EU warns China it will ‘not tolerate’ unfair competition at high-stakes summit

“Competition needs to be fair. We insist on fair competition within the single market, therefore we also insist on fair competition from companies that come to our single market,” the European Commission president told reporters in Beijing.

Her warning came following the first in-person meeting between EU leaders and President Xi in five years. But despite the high stakes of the summit, happening amidst heightened geopolitical tensions and an increasingly fraught trade relationship, no new commitments emerged from either side.

The EU is concerned that Beijing’s import restrictions and generous subsidies for China-based firms are putting European companies at an unfair disadvantage, inflating the bloc’s massive trade deficit with China.

China is the EU’s biggest trading partner, with trade in goods amounting to a staggering €2.3 billion every day. 

But EU imports from China now exceed its exports by almost €400 billion. This deficit has grown tenfold in the past 20 years and doubled over the past two years. According to von der Leyen, “such imbalances are just unsustainable.”

“I’m glad that we agreed with President Xi that trade should be balanced between the two of us,” she added.

Discussions on redressing trade imbalances with Chinese Prime Minister Li Qiang were in-depth and delved down into the facts and figures, von der Leyen said, although no concrete measures to address the imbalances immediately emerged from the meeting.

“We expect China to take more concrete action to improve market access and the investment environment for foreign companies,” European Council President Charles Michel, also present at the meeting, said.

According to Chinese state television, Premier Li had told both EU leaders that China opposes the “politicisation” of economic and trade ties.

The EU has adopted a ‘de-risking’ approach amid fears that its entrenched reliance on China for critical materials used in cleantech applications could erode its industries and jeopardize its security.

This means using the EU’s trade and domestic defence tools, such as its ongoing anti-subsidy probe into low-cost China-made electric cars that are flooding the EU market.

Von der Leyen insisted de-risking is not “exclusive to China” and highlighted that Beijing’s so-called self-reliance strategy is similar to the EU’s plan.  She also emphasised the bloc was not looking to de-couple its economy from China’s as it has done from Russia’s in the aftermath of the invasion of Ukraine.

Ukraine, Gaza and Taiwan on the agenda

Both von der Leyen and Michel used their trip to urge Xi to do more to crack down on sanctions circumvention, where Chinese firms are suspected of indirectly feeding the Kremlin’s war campaign in Ukraine.

The bloc suspects that everyday products – including those made in the EU – that include components needed to manufacture drones, missiles and artillery shells are being re-exported to Russia through China.

Member states have been pushing to include sanctions on Chinese companies suspected of facilitating sanctions circumvention in the EU’s 12th package of sanctions, currently under negotiation.

A senior EU official said that while the overall export of high-priority battlefield items from China to Russia has declined, the latest data suggests exports of so-called ‘dual-use goods’ that could be redirected for military purposes are on the rise.

According to Michel, the EU has identified a list of companies “suspected of playing a role in circumventing sanctions.”

Von der Leyen said that China’s position on the war in Ukraine will “also define” EU-China relations. China has taken a neutral stance on the war and proposed a 12-point peace plan for Ukraine in March this year, but has refrained from severing ties with Putin.

Leaders also broached the thorny issue of the ongoing war in the Middle East and the complex path to lasting peace in the region.

“We agree that getting lifesaving aid to the most vulnerable must be a top priority,” Michel said. 

The EU is the biggest donor of aid to the Palestinian territories and has quadrupled its humanitarian aid to €100 million this year in response to the crisis engulfing the Gaza Strip.  China’s response fades in comparison, offering $2 million (€1.86 million) in additional humanitarian assistance since the conflict erupted in October.

A senior EU official said that the summit was an opportunity for von der Leyen and Michel to put pressure on China to scale up its humanitarian response. 

The two EU leaders, who were accompanied by the bloc’s top diplomat Josep Borrell, also expressed their concerns about the tensions in the Taiwan Strait and the South China Sea. 

The bloc and its Western counterparts oppose any change to the “status quo” in Taiwan, a democratically self-ruled island which China considers a breakaway province that should be reunited with the mainland. 

Increased military activity in the Taiwan Strait and the precedent set by Putin in Ukraine has raised the alarm in Europe over a potential escalation in Taiwan. But the European and Chinese positions remain far apart.