In its engagement with the EU, China continues to focus on weak links, in the expectation that it will not be able to respond in a coordinated way. It is to its advantage if there is no cohesive EU China policy and if member states compete with each other to attract economic opportunities.
The economic interdependence between EU and China is undeniable. At the same time, the EU will increasingly need to make strategic decisions in its relationship with China, given the growing incompatibility between their political and economic systems. This does not mean severing ties and fostering a decoupling process. In-stead it requires managing interdependence and rebalancing the relationship.
The EU’s China policy should not be constrained by an overblown perception of economic vulnerability and build on its relative strengths. China’s willingness and growing ability to engage in economic coercion is a fact, but so far it has been mostly taken the form of threat rather than concrete action. Its policy is not only selective but also pragmatic, taking into account its own economic vulnerabilities.
Some EU members are slowly starting to realize that China does not have that much economic leverage over them. When Prague cancelled its sister-city agreement with Beijing in 2019 and the speaker of the Czech Senate led a delegation to Taiwan in September 2020, China threatened Czech economic interests but, so far, it has only taken symbolic steps such as cancelling concerts in China or not sending a Panda to Prague’s zoo. China could escalate and impose economic costs if similar actions were conducted by a representative of the Czech government rather than of parliament or of a municipal administration. Given the limited interlinkages between the two countries, however, it would be difficult to apply economic leverage.
While China clearly could inflict economic pain on countries in Western Europe and Scandinavia, any measures it takes would need to be targeted at strategically irrelevant “scapegoats.” Companies supplying China with specialized technology will not be touched as long as it has limited – and, more importantly, no domestic – alternatives. In an example from Asia, South Korea’s retailer Lotte was forced out of China in 2017 following the installation of US missiles on land it previously owned in its home country.
A key factor for how effective China could be in leveraging economic ties for strategic purposes will be peer learning and the success of collective action in Europe. European countries have a lot to learn from Chinese bans that affect-ed Australian, Japanese and South Korean economic interests. Recent examples in Australia highlight the selective nature of China’s economic coercion, which aims to minimize economic costs to itself.
East Asian advanced economies have also shown that a more strategic stance on China is possible without necessarily doing harm to interdependence. Japan and Taiwan have, for instance, effectively banned Huawei from the rollout of their 5G networks. In contrast to the heated reactions from Chinese representatives in Europe on this issue, the response was fairly muted. Issues of national security are much more present in East Asia’s relation with China, a reality the Chinese leadership is aware of and seems, in a way, to accept.
Should China pressure even just a few highly exposed EU member states or companies, this could backfire. The EU could retaliate by targeting comparable Chinese economic interests. The escalating Sino-US decoupling should be a warning to both sides of how quickly things can spiral out of control.
When it comes to defending its economic interests, the EU is already changing course. Recent proposals for a new trade-defence instrument or solidarity mechanisms aimed at protecting EU economies from other countries’ coercion show the way forward.26
Preserving economic interdependence should be in the interest of the EU and China. Strong ties create opportunities for political exploitation but will also often prevent an escalation. The EU, its member states, and companies will, however, increasingly need to take into account the systemic differences with China and its willingness to leverage economic linkages for strategic purposes. This requires a more clear-eyed consideration of long-term national security interests. Consequently, the EU needs to assume a more resolute and unified position to provide the necessary political flanking for its economic relationship with China.