Europe and China in 2023: an agreement to disagree?

A belated happy new year to all readers of the weekend edition of Europe Express. I’m at [email protected].

European news often gets off to a slow start in January, but my eye was caught this week by the EU’s offer to China of free Covid vaccines — a helping hand Beijing said it didn’t need, despite a surge in infections after the communist government ended its zero-Covid policies.

This somewhat frosty exchange was a reminder that difficulties in relations with China will be a dominant theme of European public affairs in 2023, extending into domestic matters such as health and education as well as diplomacy and trade.

Let’s take these areas one by one.

China and the war in Ukraine

China’s ties with Europe were cooling even before Russia’s invasion of Ukraine last February. In 2019, the EU designated China for the first time as “a systemic rival promoting alternative models of governance” as well as “an economic competitor in pursuit of technological leadership”.

Yet the EU tried to avoid the appearance of confrontation by stressing that in certain areas, such as climate change, the two sides had “closely aligned objectives”. This three-pronged approach to China as rival, competitor and partner is now under strain, and even regarded in Brussels as rather outdated, in the light of Beijing’s support for Russia in the Ukraine war.

However, a complete breakdown of the EU-Chinese relationship in 2023 is unlikely. A good, succinct analysis appears in this Brookings Institution briefing by Célia Belin, James Goldgeier, Tanvi Madan and Angela Stent.

The authors make the point that the EU’s rapid energy decoupling from Russia, which has come at a high economic cost, will probably make European leaders cautious about risking their extensive trade and investment relations with China (the value of bilateral goods trade in 2021 reached almost €700bn, according to EU data).

At the same time, Beijing is adopting a less intimidating posture towards Europe for fear of pushing it even closer to the US, China’s principal rival, the authors contend. This interpretation of Chinese attitudes to Europe is broadly shared by Alicja Bachulska in her recent article for the Mercator Institute of China Studies (Merics).

EU-Chinese economic ties

Several recent examples illustrate how, despite a trend towards tighter restrictions in some countries, Europe continues to attract large-scale Chinese investment.

Brushing aside resistance from within his own government, in October German chancellor Olaf Scholz approved the acquisition of a 24.9 per cent stake in a Hamburg container terminal by Cosco, a giant Chinese shipping company.

The map below, produced by Merics, illustrates how Cosco’s holdings in European ports extend across the continent, from Rotterdam in the Netherlands and Valencia in Spain to Piraeus in Greece.

The second example is the Pelješac bridge in Croatia, which opened in July and is shown in the map below. Connecting Croatia’s mainland to its southernmost coast, this strategically sensitive infrastructure project was paid for largely out of EU regional aid funds (some €357mn out of a total cost of €536mn, according to Allison Carragher, whose report for the Carnegie Europe think-tank is the most detailed on the subject).

The project was undertaken by the China Road and Bridge Corporation, a state-controlled behemoth, which won the tender with a bid 20 per cent below that of Strabag, an Austrian company.

Two questions arise. One is whether cheap loans and other forms of state aid give companies like CRBC an unfair advantage in tenders, as the EU Chamber of Commerce in China complained in a 2020 report.

Datenna, a Dutch information services company that specialises in China, estimates that about 40 per cent of all Chinese investment projects in Europe between 2010 and 2020 had high or medium levels of involvement by the Chinese state.

The second question is what China expects in return for such big infrastructure investments in Europe. In her study of the Croatian project, Carragher comments:

“[Chinese] government officials have been visibly present at every major milestone of the bridge’s construction, and a sign posted on the bridge during construction read ‘Building the Pelješac Bridge builds friendship between Croatia and China.’ . . . But some fear that this supposed friendship could translate into pressure on Zagreb to side with Beijing on issues like Taiwan and human rights.”

Chinese influence in central and eastern Europe

China has been especially busy investing in central and eastern Europe. In August, the Chinese CATL, the world’s largest manufacturer of car batteries, announced plans for a €7.3bn plant in the Hungarian city of Debrecen.

But China’s regional involvement extends beyond civilian industrial projects. Earlier last year, Serbia displayed its newly acquired Chinese surface-to-air missile defence system. Along with Belgrade’s refusal to align with the west on policy towards Russia, this acquisition underlined Serbia’s odd-man-out role in the Balkans — a region supposedly on course for full EU membership — and its pursuit of an independent national security policy, balanced between the west, Moscow and Beijing.

However, other countries are distancing themselves from China. In August, Estonia and Latvia pulled out of a forum for central and eastern European economic co-operation with Beijing that was once known as the “17+1” club. Since Lithuania had already left in 2021, I suppose we’d better call it the “14+1” club now.

In another sign of regional wariness of China, the mayor of Prague cancelled a sister city arrangement with Beijing in 2019 and signed one instead with Taipei, capital of Taiwan. Depending on your viewpoint, this was either a courageous or a provocative move, considering the steadily increasing military and political pressure that China is applying on Taiwan.

Universities and ‘police stations’

The Prague mayor’s action followed an uproar over the discovery that the Chinese embassy in the Czech capital was secretly funding a Czech-Chinese institute at the city’s prestigious Charles University.

Since then, other European universities have come under pressure to cut back their Chinese connections, especially on research projects with potential military applications.

But Hungary is going full-steam ahead with a plan to open a campus in Budapest of the Shanghai-based Fudan university — the first such Chinese campus in Europe.

Bence Nemeth, who teaches at the defence studies department of King’s College, London, wrote in 2021:

If Fudan’s project in Hungary becomes a successful model, there is a high chance that other globally competitive Chinese universities might follow Fudan’s example and will establish campuses in the EU.

Well, anything’s possible, I suppose.

But it seems to me that any such expansion of Chinese “soft power” in Europe might run into difficulties on account of the rising levels of concern among most EU governments about issues like technology espionage, cyber security and, last but not least, unofficial Chinese “police stations” in Europe.

What do you think? Is Chinese economic influence and soft power too strong in Europe? Vote here.

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Investors beware: Europe’s top companies are highly exposed to China — says a report by Ties Dams and Xiaoxue Martin for Clingendael, the Netherlands Institute of International Relations

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