Will Europe Pluck Up Courage to Reduce Its Dependence on China in Case of Future 'Instability'?

It is a dilemma that has become quite familiar to Europe. Just as Trump's China policy put pressure on policymakers in Brussels to choose between the two titans, now the critical situation in Ukraine and Beijing’s response to the crisis have forced the EU to again weigh transatlantic solidarity against its strong commercial ties with China.

In 2020, China became the EU's largest trading partner for the first time, replacing the United States. Many European countries cooperate with Chinese firms and investors at various levels and small states that suffer from chronic underinvestment have welcomed Chinese capital under the Belt and Road Initiative (BRI).

China has refused to bow to Western demands to put pressure on Russia over its special operation in Ukraine. Quite irritated by the Trump-era trade wars, Beijing seems to have become completely sanctions-intolerant. Not intending to support restrictions against Russia, Beijing has repeatedly stated that it does not accept outside pressure, and intends to “firmly defend the legitimate rights of its companies.”

The position was explicitly expressed during the 23rd EU-China Summit that took place on April 4. European officials claimed that Russia should not receive financial or military assistance from China. In response, Chinese Premier Li Keqiang said that China pursues an independent, peace-loving foreign policy and reiterated that conflicts should be resolved “through negotiations.”

The atmosphere after the summit was said to be gloomy, as many politicians said the EU and China speak different languages, leaving unanswered the question of whether the European Union is ready to steadily disentangle this economic interdependence both to influence China and take precautions in case of further instability.

Some German senior lawmakers reportedly believe that the time has come for difficult decisions amid Chinese influence on global supply chains that are in crisis, new harsh restrictions, declared in some Chinese cities due to a new COVID-19 surge, and possible sanctions against Beijing that would further aggravate world production and trade.

According to a poll conducted in March, a majority of German companies operating in China said that the conflict in Europe “was impacting their China strategy.” One-third of the respondents said they "expected to put planned business or investments on hold, while 46 percent saw a decrease in the attractiveness of the Chinese market.” Some 10 percent said the businesses currently operating in China might move out of the country, and 27 percent said they expected diversification to accelerate in Asia.

Jens Hildebrandt, executive director of the German Chamber of Commerce in North China, told Bloomberg that the world has moved from globalization to “localization,” where “companies build localized supply chains to serve specific markets.” The trend emerged with the US-China trade war and is currently gaining momentum.

For Joerg Wuttke, who heads the EU Chamber of Commerce in China, “the kind of public image of China when it comes to Ukraine is really making a difference.” Taken along with its Zero Covid policy and the associated disruptions to business, “what really matters now is the perception of China becoming unreliable,” he said, calling it a “new dimension.”

German Finance Minister Christian Lindner, speaking at the Ludwig Erhard Summit last week, said that Berlin “needed a whole new business model to reduce its economic reliance on China.”

Lars Klingbeil, who co-leads Chancellor Olaf Scholz’s Social Democratic Party, underlined at the same event the need to learn the lessons of Germany’s Russian policy and “end the dependence on China.”

However, the mobilization of governments and businesses to confront China economically is a matter of controversy in many European capitals. The difficulties that Brussels has been facing in reducing its dependence in some spheres on Russian exports show that at this moment, Europe may not be ready for dramatic changes in its China policy.

Meanwhile, smaller European countries, including the Czech Republic, Poland, Slovenia, Bulgaria and Greece, who have at some point enjoyed generous Chinese investments to fulfill a number of crucial projects completed and envisaged under the BRI (including the 16+1 forum), have not shown any clear commitment to reshape their approach towards China.