How Europe can live with China
19 Jun 2020|

In an age of escalating tension between the United States and China, will the European Union still have room to manoeuvre in pursuit of its own interests? That will be a key question for EU policymakers in the years ahead.

The Sino-American conflict has already become a central issue in the run-up to the US presidential election in November, because President Donald Trump’s administration has clearly decided that bashing China is one way to divert attention from its own failings. But even if Trump loses to his presumptive challenger, Joe Biden, the bilateral confrontation will continue to escalate. Within the US political and foreign-policy establishment, actively looking for ways to curtail, stop, or even reverse China’s geopolitical rise is a bipartisan pursuit.

Yet, even with the most aggressive policies, it is doubtful that the US—or anyone else—could achieve that goal. China’s per capita GDP (adjusted for purchasing power parity) is roughly one-third that of the US or most European countries. But in terms of the overall size of its economy, it is quickly catching up to the US and the EU.

Nobody can know for certain how China’s economic story will unfold in the decades to come; but current trends suggest that it will continue to grow much faster than either the US or the EU. If it can close even half the per capita GDP gap with Taiwan, its economy will have grown (by dint of population) to twice the size of the US or the EU economies.

Despite the Covid-19 pandemic, the International Monetary Fund and the World Bank both expect China’s economy to register positive growth this year. Meanwhile, the US and Europe are both experiencing a deep contraction, with no end in sight. The upshot is that the pandemic will further increase China’s relative weight in the global economy.

To be sure, with an ageing population, a massive, loss-making state sector, and growing debt, China will face strong economic headwinds in the coming years, especially if structural reform continues to rank low on Chinese President Xi Jinping’s list of priorities. China’s political system is woefully unsuited for managing a modern society.

Before dying of Covid-19, Li Wenliang, the Wuhan-based physician who was silenced after trying to sound the alarm about the coronavirus outbreak, pointed out that ‘a healthy society should not have just one voice’. By that unimpeachable standard, the Chinese political system is in poor health indeed. It will remain susceptible to all kinds of morbid and unpredictable maladies.

Still, there is no denying that China will be an increasingly important part of the global economy in the years ahead. Its expanding presence will bring new challenges for everyone, but particularly for Europeans. Because Europe can no longer count on the US as a reliable, like-minded partner, it will have to develop its own approach.

The new European strategy toward China should be based on two pillars. On the one hand, engagement on issues of common concern can and must continue. China accounts for nearly 30% of global greenhouse-gas emissions. Because one of Europe’s chief policy objectives is now to pursue a green-energy transition—achieving net-zero emissions by 2050—spurning dialogue with China is not an option.

The same applies to other supranational issues such as trade and public health. Both Europe and China have a strong interest in preserving the global trading system, and that will require cooperation to reform the World Trade Organization. The US’s disengagement from the WTO and the World Health Organization is deeply counterproductive and places an even greater burden on the EU to reform and strengthen these necessary multilateral bodies. The WHO’s latest World Health Assembly showed that the EU can indeed play an important, constructive role in this regard, even as the US continues to marginalise itself.

On the other hand, the EU increasingly sees China as a ‘systemic rival’ whose values and interests will inevitably clash with its own. There is clearly a need for stronger mechanisms to screen Chinese investment in sensitive European sectors and to ensure fair competition between European firms and Chinese state-subsidised corporations. Across a range of issues, European policymakers and diplomats will need to do more to ensure that China lives up to the commitments it has undertaken.

There is little doubt that European public opinion is starting to swing against China and that this will have an impact on policy. With the Chinese regime cracking down on Hong Kong, threatening Taiwan and maintaining its repression in Xinjiang and other regions, it will become much harder for countries like Hungary to block EU actions in defence of human rights and the rule of law in China.

The EU’s task will be to strike a balance between these two pillars. Though Europe will stand together with the US on many issues, it will not abandon its engagement with China on issues of mutual concern. And while Europeans must be realistic about China’s increasing capacity to throw its weight around on the world stage, China’s leaders would do well to remain realistic, too. A violent clampdown in Hong Kong, for example, would force the EU to take a much harder line when devising its new strategic approach.