Framing the EU’s stance against Russia in moralistic terms risks blinding many in Europe to the geopolitical and economic logic that China needs Russia in its great power rivalry with the United States. In managing its delicate triangular relationships with Brussels and Moscow, Beijing could halt further exports of dual-use technologies to Russia – including by Russian companies based in China – without admitting any fault, as a way to start rebuilding trust with Europe.
The larger issue is how to fix the EU’s trade deficit with China, which approached €400 billion (US$430.8 billion) last year but is expected to shrink this year. While EU exports to China have been growing gradually, China’s exports to the EU have expanded drastically in the past few years.
EU-China Summit: the trust deficit threatening trade and diplomacy
Beneath the expected rhetoric, with each side blaming the other, the underlying causes of the EU’s trade deficit are complex and manifold. For instance, the sharp rise in energy prices in Europe after the outbreak of the war in Ukraine made some European industries uncompetitive for a time.
Meanwhile, manufactured goods such as chemicals, machinery and vehicles were the largest EU imports from China last year. Mature industries like these tend not to receive significant government subsidies in China.
The large and growing trade deficit poses significant political problems for Europe. France is expected to soon adopt rules to exclude some Asian-made electric vehicles from state subsidies, with the list of qualifying vehicles to be announced this week. Exclusions will not be limited to Chinese brands but will also cover European brands made in China.
Given that China is unlikely to want to reduce its exports to the EU, it must instead find ways to increase its imports from Europe, from French wines to Airbus planes. As important as securing a level playing field is, trade outcomes are just as important. China must welcome European companies with greater market access, intellectual property protection and local financing.
03:15
China-made battery plant upsets local residents in Hungary, triggering protests
China-made battery plant upsets local residents in Hungary, triggering protests
While political tensions simmer, the EU and China have aligned interests in tackling climate change. There is vast scope for joint innovation and deployment of green technologies. With huge capital requirements, even Germany faces fiscal constraints as it tries to meet its environmental ambitions.
While China has invested substantially in renewable energy in the past decade, the EU has tightened screening of Chinese investments. Unlike Russian oil and gas, foreign investments in green energy pose little risk to energy security. Nevertheless, as exemplified by Italy’s recent announcement to withdraw from China’s Belt and Road Initiative, there will be a process of rebuilding trust before Chinese investments are welcome across Europe again.
The most fertile ground for EU-China cooperation is not in each other’s geographic sphere but, rather, in neutral regions such as Africa. The African continent urgently needs climate adaptation measures, as well as food security and sustainable economic development, towards which both Europe and China can contribute.
The EU launched its Global Gateway as a competitor to the belt and road but, working together, both schemes could bring greater benefits to African communities. The EU and China could selectively co-finance projects in transport networks, clean energy grids, climate-smart agriculture and digital connectivity. Given the high level of economic and developmental engagement by both sides in Africa, they are naturally complementary partners on the continent.
01:25
China-funded infrastructure across Africa force difficult decisions for its leaders
China-funded infrastructure across Africa force difficult decisions for its leaders
China has made clear its desire for collaboration with Europe on technology. In the context of growing US restrictions on China, such cooperation would open doors in areas such as renewable energy, food and agriculture, biotechnology, civil aviation and advanced manufacturing. Both sides have much to bring to such partnerships, but they would require a high level of trust which will take time and hard work to rebuild.
Reaching China’s desired level of technological collaboration with the EU will require several concrete steps to prepare for greater engagement over time.
It must halt export of dual-use technologies to Russia, facilitate European imports and investments with greater market access, and collaborate on climate change and sustainable development in Africa. To renew technological collaboration, a good place to start would be in less-sensitive areas such as agriculture and sustainable urbanisation.
Nuanced statecraft and realistic compromises are needed to transcend zero-sum mindsets. Real progress in overcoming structural tensions requires matching rhetoric with tangible actions and compromises on both sides.
Europe can chart its own course between the US and China as it builds on shared interests, while China must weigh the compromises it is prepared to make to advance its long-term interests. Fundamental political differences remain, yet they cannot eclipse the two sides’ shared destiny. With the right leadership, greater EU-China collaboration is not only possible but necessary, to uphold their responsibilities to build a better world.
Winston Mok, a private investor, was previously a private equity investor
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