Not-So-Peaceful Rise: Bridging the Transatlantic Divide on China

Written by | Thursday, July 11th, 2019

While the US has taken a tougher stance in dealing with China’s persistent lack of reciprocity in economic relations and violations of international norms of intellectual property for some years, European countries have only recently begun reacting more concretely to the economic and security-related considerations linked to certain Chinese investments on their soil.

At the same time, Chinese investments on both sides of the Atlantic have declined considerably after peaking in 2016. While there are few exceptions regarding foreign direct investments, Beijing is increasingly curbing private outward investment to maintain its stock of foreign reserves and to direct capital to domestic use amid a period of an economic slowdown. Nevertheless,  Chinese investments in strategic sectors can generate economic dependence, especially among smaller countries and struggling economies, and this relationship can expand into the political realm, as it has done on a few occasions before.

In this respect, it is also true that economic relations between Europe and China have expanded dramatically over the last decade. The EU is now China’s largest trading partner, and China is the EU’s second-largest trading partner after the United States. China’s annual FDI into the EU skyrocketed from $840 million in 2008 to $42 billion in 2017, covering a wide range of geographic areas and industrial sectors. However, data from the last two years indicates that in aggregate terms Chinese foreign direct investment into Europe is slowing down from its 2016 peak.

Nevertheless, the past few months have seen some of the most significant developments and responses to challenges in Europe-China relations. These include both increased cohesion at the EU-level, especially among the largest EU members, and divergence on key foreign policies. In March, the European Commission, the EU’s executive body, issued a ‚Strategic Outlook‘ in which it labels China as a “systemic rival” and “strategic competitor” and set out a number of intended steps to deal with the lack of reciprocity and violation of international rules.

“China is, simultaneously, in different policy areas, a cooperation partner with whom the EU has closely aligned objectives, a negotiating partner with whom the EU needs to find a balance of interests, an economic competitor in pursuit of technological leadership, and a systemic rival promoting alternative models of governance”, says the ‚Strategic Outlook‘ document, using a language unusually bold for the EU.

Moreover, there are examples of the political influence attached to China’s economic presence. China‘s strategy is to sow divisions, treating the EU members differently and creating its own circles of friends with regular contacts. At the same time, competition between the US and China to develop advanced technologies such as Artificial Intelligence (AI), robotics, quantum computing, and biotechnology, with strategic and military applications, directly implicates Europe. Although European countries have fallen behind both the US and China in the technology race, investing in Europe’s target industries can still help China to close its gap with the US.

Overall, the rise of China in an increasingly multipolar world should be part of the transatlantic debate. Bearing in mind European sensitivities, the US Congress should use all its possibilities to collaborate with Europe to build consensus over the immediate security, technological and geo-economic challenges related to China’s expansion.

‚On China’s Expanding Influence in Europe and Eurasia‘ – Policy Paper by Philippe de Corre – Carnegie Endowment for International Peace.

(The Policy Paper can be downloaded here)

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