China Watch: The EU Is Falling out of Love

China’s trade and investment with the EU is 2.5 times bigger than its amount with the US, but this is under threat from strong anti-Chinese sentiment in Brussels. China’s trade surplus with the EU has grown in the last three years and the relationship is beginning to resemble one of acrimonious competition rather than collaboration.
Italy has just announced it will withdraw from China’s Belt and Road Initiative (BRI), complaining that trade and investment have benefited China inordinately, while damaging the Italian economy.
Brussels has called for an investigation into subsidization in the Chinese electric vehicle sector as European automobile companies are losing market share to cheaper, more advanced Chinese electric vehicles (EVs). Beijing wants to further the China-EU détente to maintain Europe as some form of counterbalance to its dependence on the US market and imports of US technology, but the barriers to this are high. European commissioners are demanding greater access to China’s domestic market while, in step with the US, banning exports of dual-use (civilian/military) technology to China, including advanced semiconductors, cloud computing, and artificial intelligence.
Meanwhile, European public opinion towards China has continued to sour due to China’s choice not to condemn Russia’s invasion of Ukraine. Many in Europe and the West do not consider China’s own need to maintain reasonable relations with Russia, with which it shares a border of nearly 4,200 kilometers (2,600 miles). As the war in Ukraine drags on, it appears that each side is too strong to lose and yet too weak to win, and European politicians will lean more towards Washington than Beijing.
The EU is unlikely to try to decouple economic links with China as ardently as the US, and European companies will invariably resist trade restraints. The global economy will suffer profoundly if China becomes estranged further from the world’s two great trading blocs. It is in the interests of smaller trading nations to resist pressure to pick sides and avoid adding to the larger players’ intemperate rhetoric.
Despite all of the considerable challenges, China will continue to offer the strongest and most investable market for the rest of the decade. All those nations, firms, and people around the world who benefit from peace and stability should not treat disengagement and conflict as our unavoidable future.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.