“China far more dependent on Europe” – says European business chamber as EU strives to reduce dependency on China amid soaring ties
As soaring ties between the European Union (EU) and China over human rights issue, Taiwan, shady foreign fundings in European institutions and changing geo-political situation in Eurasian region pushed the European Union towards reducing its dependence on China, European Chamber of Commerce in China said that China is far more dependent on Europe than Europe’s dependency on China. EU Chamber President Joerg Wuttke told Prasar Bharati Beijing that European companies are under-invested in China. “Last year EU invested just 8-9 billion euros in China.
At the same time, it invested 20 times more in the US to the tune of 60 billion euros. And that’s not natural, given the size of both the economies are very similar. As a matter of fact, European Union is holding back because of all the problems companies face in investing in China,” he lamented. However, he said due to current geo-political scenario, business has lesser say in European decision making in regard to China.
A major turning point in the EU-China relationship occurred in March 2021 when the EU levied sanctions on some Chinese officials for human rights abuses in Xinjiang. Beijing retaliated by sanctioning EU members of parliament and others, and in May 2021, the European Parliament voted to freeze the EU-China investment deal. The Europe-China relationship has been on decline since then. In addition to COVID related lockdowns particularly in Shanghai, the sentiments towards China further soared as Russia-Ukraine war started at Europe’s border causing energy disruptions and influx of 5.5 million refugees and China was fence-sitting, he pointed out.
Joerg Wuttke said that a big majority of Europeans now look at China very critically as compared to 10 years ago and it has impacted European policy makers. Being democratic leaders, they see whether they get the political space to engage positively with China.
In Germany – Europe’s largest economy, right now, there is quite a discussion about country’s dependency on China and it is expected to release its first fully-fledged “China strategy” by the end of this year. Observers said, in Germany, China is increasingly viewed as a commercial competitor and a source of geopolitical threat. Human rights issues now loom large in the German discussion over China. The mood toward China had been souring even before the former Chancellor Angela Merkel departed the national political scene. The new German coalition government has broken decisively from the Merkel policy of “quiet engagement” with China. The present German government led by Olaf Scholz has refused to grant Volkswagen state backing in China over human rights issues. Stung by Russia’s invasion of Ukraine and ensuing threat to its energy security, Germany is worried that it may be hurt if China invades Taiwan, experts said. There is an emerging consensus in Germany that it cannot rely too heavily on China as an economic partner. Some 5,000 German companies operate in China today. Germany has already announced a “more robust trade policy” toward China in mid-September, saying that “the time of naivety toward China is over”.
However, Mr. Wuttke said, EU is dependent on China only to some extent. China exports worth 1.7 billion euros every day to EU whereas EU exports 660 million euros only every day. European market and consumers create 14 million jobs in China and support 2.2% of China’s GDP, he said. “So, in a way, China is far more dependent on Europe than Europe is dependent on China,” he argued. Europe imports from China products like electronics, keyboards, computer parts, toys, furnitures – basically non-critical items in 103 segments which it can source from elsewhere, he said.
However, he added that Europe’s real dependency on China is on 20 products which is in rare-earths, APIs, preliminary products for the pharmaceutical industry, manganese, circuit boards etc. Europe has to make up its mind if they want to remain dependent on China in these items or create alternatives either in Europe or with like-minded partners, he said. He also urged China to open up more for European companies saying that China has to realize that European companies are important technology players but are very minor.
Joerg said that due to current geo-political scenario and tit-for-tat sanctions by both the sides, business has lesser say in decision making in regard to China. He said, multinationals used to be the natural allies for China and used to convey China’s position in their countries but that has been eroding. Due to the reputational challenges associated with China, it has become hard for European politicians and businesses to reach a common ground with respect to China. This situation also emerged due to the frustration businesses are getting in China with regard to their promises of opening up which is not happening. So, China is important for European companies, but it is not good enough, so companies are actively looking for other countries.
Italy has elected its most right-wing government since the end of World War II, and experts are anticipating a different type of relationship between Giorgia Meloni, slated to become Italy’s next prime minister and Beijing. During her campaign, Meloni made a rare statement on Taiwan, voicing opposition to China’s military threats to the island. She also said she would promote bilateral contacts between Italy and Taiwan, which Beijing strongly opposes.
Talking about European investments in China, Joerg said, over the past four years, the bulk of European FDI into China has been contributed by just a handful of large companies. 80% of European investments in China are made by just 10 large European companies. While the rest have put their China operations in wait-and-see mode as they evaluate alternative markets like India, Southeast Asia that can provide greater certainty. Since January 2022, no new European companies have come to China, he added. European investment into the country is unlikely to increase while China keeps its doors closed and companies perceive political, economic and reputational risks to be mounting, Joerg said.