Jinping at the Elysée Palace. Macron called for a “strong Europe-China partnership.”

LIZZA BOMASSI – DEPUTY DIRECTOR, CARNEGIE EUROPE:

No, China is not devouring Europe. In fact, Europe—as far as being a united bloc is concerned—may just be finally getting its game face on when it comes to Beijing. In mid-March, the EU issued a strongly worded statement against the Chinese, calling them “an economic competitor… and a systemic rival” in the first-of-its-kind ten-point plan for dealing with the Chinese. And despite all the criticism that EU strategies generate, the EU’s connectivity strategy toward Asia provides a solid roadmap, signaling to the outside that Europe has a plan (and a view) on China’s incremental slide into European territory.

Unfortunately, in many respects, the EU has ended up on the back-foot, despite all best intentions. Member states will inevitably push for their own agenda in as far as it meets their aims and objectives. And then there are the any number of internal disruptions that can, and do, throw the EU off-course from focusing on strategic priorities.

To move past this, Europe needs to become less about allies and friends talking at each other and more about allies and friends working together to respond to an increasingly sophisticated Chinese state that is fast learning how to work the system.

FRASER CAMERON – DIRECTOR OF THE EU-ASIA CENTRE:

No. China is taking little bites out of Europe but is certainly not devouring it—as European states tried to devour China in the nineteenth century!

Just like the United States and Russia, China knows how to play divide and rule with EU member states. Because the EU is the sum of its twenty-eight parts, it’s a big ask to expect a single EU policy toward China. But we are moving toward a more realistic assessment of China and a more robust approach driven by the European Commission. Reciprocity is the right principle in dealing with Beijing, and the broad welcome the European Council gave to the Commission’s new strategy paper last week is a positive sign. If one or two member states like Hungary and Italy are slow to follow the line, it’s not the end of the world. The 16+1 format has delivered very little to those involved, while the BRI is really a tiny aspect of overall EU-China relations.

As for Huawei, one should ask: Why has the EU (and the United States) been unable to match the company’s R&D effort? We are now in the invidious situation of either using Huawei, with whatever strings attached, or waiting at least two years for other providers to catch up. U.S. lobbying on this issue has actually been counterproductive. The EU and the United States may have common concerns about China, but it’s difficult for EU leaders to line up behind Trump when he’s imposing tariffs on European products.

The EU will thus have to defend its own interests vis-à-vis China, working with Beijing where it can and standing up to it where it differs. Macron has rightly called for an end to naivete in dealing with China. If the EU-China relationship is to flourish, then the partnership must be based on realism and reciprocity. We are slowly moving in the right direction.

SHAWN DONNAN – SENIOR WRITER, BLOOMBERG

We live in an era of shouted hyperbole. We also live in an era where the zero-sum power game rules the public conversation. But it’s worth occasionally questioning the language of our time.

Modern China is neither as beneficent as it pretends to be nor as rapacious as its detractors claim it to be. As an engaged power it remains an awkward teenager with unique resources and characteristics. It is still learning the rules of engagement and how to wield its power.

In its conception, Xi Jinping’s Belt and Road Initiative looks like a voracious bid to buy power and influence. It is the reckless player’s bold board-game move for territory. Its extension into Europe via Italy therefore deserves to be viewed warily.

But is China setting out to devour Europe?

We ought to be careful of the language we use in answering that question. Even if China is the nefarious teen some fear, we ought to be ready for the idea that it may also be learning that a bully’s power fades quickly. And that gluttony in the teenage years is rarely sustainable into adulthood.

China is here to stay. Europe needs to—in Emanuel Macron’s words—shed its naivete about that. But equally, Europe should avoid the fog of paranoia that might lead it to ruin an economic relationship that will help define the EU’s future as much as what happens across the Atlantic.

MATHIEU DUCHÂTEL – DIRECTOR OF THE ASIA PROGRAM, INSTITUT MONTAIGNE:

Assessing Chinese foreign policy intentions against the value of signed deals is tempting, and indeed there is something painfully ironic in what little reward Italy secured for breaking ranks with the G7 and endorsing the Belt and Road Initiative. It’s as if Xi Jinping intended to substantiate the old cliché that China has no respect for foreign policies conducted from a position of weakness.

But it would be presumptuous to conclude that France demonstrates the value of standing firm. Mutually beneficial deals were signed between Paris and Beijing, burying the flow of negative media coverage around Xi Jinping’s visit. This may not have been China’s primary goal, even though dispelling the negative atmosphere is by no means an insignificant collateral political benefit.

At minimum, Xi Jinping’s Paris visit shows only that when political divergences are respectfully stated, they will not hamper business deals that serve the interest of all sides. But is there any sign of a Chinese readiness to take seriously the display of European unity orchestrated by President Macron? Giving it the benefit of the doubt is tempting at a time when the aims of the EU’s China policy have never been articulated with a greater sense of clarity and hierarchy.

THERESA FALLON – DIRECTOR OF THE CENTRE FOR RUSSIA EUROPE ASIA STUDIES

The EU’s biggest fear is that they woke up far too late to the China challenge. “The period of European naivety is over,” Macron declared days before he signed contracts worth €40 billion with Beijing. Next to that, Rome’s “BRIde” price of a mere €2.5 billion looked like a bargain basement deal.

With Italy’s BRI MoU, Beijing added one more to the list of countries it can count on to block EU policies it doesn’t like. The promise of quick cash distracted the current Italian government from the key strategic objectives of Beijing in regard to Italian ports. Today’s strategic sleepwalkers may be tomorrow’s economic captives.

Beijing’s successful wedge strategy and economic statecraft have created divisions that make it difficult for Europe to speak with one voice. For example, in March 2017 Hungary refused to sign an EU joint letter on the alleged torture of detained lawyers. In June 2017, Greece blocked an EU statement at the United Nations criticizing China’s human rights record.

As the China dream collides with the European dream, we are witnessing a corrosion of European values as EU member states scramble for Chinese cash and ultimately a weakening of the transatlantic bond.

PAUL HAENLE – DIRECTOR OF THE CARNEGIE-TSINGHUA CENTER FOR GLOBAL POLICY:

The EU, like the United States, is reevaluating how best to interact with China while balancing both the competitive and cooperative aspects of the relationship. The EU has been slow to develop a united strategy to deal with China. But Europe appears to increasingly understand that it needs to present a common front to protect and preserve its interests.

The fact that French President Emmanuel Macron invited both German Chancellor Angela Merkel and EU President Jean-Claude Junker to his meeting with Chinese President Xi Jinping is a sign that the EU leadership is getting more serious about the need to coordinate better. It also sends a message to Beijing that Brussels is increasingly less appreciative of China’s divide-and-conquer approach to its engagement with the EU. In private, some senior European leaders have commented that as Beijing expects other countries to adhere to a “One China” policy, Chinese leaders should reciprocate by respecting a “One EU” policy.

While China has been nibbling away at Europe over the years—and has taken a few big bites already—it has not devoured it. To ensure that it doesn’t, the EU will need to establish a unified and streamlined China policy that creates new norms for engagement on issues like technology, overseas investment, and industrial policy. Succeeding in doing so will strengthen Brussels’ position vis-à-vis China and help to secure and protect European institutions and industries into the future.

FRANÇOIS HEISBOURG – SPECIAL ADVISOR, FONDATION POUR LA RECHERCHE STRATÉGIQUE:

Europe is not yet fit to be devoured whole, and China prefers to slice and dice.

Bad news first. The EU slept and member states responded helter-skelter when China launched its Belt and Road Initiative in 2014. The EU didn’t attempt to counter China’s 16+1 initiative, which gave China a political and economic platform vis-à-vis ex-communist Europe from the Baltics to the Balkans. For decisions requiring unanimity, the EU is now unable to act decisively—take, for instance, the refusal in 2016 to support a firm legal position on the South China Sea, through which half of our trade flows, or the non-establishment of a Single Market body to control Chinese tech investments. Now Italy is going AWOL.

Good news second. Germany has finally understood that China is not the new Japan but a strategically-minded authoritarian superpower. The European Commission and the External Action Service have recently issued a communication along those lines. Technology controls are being set up in a majority of member states. France and UK show the flag in the South China Sea.

Worst news last. Trump viewed as a sign of weakness. The EU advances in 2018 to deal together on trade and intellectual property rights. The United States prefers to coerce the Europeans on Huawei at the risk of losing sight of the broader Chinese technological challenge.

JANKA OERTEL – TRANSATLANTIC FELLOW, ASIA PROGRAM AT THE GERMAN MARSHALL FUND OF THE UNITED STATES:

China is making significant inroads into Europe in terms of trade, investment, and also political cooperation. Heads of state and government across the continent have recently started to realize that this poses a challenge not only to European unity but also to European prosperity. The last European Council meeting underlined that there is a willingness to rebalance the relationship with Beijing. Relations between China and even the largest EU member states are asymmetric (to say the least), but a real willingness to put Europe first in dealing with China has so far been trumped by selfish economic nationalism in Berlin, Paris, Rome, and twenty-five other capitals.

All European countries are hedging their bets. While Washington has decided to aggressively confront China’s market-distorting economic practices, Europe is trying to employ more elegant means to the same end. The option of taking the European high road may, however, soon prove mendacious. If Europe does not get serious quickly, both Beijing and Washington may call its bluff. Like it or not, Europe’s strength and unity are still rooted in the transatlantic alliance. Risking this relationship for short-term and temporary economic benefits increases the chances of falling prey in a world of great power competition.

JAMES POLITI – WORLD TRADE EDITOR, FINANCIAL TIMES:

Even in the Trump era, it is rare for the White House’s National Security Council to take a strong, public position condemning an important strategic ally. But when it became apparent that Italy would sign on to China’s Belt and Road Initiative a few weeks ago, John Bolton’s team did just that, warning Rome against lending “legitimacy to China’s predatory approach to investment” and stressing that there would be “no benefits to the Italian people.” Washington’s advice, however, was mostly ignored, and Rome ploughed ahead regardless. The allure of a stream of investment flowing from Beijing was just too tantalizing for the populist government in Rome given its stagnant, struggling economy.

But others are also giving in to the Chinese temptation: after a few days in Rome, Xi Jinping was busy buying a few hundred Airbus planes under the gleaming eyes of Emmanuel Macron. The lesson for the Trump administration is that they cannot just try to win the strategic argument against China in third countries with warnings and punishment; they also need some carrots to act as an alternative and counterweight, economically. But “America First” means tighter budgets for the state department and other international programs and less appetite for any kind of financial assistance that would help develop alternatives to BRI or Huawei’s rollout of 5G. And that’s where the Trump administration is tying its own hands in the race against China.

LUIS SIMÓN – RESEARCH PROFESSOR, INSTITUTE FOR EUROPEAN STUDIES AT THE VRIJE UNIVERSITEIR BRUSSEL:

It’s certainly taking a bite here and there! The several crises experienced by Europe in recent years have brought to the fore important divisions. And from the viewpoint of the external meddler, who looks for wedge issues to leverage, today’s Europe is rife with opportunities.

On China, I see two main, intersecting cleavages. The first is transatlantic. The message coming from Washington is clear: those Europeans who open their 5G gateways to Chinese companies should expect to take a hit in their intelligence and security cooperation with the United States. Interestingly, when it comes to 5G, the Americans are telling the Europeans to buy European. Enter the second cleavage: Should Europeans pursue an industrial policy (à la France) or continue to sing the praises of open competition? The Germans seem to be revisiting their traditionally liberal stance, as they take note of Trump’s protectionist bent and wake up to the fact that China is gaming the system.

The context thus seems ripe for a debate on an EU industrial policy. But any push in that direction won’t be hassle free. The Commission won’t easily let go of its role of competition guardian. And other EU member states will worry about getting the rough end of the deal: neither cheap Chinese products nor any say over the direction of European (read, Franco-German) champions. Those divisions are there for China to leverage.

PIERRE VIMONT – SENIOR FELLOW, CARNEGIE EUROPE:

To say the least, the competition between China and Europe has taken place so far on an unlevel playing field. Through state subsidies, state-owned corporations, imposed technology transfers, or lack of protection for intellectual property, the rules of the game in China have been largely biased. And Chinese firms, with the help of their authorities, have been applying the same spirit of uneven competition in Europe itself.

With the recent EU communication on a European strategy toward China, and the following discussion between the EU leaders at their last meeting, a new toughness is emerging. Europe wants to be taken seriously by China. Europe is fully aware its loss of competitive edge cannot go on without undermining its geopolitical position. It rightly fears it could well become the fall person in the current trade negotiations between the Trump administration and Beijing. And it understands that China, through the Belt and Road Initiative, may be surreptitiously knitting a new, multilateral order tailored to Chinese exclusive interests.

Europe will need steadiness and, more importantly, unity to reverse the current trend. But this awakening is delivering a new mood and tone these days in Europe, as seen with President Macron’s invitation to the German chancellor and European Commission president to join him in meeting his Chinese counterpart in Paris. Obviously more needs to be done, but a new and realistic mindset is emerging. At last.

GUDRUN WACKER – SENIOR FELLOW, GERMAN INSTITUTE FOR INTERNATIONAL AND SECURITY AFFAIRS:

China is not devouring Europe, but it’s carving out pieces—acquiring companies; investing in critical infrastructure like energy grids, ports, and 5G networks; and buying political support (or silence) on certain issues. China is now much more present in Europe than it was ten years ago, with loans, media outlets, and Confucius Institutes. Two factors have helped China advance its agenda: European states have very diverse interests when it comes to Beijing, and the EU has been constantly dealing with serious challenges, from the European debt crisis to Brexit.

However, in the last few years, a debate has gotten underway about China’s activities and if and how her growing economic clout is being used for political leverage. It has led to a less optimistic interpretation of China’s trajectory among governments and business circles. EU institutions have been working toward better investment controls and now use clearer language in describing China as a cooperation partner, an economic competitor, and a systemic rival—all at the same time. The EU is aware that it has to actively defend its standards and norms at home and a rules-based order more broadly while looking for areas of cooperation with China. Not all hope is lost just yet.

JOSHUA WEBB – PROGRAM MANAGER, KÖRBER-STIFTUNG:

China has a keen interest in maintaining, rather than devouring, its largest trading partner—the EU. At the same time, Europeans are right to be concerned by a strategic balance ostensibly tilting in Beijing’s favour. Beijing’s growing influence is a product of Chinese design as much as European weakness. Ironically, while the Chinese Communist Party routinely dismisses criticism as disingenuous attempts to thwart China’s rise, European cohesion—and thus Europe’s capacity to enact a robust foreign policy—has been stymied as much by member states’ short-sighted pursuit of self-interest and transatlantic turbulences.

Perhaps China’s purchases of companies such as Kuka and the debate around Huawei were wake-up calls. The creation of a European investment screening in late 2018 and the Commission and the High Representative’s recent designation of China as a “strategic competitor” were sober but necessary steps. But Italy’s buy-in to the Belt and Road Initiative, followed Chancellor Merkel’s statement expressing her intention for Germany to become “more involved” too, spell a continuation of European ambiguity towards China. This is understandable. China may be a systemic competitor, but there is little alternative to cooperating with Beijing to fight climate change. And the fact remains that large parts of the world have entered into a relationship with Beijing characterized by mutual economic dependence.

While China may not be exactly devouring Europe, it certainly presents an unprecedented challenge to the order which has enabled Europe to thrive. For Europeans to shape a system ostensibly returning to great power politics, “Europe United” must become more than a slogan, and a shared one at that.

 

Source: Carnegie Europe