EU and China may ‘drift apart’ due to political tensions and economic disputes, warns Dombrovskis

“We can choose a path towards mutually beneficial relations, one which is based on open, fair trade and investment and working hand in hand on the great challenges of our time. Or we can choose a path that slowly moves us apart, where the shared benefits we enjoyed in recent decades weaken and fade,” the European Commission’s executive vice president said on Monday in a critical speech delivered at Tsinghua University, Beijing.

“We need to acknowledge that, in a challenging new global context, both EU and China face significant political and economic headwinds, and some of those headwinds may cause us to drift apart.”

Dombrovskis’s stark warning was voiced during a four-day trip to China in which the vice president met with several representatives of the Chinese government to address a long list of friction points that have strained relations with the bloc.

Chief among them: Russia’s war of aggression against Ukraine.

“Territorial integrity has always been a key principle for China in international diplomacy. Russia’s war is a blatant breach of that,” Dombrovskis said. “So it’s very difficult for us to understand China’s stance on Russia’s war against Ukraine as it breaches China’s own fundamental principles.”

The vice president said the many ripple effects unleashed by the invasion, such as supply chain disruption, food insecurity, high energy prices and record-breaking inflation, were a “disaster” for Europe and also for China and its export-oriented industry

Dombrovskis warned China’s deliberately vague stand on the war, which Brussels considers pro-Russian, carried “reputation risk” and is already “affecting the country’s image not only as European consumers but also as businesses.”

Throughout the speech, Dombrovskis, who is in charge of the trade portfolio, attempted to convey the frustration and exasperation of European companies that operate in the Chinese market and struggle to deal with a variety of obstacles in their day-to-day transactions, such as unequal access to public procurement, discriminatory standards, and a widespread lack of transparency and reciprocity.

“European companies are concerned with China’s direction of travel and many are questioning their position in the country. They are asking themselves whether what many saw as a win-win relationship in the past decades could become a lose-lose dynamic in the coming years,” he said, citing results from business surveys.

“The Chinese government has created a more politicised business environment by expanding its toolkit to protect national security and development interests.”

Dombrovskis criticised a recent update to China’s anti-espionage law that confers Beijing with broader punitive powers and “allows too much room for interpretation” to crack down on activities considered to be a threat to national security. The possibility of prosecution “significantly” undermines business confidence and scares investment away.

“This is exactly what I mean with a lose-lose outcome,” he said.

All this accumulated discord and animosity, coupled with a ballooning trade deficit that reached €396 billion last year in China’s favour, have “forced Europe to become more assertive” and adopt a “de-risking” strategy to avoid harmful dependencies. 

Still, he added, the bloc remained willing to engage and find constructive solutions.

“The world needs China but China also needs the world,” he said.

Relations between the EU and China have in the last few years taken a sharp turn for the worse owing to the COVID-19 pandemic, the repression of Uyghurs in Xinjiang, Russia’s war against Ukraine, continued tensions in the Taiwan Strait and tit-for-tat trade restrictions in the fields of semiconductors and critical raw materials.

The strain further increased this month after the European Commission announced a formal inquiry into China-made electric cars, which Brussels suspects of being artificially cheaper than its European competitors as a result of massive state subsidies injected by Beijing.

The probe, which China has denounced as “naked protectionism,” could lead to additional tariffs on Chinese electric cars to offset the unfair advantage granted by the subsidies.

Dombrovskis rejected Beijing’s accusation and underlined the investigation would be conducted “diligently” and “in consultation” with Chinese authorities and carmakers.

“The EU cannot allow itself to be unprotected when our openness is abused or when our national security is at stake,” he told the audience at Tsinghua University.

“Competition must be fair and we will be more assertive in tackling unfairness.”