The covid pandemic, where Europe's enormous production shortfalls were seen, and the war launched against Ukraine by Russia, to whose cheap gas it was hooked, highlighted the enormous dependencies of the European Union on its geopolitical rivals. It has been a wake-up call. And while that link with Moscow has been greatly weakened by the sanctions imposed on the Kremlin, the EU is sharpening its economic and commercial weapons to confront China's economic and technological strength.
The community club seeks to protect itself from unfair competition from Chinese companies and manufacturers doped by state subsidies from Beijing, from the effects of the Asian giant's overproduction and from China's penetration in some of its key sectors. The idea, furthermore, is to move forward to build strategic autonomy; something that implies that the EU must not only diversify its suppliers of crucial goods, but also produce them.
Similar to the United States, which seeks to shield its supply chains from Beijing's influence, the EU, where China is the main supplier of some key elements such as rare earths, proposes "reducing the risk" of that trade relationship. Brussels considers the Asian giant as a “systemic partner, competitor and rival” – with the focus increasingly placed on the latter definition – and the opening of the Chinese market to European companies is not symmetrical to that which the EU provides to Chinese manufacturers.
Thus, and largely with China in mind, last year the Community Executive designed an economic security strategy, which seeks, among other things, to control foreign investments in the EU. It has also formulated regulations to control subsidies to foreign companies that could damage the single market. And it has introduced sustainability and resilience criteria in renewable auctions to favor local production.
Alicia García Herrero, chief Asia Pacific economist at Natixis and one of the leading experts on EU-China relations, believes that Europe is fully aware that the world has changed and that traditional trade measures - such as the reform of the World Trade Organization—are not enough in the face of a much more protectionist scenario, pushed by China but also by India. “Europe must not only protect its markets but also avoid national security problems related to economic security,” the economist says by phone. In Japan, a ministry was created to handle economic security issues almost five years ago and in the United States, the issue is given high priority within the Department of Homeland Security. “Europe, which is late, has no choice,” asserts García Herrero.
At the end of last year, the European Commission shook the geopolitical table by announcing an investigation into Chinese electric car manufacturing companies for the alleged public aid received to facilitate their entry into the European market. Brussels' gaze on Chinese companies and the effects of state aid doping from Beijing (and other actors) has also narrowed in recent weeks, with new regulations aimed at preventing foreign subsidies from distorting the market. unique and that allow those companies active in the EU to be stripped of contracts if that happens.
At the end of February, the Commission opened an investigation into the Chinese train manufacturer CRRC, which was aiming to win a major tender in Bulgaria. Its offer was 46.7% below the cost estimated by the Bulgarian Railways and was 47.5% below the price offered by the closest competitor. A few days ago, as a result of the investigation, CRRC finally decided to withdraw from the contest.
This week, with the same tool, the Commission has opened two investigations into two Chinese companies for their tenders for a photovoltaic park in Romania that, in addition, was partially financed with European funds.
The case, like that of the trains, combines state
doping
with entry into essential European sectors. The issue of solar panels, points out the European Commissioner for the Internal Market, Thierry Breton, has become “strategically important for Europe” and for the transition to cleaner energy. Because it is there, furthermore, in sectors in which this green transition in which Europe is advancing has a significant role, in which China has great strength and the EU has great dependence. “The two new in-depth investigations into foreign subsidies in the solar panel sector aim to preserve Europe's economic security and competitiveness, ensuring that companies in our single market are truly competitive and play fairly,” explains Breton.
For years, Brussels has thoroughly controlled the subsidies granted by member states to their companies, but not those given to their companies by foreign competitors. A gap that the Commission has wanted to close. And all this in a scenario in which Chinese overproduction plays a major role. Last week, the president of the European Union Chamber of Commerce in China, Jens Eskelund, warned that tensions between Beijing and Brussels will increase due to China's growing ability to manufacture cheaper in strategic industries.
China and the EU trade goods worth €2.3 billion a day. And although the imbalance has been reduced (27% compared to 2022 and the first improvement since 2017), the trade deficit in goods of the community club with Beijing rose to 291 billion euros in 2023, according to Eurostat data. There are clearly more vulnerable sectors. 90% of the rare earths, gallium and magnesium demanded in the European Union are supplied by China.
Arancha González Laya, dean of the Paris School of International Affairs, Sciences Po, does not see European measures as a shield against Chinese strength and the distortion that the characteristics of its economy can cause in European markets. “The European Union is aware, as is China, of the importance of its bilateral economic relationship,” she emphasizes. “The Union is more realistic than the US because it has not considered decoupling from the Chinese economy, which produces 70% of the industrial components in the world. That would be a chimera, but what the EU seeks is to avoid excessive dependencies,” says Laya, who was Spanish Foreign Minister between 2020 and 2021.
The EU also does not have a unified approach to trade and economic relations with China. There are some Member States closer to the Washington line, such as Lithuania; others that have implemented some controls like the Netherlands (on chips), and others, like Germany, that defend their extensive trade ties with China, the second largest economy in the world.
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