EU-China relations in the aftermath of Russian invasion on Ukraine

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2024/06/25

EU-CHINA RELATIONS IN THE AFTERMATH OF RUSSIAN INVASION ON UKRAINE

JAROCIŃSKA PAULINA NATALIA

Changing dynamics in EU-China relations

The current state of China-EU relations has reached a critical juncture, necessitating strategic and decisive actions in order to foster rapprochement. China’s expanding presence in Europe has led to increased economic significance, greatly benefiting the old continent in recent decades. However, this rise has also revealed several risks amid escalating global strains prompting diversifying supply chains, increasing domestic production of critical goods, implementing stricter controls on foreign direct investment, and enhancing regulations on critical technologies.

The emergence of the first tensions can be traced back to 2017 when Western European countries urged the European Commission to downsize Chinese investments. The argument was focused on the threat associated with diminishing its lead in technological expertise, which was linked to the increasing acquisition of domestic companies in the EU 1. In 2019, the policy paper: “EU-China - A Strategic Outlook” described China as a “partner, competitor, and systemic rival” 2 . Consequently, the EU acknowledged the multifaceted nature of its relationship which led

to a more cautious and strategic approach in EU policies, balancing cooperation on global issues like climate change with heightened scrutiny and regulatory measures to address competitive and strategic challenges posed by China. Unfortunately, subsequent developments did not lead to an improvement in mutual relations. Although negotiations on the Comprehensive Agreement on Investment (CAI) were completed in December 2020, the document has not been signed due to a combination of human rights concerns, sanctions, and geopolitical tensions. The EU accused China of human rights abuses in Xinjiang, resulting in imposing sanctions on Chinese officials 3. Furthermore, the CAI was considered misaligned with current trade dynamics. The evolving global economic landscape and shifting geopolitical realities have rendered the agreement less relevant and insufficient to address the complexities and demands of contemporary international trade. Consequently, the CAI, shaped by past priorities, fails to meet the present-day requirements of both the EU and China’s economic interactions.

1. Stanzel, A. Germany’s turnabout on Chinese takeovers. Council on Foreign Relations. March 21, 2017. https://ecfr.eu/article/commentary_germanys_turnabout_on_chinese_takeovers_7251/. [accessed: 20.05.2024].

2. “EU-China – A strategic outlook’”. JOIN(2019) 5 final. European Commission. March 12, 2019. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52019JC0005 [accessed: 20.05.2024].

3. Yee, W. Y. Is the EU-China Investment Agreement Dead? March 26, 2022. https://thediplomat.com/2022/03/is-the-eu-china-investment-agreement-dead/ [acessed: 20.05.2024].

Echoes of war: the Russian invasion on Ukraine and China’s stance

Russia’s invasion of Ukraine in February 2022 only exacerbated political strains and widened the mistrust gap between China and European Union. Prior to the full escalation of conflict in Ukraine, both Chinese President Xi Jinping and Russian President Vladimir Putin declared a “no limits” partnership. This announcement signed a commitment to unrestricted cooperation across various sectors, clarifying, however, that it did not target any third countries nor constitute a formal military alliance, nor actions that might trigger sanctions against China 4

China’s ambiguous stance regarding Russia’s actions and reluctance to condemn it as the

invasion, often called “pro-Russian neutrality” has strained the relationship with the EU 5. This situation has intensified calls within the EU for a more robust strategy towards China, drawing lessons from the past, focusing on reducing dependencies, particularly in critical areas such as technology and infrastructure 6 . Taking into account the consequences of Europe’s dependence on Russian oil and gas, the significance of Europe’s reliance on China for rare earths and other essential raw materials should not be underestimated.

Since 2022, the European Union has primarily perceived China’s as a potential actor in

4. Faulconbridge, G. How does the Xi and Putin ‘no limits’ partnership work? September 15, 2022. www.reuters.com/world/how-does-xi-putin-no-limits-partnership-work-2022-09-15/ [accessed: 20.05.2024].

5. Morozowski, T. (2022). „Prorosyjska neutralność” Chin i implikacje dla relacji z Unią Europejską. Biuletyn Instytutu Zachodniego. Nr 5(487)/2022 18.03.2022 ISSN 2450-5080.

6. Hennessy, A. (2023). “The Impact of Russia’s War against Ukraine on Sino-European Relations.” Journal of European Integration 45 (3): 559–75. doi:10.1080/07036337.2023.2201497.

mediating peace efforts, reflecting a belief in China’s ability to contribute constructively to resolving the conflict in Ukraine. Despite initial appearances, the reality proved to be less optimistic. China’s standpoint has been deemed by a careful balancing act, maintaining a position of formal neutrality while emphasizing respect for sovereignty and territorial integrity. This approach is aligned with China’s broader foreign policy strategy of “non-interference” in the internal affairs of other countries, while also reflecting its strategic partnership with Russia.

Nonetheless, this narrative primarily serves as a facade of propaganda, without intending to participate in achieving a ceasefire. For China, the invasion represents an opportune moment to challenge the unipolar global order dominated by the West, particularly the United States. China’s attribution of the war’s outbreak to NATO and the US underscores the strategic significance of Russia as an ally for Beijing, a relationship whose implications for global geopolitics should not be overlooked.

Redefining trade: What is the EU and China’s “de-risking” agenda?

EU - China relations have historically always been influenced by two intertwined factors. China is one of the European Union’s largest trading partners, and the trade dynamics between the two significantly impact their diplomatic engagements. Europe relies heavily on China in the terms of imports, especially in manufactured goods and essential components like rare earth materials which are vital for technologies in green energy and electronics. Furthermore, the relationship is also shaped by broader geopolitical tensions, particularly between major powers. The EU’s alignment with the U.S. policies against China’s assertive stance in various regional and global issues influences its interactions with Beijing. These dynamics often depend on the agenda set by Washington. The influence of the United States significantly shapes the strategic landscape between Europe and China, especially given the broader geopolitical competition between Washington and Beijing. As the U.S. adopts policies aimed at countering China’s

7. Ibidem.

influence globally, the EU often finds its diplomatic and trade strategies influenced by its transatlantic alliance 7. Conversely, aforementioned China’s strategic partnership with Russia, which has different implications for EU security and policy, plays a crucial role.

In 2023, EU-China trade relations saw some notable shifts. China remained a significant trade partner for the EU, being the largest source of imports and the third largest destination for EU exports. The trade deficit the EU experienced with China decreased significantly compared to previous years, marking a 27% reduction from the previous year to €291 billion. This achievement is part of a broader trend of fluctuating trade deficits experienced over the decade, with the highest being in 2022. Within the EU, the Netherlands stood out as the top importer of Chinese goods, while Germany was the foremost exporter to China among EU member states 8 Considering the above, the Minister in charge

8. China-EU - international trade in goods statistics. Eurostat. 2024. https://ec.europa.eu/eurostat/statistics-explained/SEPDF/cache/55157.pdf [accessed: 20.05.2024].

of trade and economic affairs at the Chinese Mission to the EU emphasizes that despite global tensions and the EU’s focus on de-risking its economic relations with China, the trade and economic partnership between China and the EU remains mutually beneficial and robust. He emphasizes the importance of continued investment and cooperation, warning against the downsides of overly securitizing economic relations which could lead to missed opportunities (“de-opportunity”) for both regions 9 .

In 2023, Ursula von der Leyen articulated that the EU needs to engage in “de-risking” rather than “decoupling.” Nevertheless, as the EU adopts this approach to its China policy, it should be aware of Beijing’s potential to reshape this concept. These steps are designed to maintain the economic

benefits of international trade and cooperation while safeguarding national security and economic interests. However, following President von der Leyen’s speech, Chinese Ministry of Foreign Affairs officials quickly reinterpreted “de-risking” as avoiding the impact of ideological differences on economic ties and rejecting the formation of geopolitical blocs, aligning with China’s goals 10. Christine Lagarde, the President of the European Central Bank, highlighted that states are currently prioritizing “security” over “efficiency” 11. The question is whether this is the most beneficial solution.

In October 2023, the European Commission launched an anti-subsidy investigation into imports of battery electric vehicles (BEVs) from China. This probe seeks to determine if the

9. Peng, G. The Essence of China-EU Trade and Economic Relations is Mutual Benefit and Win-Win. April 8, 2024. www.eu.china-mission.gov.cn/ eng/mh/202404/t20240408_11278074.htm [accessed: 20.05.2024].

10. Stec, G. De-risking viewed from China + EU anti-coercion instrument. April 14, 2024. merics.org/en/merics-briefs/de-risking-viewed-china-euanti-coercion-instrument [accessed: 20.05.2024].

11. Moller-Nielsen, T. China’s ‘de-risking’ from West worsens EU industrial decline, experts say. March 26, 2024. www.euractiv.com/section/economy-jobs/news/anna-chinas-de-risking-from-west-aggravating-eus-industrial-decline-experts-say/ [accessed: 28.05.2024].

competitive edge of Chinese BEV exporters is supported by unfair subsidies and if these imports are harming the emerging EU electric vehicle industry. Concerns have been raised about the surge in low-priced Chinese EVs, which could reflect China’s overcapacity in battery production. The EU fears a repeat of past disruptions experienced with cheap Chinese solar panels that adversely affected the EU market. According to the EU’s narrative, the investigation aligns with its broader economic security strategy to “de-risk” its trade, particularly in light of its goals to phase out internal combustion engines by 2035 and enhance its green transition. Nevertheless, imposing additional tariffs on Chinese BEVs could provoke Chinese retaliation, potentially undermining the EU’s access to critical raw materials needed for green technologies 12 . Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade, asserts that “electric battery vehicles are vital for the green transition and for meeting international obligations to reduce CO2 emissions. Successively, there has been a consistent support for global competition in this sector, which enhances consumer choices and drives innovation” 13. On the contrary, China has called on the European Union to halt its anti-subsidy probe into Chinese electric vehicles, warning that continuing the investigation could harm economic and trade relations, as well as disrupt supply chain stability between China and the EU.

Mao Ning, a spokesperson for the Chinese Foreign Ministry, stated that if the EU persists with the investigation, China will take all necessary actions to protect its legal rights. China has strongly opposed the EU’s actions, labeling them as protectionist and unjustifiable under

international trade rules. It is argued that the investigation itself lacks a solid foundation and is inconsistent with the established rules of fair trade, threatening retaliatory measures to protect its interests if the EU proceeds with imposing any tariffs 14. The European Commission has decided to delay any final decision on imposing tariffs until after the upcoming European Parliament elections, indicating the political sensitivity and the potential economic impact of the investigation’s outcome. This delay is also a reflection of the broader geopolitical dynamics and the importance of the EV market in the global shift towards renewable energy and transportation technologies.

It is predicted that the EU is likely to implement tariffs between 15-30%. However, it is necessary to take into account what the consequences of such broadly understood protectionism may be. German automakers are highly dependent on the Chinese market and strongly oppose these measures due to the risk of Chinese retaliation. According to Deutsche Welle, BMW CEO Oliver Zipse articulated concerns about the potential adverse impact of hastily implemented tariffs, especially given China’s role as a crucial market for BMW’s sales. Similarly, automotive giants Volkswagen and Mercedes-Benz find themselves in a comparable predicament, facing the same risks associated with aforementioned tariffs 15 . The European Union does not currently have the appropriate know-how in the electric car industry and the possibility of manufacturing electric cars in member states could make it possible to gain this experience. Member states require suitable tools to facilitate a smooth green transition, therefore excessive “de-risking” and protectionism may prove more detrimental than beneficial.

12. EU anti-subsidy probe into electric vehicle imports from China. European Parliament. October 18, 2023. www.europarl.europa.eu/thinktank/en/ document/EPRS_ATA(2023)754553 [accessed: 20.05.2024].

13. Commission launches investigation on subsidised electric cars from China. European Commission. October 4, 2023. www.ec.europa.eu/commission/presscorner/detail/en/ip_23_4752 [accessed: 20.05.2024].

14. Honge, M. China urges EU to stop anti-subsidy probe into electric vehicles. May 31, 2024. www.ecns.cn/news/cns-wire/2024-05-31/detail-iheawhsx5140396.shtml [accessed: 31.05.2024].

15. Mudge, R. EU-China EV tariffs: German carmakers fear backlash. May 27, 2024. www.dw.com/en/eu-china-ev-tariffs-german-carmakers-fearbacklash/a-69171441 [accessed: 27.05.2024].

Shifting partnerships - the new landscape of EU-China relations

The first in-person China-EU summit since 2019 took place in early December 2023. The EU was represented by European Council President Charles Michel, European Commission President Ursula von der Leyen, and High Representative Josep Borrell. They met with the Xi Jinping and Premier Li Qiang. This summit facilitated a high-level dialogue aimed at fostering ongoing constructive and stable relations between the EU and China. Discussions covered a broad range of pivotal issues including the trade imbalance, the conflict in Ukraine, climate change initiatives, health concerns, and the situation in the Middle East. The Chinese delegation affirmed the EU as a strategic partner. Conversely, the European representatives reiterate

the responsibility of China, as a UN Security Council member, to adhere to and uphold the fundamental principles of the UN Charter, advocating for a more proactive role from China in achieving a ceasefire in Ukraine. The summit also served as a platform for China to seek reassurance of improving relations with Europe, particularly in light of upcoming elections in the US, and to explore discussions on the EU’s “de-risking” strategy, which underpins its agenda for economic security 16. Despite these engagements, the summit did not yield any significant breakthroughs, with the absence of concrete declarations further underscoring the ongoing stagnation and cooling of EU-China relations.

16. Szczyt UE-Chiny. Rada Unii Europejskiej. December 7, 2023. www.consilium.europa.eu/pl/meetings/international-summit/2023/12/07/ [accessed: 20.05.2024].

Amid the apparent “frozen” stage of relations between the EU and China, there has been a noticeable shift in China’s alliances within Europe, as evidenced by President Xi Jinping’s latest European tour in May. He visited three countries: France, Hungary, and Serbia and each stop of his journey was strategically significant, filled with symbolism and meriting a closer examination of how China is reconfiguring its alliances. It appears that, possibly due to frustration with European bureaucratic processes, China is adopting a more assertive approach and enhancing bilateral relations.

During President Xi Jinping’s visit to France, commemorating the 60th anniversary of diplomatic ties, economic relations predominated the agenda. The French and Chinese delegations endeavored to forge a consensus to enhance French exports to China, striving for a more equitable trade balance. The dialogues culminated in the execution of multiple agreements designed to bolster cooperation in critical sectors, notably aviation, energy, and agriculture. These agreements reflect a mutual commitment to deepen

collaborative efforts and strengthen economic interdependencies 17 .

Most smaller member states share the “de-risking” strategy approach and have distanced themselves from China. The preceding pandemic and subsequent war in Ukraine also left a mark on Central and Eastern European countries such as Poland and the Baltic countries. China was counting on the development of relations with CEE countries that are crucial for Belt and Road Initiative (BRI) and investments, as well as the creation of positive soft power among this part of Europe. Nevertheless, there are countries in Europe that despite geopolitical context, perceive cooperation with China as an opportunity, believing that such partnerships can lead to mutual benefits in sectors such as trade, technology, and infrastructure development. Hungary and its leader, Viktor Orbán, are often seen as pursuing a “pro-Eastern policy” that sparks controversy, particularly concerning their relations with Russia and China. In Budapest’s narrative this approach in as an attempt to balance and maximize national interests in the

17. President Xi Jinping Holds Talks with French President Emmanuel Macron. Ministry of Foreign Affairs of the People’s Republic of China. May 7, 2024. https://www.mfa.gov.cn/eng/zxxx_662805/202405/t20240507_11293731.html [accessed: 20.05.2024].

face of internal and external challenges. Hungary maintains economic and political ties with Russia, even amid the ongoing conflict in Ukraine. These ties include significant energy dependencies, as Hungary continues to import Russian gas and oil. Furthermore, Hungary is engaged in a collaborative effort with Russia on the construction of the Paks II nuclear power plant, a project that aims to enhance the country’s energy infrastructure

During his meeting with Xi, Orbán defined their relations as a “continuous, uninterrupted friendship”. Several significant announcements were made, emphasizing the ongoing support for Chinese investments. Furthermore, China committed to develop the necessary infrastructure for charging electric vehicles. This includes the construction of BYD’s (a leading Chinese manufacturer of electric vehicles and batteries) inaugural production factory in Europe and the establishment of multiple Chinese EV battery ma-

nufacturing plants. Additionally, a memorandum of understanding was signed, and an “all-weather” partnership was declared, drawing a parallel to the “limitless” cooperation with Russia. However, no new projects were introduced at this time.

Visiting Serbia was highly symbolic because it was planned for the 25th anniversary of the bombing of the Chinese embassy in Belgrade. During this visit, the so-called “shared future” agreement was signed and the President of Serbia, Vučić, admitted that this document is a manifestation of better multipolar international order, where no one imposes the rules of the game on anyone else 18. Serbia’s strategic location and its status as an EU candidate, combined with substantial Chinese investments and collaborations, position it as an effective gateway for China into the broader European market, prompting scrutiny and concern from the EU about the growing Chinese influence in the region.

Putin doesn’t sleep – a visit to China

On May 16, shortly after Xi Jinping’s visit to Europe, Vladimir Putin was warmly welcomed in Beijing. Western sanctions have restricted Russia’s access to the global trade system, increasing its economic reliance on China. In the past year, trade between China and Russia reached $240 billion, alleviating some of the severe impacts of these sanctions. Concurrently, Russia became China’s largest oil supplier, surpassing Saudi Arabia 19. For Putin, the visit underscored the reaffirmation of their “no-limits” partnership and China’s ongoing economic support, what symbolized the strategic and ideological nature of their

meeting. The discussions primarily focused on their shared concerns about the ideological and military expansion of the West and the perceived need to reshape the current global order. Both leaders expressed criticism of the United States for its military sales and technological support to allies. Despite the elaborate diplomatic reception for Putin, the meeting yielded no substantial agreements 20

By maintaining a “longstanding friendship” China and Russia are keen to strengthen their ties. However, could this relationship be described as

18. Spike, J. Xi’s visit to Hungary and Serbia brings new Chinese investment and deeper ties to Europe’s doorstep. May 14, 2024. www.apnews.com/ article/xi-visit-brings-chinese-investment-serbia-hungary-8b112f599ab51a18e290d5183b971970 [accessed: 23.05.2024].

19. He, L. China’s largest oil supplier in 2023 was Russia. January 22, 2024. www.edition.cnn.com/2024/01/22/business/china-top-oil-supplier-2023-russia-intl-hnk/index.html [accessed: 25.05.2024].

20. Bogusz, M. Rodkiewicz, W. Wiśniewska, I. Razem przeciwko Zachodowi. Putin w Chinach. Ośrodek Studiów Wschodnich. May 21, 2024. https://www.osw.waw.pl/pl/publikacje/analizy/2024-05-21/razem-przeciwko-zachodowi-putin-w-chinach [accessed: 26.05.2024].

a “marriage of convenience”? For instance, the absence of discussions on the Power of Siberia 2 pipeline agreement reflects China’s strategic caution regarding long-term commitments and reliance on a single country for raw materials. China continues to maneuver between various global actors, maintaining its relationships with key powers, including Russia and Western countries. By adopting a neutral stance, it seeks to balance these relationships without compromising its ties with economically essential regions like Europe and the USA.

Ding Yifan, former deputy director at the Institute of World Development under China’s State Council Development Research Center, noted the potential insights China could gain from Russia’s handling of economic sanctions. Despite the challenges posed by the war in Ukraine and global sanctions, Russia’s economy grew by 3.6 percent last year, outperforming expectations and recovering from a 2.1 percent contraction in 2022. Ding attributed this economic resilience partly to Russia’s shift towards non-dollar trade, which has significantly bolstered its economic stability. He suggested that China might consider Russia’s strategies as viable options in case it faces similar international pressures connected with economic decoupling and de-risking 21 .

Two-speed Europe: diverging dynamics in EU-China relations

When it comes to EU-China relations, it is evident that there exists a “two-speed Europe,” where distinct Eastern and Western fronts are apparent. While Western Europe often seek to curtail Chinese influence and acquisitions, Central and Eastern European countries are more welcoming of Chinese investments. The presence of China in Central and Eastern Europe is substantial, with its influence expected to grow, especially in Hungary, Slovakia and Serbia among other

states. However, it’s important to recognize that the region’s approach to China is not uniform; countries such as Poland, Lithuania, Latvia, and Estonia, despite ideological reservations about its unbiased approach in global conflicts, keep their doors open to engagement with China.

The Russian invasion of Ukraine has profoundly influenced EU-China relations, with the evolving ties between China and Russia expected to continuously shape the dynamics between the EU and China. Although both parties appear to be making little progress, described metaphorically as “spinning their wheels,” their interdependence is undeniable, necessitating mutual cooperation. Despite current geopolitical complexities, issues surrounding digital and green transitions or security concerns, both sides are reevaluating their bilateral relations. China is eager to reengage with Europe, while the EU has set clear boundaries regarding China’s interactions with Russia. Nonetheless, China is aware of the potential consequences of its strategic decisions. Its actions will be influenced by where it can maximize benefits and whether it is prepared for potential confrontations.

Looking ahead, EU-China relations are likely to remain tense and at a standstill. President Xi is increasingly focusing on bilateral agreements, as demonstrated by his recent engagements and meetings with European leaders. The upcoming Hungarian rotating presidency of the Council of the EU and the elections in the European Parliament will be pivotal, especially in the context of rising euroscepticism and populism within the governments of member states. These developments will undoubtedly have significant implications for the future of EU-China relations and require closer monitoring.

21. Zhou, L. China can learn from Russia to beat Western sanctions as ‘de-risking’ pressures mount, foreign affairs expert says. February 23, 2024. www.scmp.com/news/china/diplomacy/article/3252889/china-can-learn-russia-beat-western-sanctions-de-risking-pressures-mount-saysforeign-affairs-expert?campaign=3252889&module=perpetual_scroll_0&pgtype=article [accessed: 25.05.2024].

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Author:

Jarocińska Paulina Natalia is a doctoral student at East China Normal University in Shanghai. Her core research interests revolve around the impact of social media on politics, populism, European integration and EU - China relations.

© COPYRIGHT 2023 Warsaw Institute

The opinions given and the positions held in materials in the Special Report solely reflect the views of authors.

Warsaw Institute Wilcza St. 9, 00-538 Warsaw, Poland +48 22 417 63 15 office@warsawinstitute.org

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