To negotiate with China, Europe must first figure out what it wants

The clock is ticking: the European Union has about two years to decide if it is willing to make the sacrifices and take the risks necessary to become the economic and political power it envisions itself to be. The EU’s proposed Industrial Accelerator and Cyber Security acts are up for negotiation within the bloc’s policymaking bodies. In around two years’ time, we will know their final form. Beijing has two years to influence this: that work has already started with carrots – proposals for a trade agreement with Europe – and sticks, in the form of new legislation to punish companies that threaten Chinese interests. That Beijing will put its own interests first is no surprise, but Europe must use the pressure from Beijing to its advantage and finally decide how it engages with China. If Europe does not act now, it will drift into geopolitical insignificance and economic decline. Chinese President Xi Jinping has spoken of “changes unseen in a century”, but it is US President Donald Trump, through the Persian Gulf crisis and other events, who has further accelerated change and dramatically increased the scope of disruption. From recent discussions I had in Beijing and Shanghai, it is apparent that as a result of global chaos, Beijing has gained renewed confidence that its industrial policy-driven, security-centred approach has been justified all along. Beijing has increased export controls and sought to prevent companies from harming Chinese interests by complying with foreign sanctions. The impacts of the last year may come to define the century ahead, as alliance politics and the rules of engagement for international business are reformulated for the increasingly politicised global economy. From the Middle East to the Indo-Pacific, the perceived recalibration of alliances is striking. China seeks to avoid taking sides, ostensibly in view of its relationship with the US, but first and foremost because Beijing prioritises stable, diversified supplies of energy resources, alongside technological and agricultural supply chain inputs. Beijing’s political analysts optimistically see a rupture in the transatlantic alliance in Europe’s refusal to be drawn into the Iran war. This is read as a signal: now is the time to influence Europe’s future political alignment. This has brought a subtle shift in the way Beijing sees European countries, and perhaps even the EU at large. Last month, EU foreign policy chief Kaja Kallas and Chinese Foreign Minister Wang Yi spoke again for the first time in nine months. And yet, Beijing has framed the EU’s proposed industrial and cybersecurity acts, two crucial pieces of legislation which will impact China, as discriminatory. It has threatened countermeasures to the commission’s proposals. Beijing worries that it might lose access to the European market, even if the perceived threat remains low. After all, Europe’s most powerful tools, including the Anti-Coercion Instrument, remain untested. The European market remains critical to Beijing’s ambitions. At the core of China’s five-year plan is a resilient domestic economy, focused on exports and industrial upgrading, alongside a more equal trade balance – through more imports (including services), not less exports. Political confidence in this strategy is high even if it causes frictions with trading partners because it threatens their industries with competitive alternatives. As a result, Beijing is becoming bullish on deterring compliance with foreign sanctions and export restrictions that compromise its interests. Beijing has recently announced measures to protect Chinese interests and prevent discrimination against Chinese companies. For example, Western companies will no longer be permitted to comply with European or American sanctions on alleged forced labour. Rules on scrutiny of supply chains will be tightened. These announcements are clearly meant to deter discrimination against Chinese entities, especially in Xinjiang Uygur autonomous region, but also Chinese technology companies globally. While there will be more clarity on implementation in the year or two ahead, the burden is again on companies to identify and manage risks. European firms in China worry this will require a fundamental change in how businesses operate. Exceptions are likely to be made but uncertainty grows on the back of the export control regime for rare earths. During recent visits to Beijing by European leaders, Beijing has raised the prospect of a new EU-China trade agreement. For the commission, this is a non-starter due to a long list of disagreements but perhaps the lack of enthusiasm is driven more by a fear that we cannot secure what we want. Finnish Foreign Minister Elina Valtonen has ruled out a free-trade agreement because of Beijing’s close ties to Moscow despite Russia’s invasion of Ukraine, but it is unclear whether the prime minister, let alone her Nordic neighbours, see this the same way. Putting aside Russia, a larger problem is that Europeans simply haven’t agreed what it would want from negotiations with China. The EU remains distracted by successive crises: Ukraine, Greenland or Iran. Meanwhile, Beijing’s industrial policies accelerate its own competitiveness, to the detriment of European competitiveness at home and abroad. It is, therefore, the moment to accelerate our own work: to take clear decisions about our competitiveness agenda and decide what it is we want from China. We can then engage in a frank negotiation to find a means of coexistence. After all, Beijing expects Europeans to look after our own interests. It will be difficult, we may fail, but it may just yield the results needed. The alternative is to passively watch Europe’s economy decline, one industry after another, and with it our geopolitical standing.

To negotiate with China, Europe must first figure out what it wants

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}As Beijing seeks to influence Europe, Brussels must shape on its own competitiveness agenda and policy aims for engaging with China

As Beijing seeks to influence Europe, Brussels must shape on its own competitiveness agenda and policy aims for engaging with China