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Alicia García Herrero (Natixis) | Chinese President Xi Jinping’s European tour, his first in five years, was a real test of truth for Europeans. Not only did Xi take his time to visit the continent, but his selection of destinations (Serbia, Hungary and France) was eye-opening.
French President Emmanuel Macron was Xi’s main target because of his recent tougher stance on Russia’s war in Ukraine and his strong support for the European Union’s economic security strategy, which aims to reduce dependence on China. The high degrees of official industry between China and Russia have only exacerbated the situation. China’s economic and monetary policy is now imperative to Russian aggression in Ukraine. This includes loading oil and fuel from Russia and offering essential military devices such as trucks, chips and drones.
Macron’s warning to Xi during his stopover about possible sanctions against Chinese exporters of “dual-use” technologies was clear. Following this, the European Union included nine more Chinese corporations that export to Russia in its fourteenth package of sanctions against Russia announced on June 24, 2024.
European Commission President Ursula von der Leyen further expressed the EU’s concerns about China’s economic style and its large trade policies that distort the holding of fairs in export markets and the European single market. EU officials have stopped gaining access to the Chinese market, after decades of failed attempts, to focus on protecting the European market from Chinese trade policies. But the European Union’s protective measures, as opposed to China’s, for its own corporations may slightly protect the domestic market. In third markets, the European Union continues to suffer distortions and cost drops caused by Chinese trade policy.
Since the start of the COVID-19 pandemic in 2020, Chinese imports to the European Union have skyrocketed. This has been the case for pandemic-related items, such as private protective equipment, but, more recently and much more structurally, also for green technologies aimed at the EU’s green transition. The European Union faces a gigantic bilateral industrial deficit with China, due to the development of imports and the stagnation or decrease in exports. President Xi Jinping’s emphasis on China’s “new productive forces” for expansion raises further consideration in the European Union about a fair holiday for European companies.
China’s economic insight confirms Xi’s aspirations as commercial production exceeds consumption and exports grow faster than in 2023, especially green generation exports, adding solar panels, electric cars (EV), EV batteries and even wind turbines, which have long been governed by European companies.
Since Xi’s visit, the United States has erected new barriers against China’s green technologies, with import price lists higher than those imposed in the past by the Inflation Reduction Act. These measures discourage Chinese imports of green generation or foreign direct investment in the United States.
China has shown little interest in resolving this issue, as evidenced by Xi’s stance at his stop in France and the United States’ even more difficult stance toward China. No one deserves to be surprised by the European Union Commission’s June 12 resolution to establish countervailing measures on electric cars produced in China as part of its anti-subsidy investigation at the World Trade Organization.
Given that the European Union is China’s largest export market, China’s attention to the EU’s resolution to impose price lists has been largely rhetorical. This includes launching an anti-dumping investigation into imported European red meat on June 17, and then applying import price lists to European cars.
Despite retaliatory pressures, the reaction of EU member states to the Commission’s resolution shows less unity than expected. Germany and Sweden have expressed considerations about the move and China’s retaliation may influence more member states. But this is one of the many investigations that the Commission has opened against China thanks to its defensive instruments. The arguments against Chinese electric vehicles seem to be the first, since the automobile sector is essential for Europe, but they will not be the last. The European Union Commission has replaced its strategy of protecting flexible markets and multilateralism with a geopolitical and interventionist approach.
It is difficult to imagine a U-turn in the European Union component for two reasons. The first is that the bloc replacement is a reaction to the fact that the global replaced first. China’s big trade policy, combined with that throughout its economy, has had huge consequences for the rest of the world, pushing the United States toward its own trade policy and protectionism. The second explanation is the developing populism that is influencing European governments. Populist governments are called upon to push the European Union inwards rather than outwards, especially with regard to their strategy towards China.
Xi’s stop in Europe was an eye-opener for the continent, which concluded that rivalry with China is developing and that protective measures are needed to safeguard the EU’s trade base and the factor of China’s aid to Russia. It is not transparent that a replacement from China is expected, but Xi Jinping’s tone in Europe and his promotion of new productive forces do not bode well for such a replacement.