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Europe and China in 2023: A deal not to agree?

Europe and China in 2023: A deal not to agree?

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

European news often starts slow in January, but this week I was struck by the EU’s offer to China of free Covid vaccines – a helping hand Beijing says it did not need despite a spike in infections after the communist government ended its Zero Covid Policy.

This somewhat frosty exchange was a reminder that difficulties in relations with China will be a dominant theme of European public affairs in 2023, stretching to domestic affairs 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 relations with Europe were already cooling before Russia’s invasion of Ukraine last February. 2019 EU referred to as China first as “a systemic rival promoting alternative governance models” and “an economic competitor in the quest for technological leadership”.

Still, the EU tried to avoid any appearance of confrontation by stressing that both sides have “closely aligned goals” in certain areas, such as climate change. Given Beijing’s support for Russia in the Ukraine war, this three-pronged approach to China as a rival, competitor and partner has meanwhile become strained and is even considered outdated in Brussels.

However, a full collapse in EU-China relations in 2023 is unlikely. A good, concise analysis appears in this briefing from the Brookings Institution by Celia Belin, James Goldgeier, Tanvi Madan and Angela Stent.

The authors point out that the EU’s rapid energy decoupling from Russia, which comes with high economic costs, is likely to make European leaders cautious about risking their extensive trade and investment ties with China ( the Value of bilateral trade in goods in 2021 reached almost 700 billion euros according to EU data).

Line chart of monthly EU trade in goods with China (EUR bn), showing that the EU and China were the largest trading partners in 2021

At the same time, Beijing is taking a less intimidating stance towards Europe for fear of pushing it even closer to the US, China’s main competitor, the authors claim. Alicja Bachulska largely shares this interpretation of Chinese attitudes towards Europe her latest article for the Mercator Institute of China Studies (Merics).

EU-Chinese Economic Relations

Several actual examples illustrate how despite a trend towards stricter restrictions In some countries, Europe continues to attract large Chinese investments.

Chancellor Olaf Scholz brushed aside opposition from his own government and in October approved the acquisition of a 24.9 percent stake in a Hamburg container terminal by Cosco, a giant Chinese shipping company.

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

The map shows holdings in European ports by Cosco and China Merchants Port Holdings Company (CMP), the sixth largest terminal operator in the worldThis map, released before Cosco’s minority stake in a Hamburg container terminal was approved by the German government, shows the European expansion of Cosco and China Merchants Port Holdings Company (CMP), the sixth largest terminal operator in the world © Mercator Institute for China Studies (mercics)

The second example is the Pelješac Bridge in Croatia, which opened in July and is shown in the map below. This strategically sensitive infrastructure project, linking mainland Croatia to its southernmost coast, has been largely funded by EU regional aid funds (about €357 million out of a total cost of €536 million, according to Allison Carragher, whose Report for the think tank Carnegie Europe is the most detailed on this topic).

The project was carried out by China Road and Bridge Corporation, a state-controlled giant, which won the tender with a bid 20 percent below that of Austrian company Strabag.

A map of the Pelješac Bridge in Croatia, connecting mainland Croatia to its southernmost coast

‘Pelješki most’, marked here in red, means the bridge of Pelješac in English © Wikimedia Commons

Two questions arise. First, whether cheap loans and other state aid give companies like CRBC an unfair advantage in bids, according to the EU Chamber of Commerce in China complained in a 2020 report.

That’s according to Datenna, a Dutch information service company specializing in China about 40 percent of all Chinese investment projects in Europe between 2010 and 2020 had a high or medium involvement of the Chinese state.

The second question is what China expects 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 each major milestone in the construction of the bridge, and a sign placed on the bridge during construction read, “Construction of Pelješac Bridge builds friendship between Croatia and China”. . . . However, some fear that this alleged friendship could put 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 engagement goes beyond civilian industrial projects. early last year Serbia displayed its newly acquired Chinese surface-to-air missile defense system. Along with Belgrade’s refusal to align itself with the West on policy toward Russia, this takeover underscored Serbia’s odd role in the Balkans — a region rumored to be on the road to full EU membership — and its quest for an independent national security policy , which is balanced West, Moscow and Beijing.

However, other countries distance themselves from China. In August, Estonia and Latvia pulled from a forum for Central and Eastern European economic cooperation with Beijing, which was once known as the “17+1” club. Since Lithuania left in 2021, we should probably call it the “14+1” club now.

In another sign of China’s regional caution, the Mayor of Prague announced in 2019 a partnership agreement with Beijing and signed one with Taipei instead, capital of Taiwan. A bold or provocative step, depending on your point of view, in the face of the ever-increasing military and political pressure China is exerting on Taiwan.

Universities and “Police Stations”

This was followed by the action of the Prague mayor 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 sever ties with China, particularly on research projects with potential military application.

But Hungary is planning to open a campus of Shanghai-based Fudan University in Budapest – the first Chinese campus of its kind in Europe.

Bence Nemeth, who teaches at King’s College London’s Department of Defense Studies, wrote 2021:

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

Well anything is possible I think.

But it seems to me that such an expansion of Chinese “soft power” in Europe could face difficulties due to the growing concerns of most EU governments over issues such as technology espionage, cybersecurity and, last but not least, unofficial Chinese “police stations” in Europe.

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

More on this topic

Attention investors: Europe’s top companies are heavily exposed to China – according to a report by Ties Dams and Xiaoxue Martin for Clingendael, the Netherlands Institute for International Relations

Tony’s picks of the week

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