BRUSSELS – The European Union and China are edging ever-closer to a trade war. Both sides seem genuinely inclined to prevent that outcome, but whether they will succeed depends on how smoothly the tectonic plates underlying their relationship are able to adjust. For European diplomats, there is no doubt that they must adjust.
Until recently, the EU believed friction caused by ideological differences with China – the difference in values and political systems – could be contained within certain policy areas, such as human rights. Now it thinks that friction is everywhere. It is present, very prominently, in the two powers’ positions on the war in Ukraine.
At an informal meeting in Stockholm on 12 May, the EU high representative Josep Borrell distributed a paper to foreign ministers that claimed China has a “firmly pro-Russian stance”. When I interviewed the Chinese ambassador to the EU, Fu Cong, on 24 May in Brussels, he strongly disagreed. In our discussion, he almost seemed to suggest that China disapproves of Russia’s invasion. When I asked him why Chinese officials did not explicitly denounce the war, his answer was that China is reserving for itself the role of mediator. He claimed it is up to historians to decide whether Russia or Ukraine started the war, an inversion of the famous sentence by the former French prime minister Georges Clemenceau about who bore the guilt for the First World War: “The historians will not say that Belgium invaded Germany.”
Fu has headed the Chinese mission to the EU for only six months. He is well regarded in Brussels: most people I meet praise his cunning intelligence, usually in comparison with other Chinese diplomats who are blunter or, as in the case of Lu Shaye, the ambassador to France – who recently questioned the sovereignty of ex-Soviet states on French TV – capable of monumental gaffes. Fu’s objective is critical. He has been tasked by Xi Jinping to prevent a break between China and Europe which would leave China starved of technological access to the West. This is high-stakes diplomacy and Fu is at the centre.
In recent weeks, the EU has moved forwards in its relationship with China: economic relations will be allowed to continue in areas presenting low economic or national security risks. If economic links leave the EU vulnerable to weaponisation and coercion or to sensitive technology leakages, then they will be severed – it is about de-risking, not decoupling. Sometimes geopolitics is about conceptual work on a whiteboard.
Fu’s main concern at the moment is to prevent the bloc from adopting new measures against Chinese companies because they may be circumventing sanctions against Russia. The EU is very close to approving its eleventh package of sanctions on Russia. In preliminary documents seen by the New Statesman, eight Chinese firms are included in a list of restricted companies for importing electronic components from Europe in order to re-export them to Russia. According to sources in, respectively, the European Council and the Commission the only obstacle left to the imposition of these sanctions is Hungary.
If the package is approved, and if it includes the Chinese companies already identified, China will retaliate. As Fu told me, “There will be strong responses.” But there is also concern in Beijing that such a moment could start a spiral of retaliatory sanctions that neither side will be able to stop. A trade war, in other words. The last time such a spiral took place, in 2021, China came out bruised. After the EU sanctioned some Chinese officials, Beijing responded in a rather brutal manner by sanctioning EU parliamentarians. As a result, an investment agreement between the two blocs, the Comprehensive Agreement on Investment, was shelved and China’s isolation grew. It was clear from my conversation with Fu Cong that the Chinese authorities want to prevent a repeat.
[See also: Xi Jinping’s parallel reality in Hong Kong]
For the EU, the sanctions against Chinese companies are not really sanctions. They are measures enforcing the sanctions already in place against Russia by ensuring other countries can’t help Moscow circumvent them. EU officials told me they have informed Fu that the eight Chinese companies will not be punished, that their access to the European financial system will not be affected, and that their assets will not be frozen. They will only be prevented from trading certain goods, mostly electronic components, that the EU does not want to fall into the Kremlin’s hands. In the absence of such measures, Europe’s sanctions would be toothless, as prohibited goods would find their way into Russia via China and other countries such as Kazakhstan, Armenia or Uzbekistan.
In our interview, Fu suggested that, away from the public eye, China would try to address the problem, so long as the EU provided evidence of circumvention. The answer I heard from a top official in the European External Action Service (EEAS), the EU’s diplomatic service, was that “in our system we cannot share evidence with a foreign government”. But the problem cuts deeper. If China is so concerned not to offend Russian sensibilities that it cannot condemn the invasion, how can it be trusted to implement Europe’s sanctions against Russia? Fu also claimed the EU has no evidence against the companies. This was disputed by the same official, who added that the evidence comes from EU member states, not the US.
The tectonic plates are indeed shifting. The war has made it increasingly difficult for two blocs with different views on events in Ukraine to continue “business as usual”. The diplomat in the EEAS told me that China has suggested a “sequencing” for peace in Ukraine that the EU cannot accept: first a ceasefire freezing the conflict, then negotiations and finally a possible withdrawal of Russian troops from certain negotiated areas. For the EU the sequencing has to be the reverse: first a Russian withdrawal, then security guarantees for Ukraine as a basis for stable peace. In the new China paper distributed in Stockholm, to which the New Statesman had access, one sentence stands out: “The relationship between China and the European Union will be critically affected if China does not push Russia to withdraw from Ukraine.”
Bruno Maçães: I wanted to start with Ukraine. Will China push Russia to withdraw from Ukraine, which seems to be the only way to preserve relations with the European Union?
Fu Cong: First, let me say that we understand the importance that the EU attaches to the Ukrainian crisis. But frankly speaking, I do not find it sensible to link China’s position on the Ukrainian crisis with our bilateral relationship between China and the EU. I don’t think that is fair to China. But it is not realistic to expect China to take the exact position as the Europeans because China is not in Europe.
BM: There is this opinion in Europe that China is on Russia’s side, that China has a firmly pro-Russian stance.
FC: I don’t agree with that assessment. China is very clear that China stands to support the territorial integrity of all countries. But frankly speaking, I don’t see how you can have durable peace if the legitimate security concerns of both sides are not taken fully into consideration. So you can’t say that China is on the side of Russia on this issue. China is trying to facilitate peace.
As we speak, soldiers have been killed in Bakhmut [in eastern Ukraine] in the tens of thousands. I often quote this report, we said that the average survival time of a Ukrainian soldier on the battlefield [in Bakhmut] is four hours. That is, four hours after the soldier is committed to the battlefield, he gets killed. I don’t think it is anything better for the Russian side. And for what purpose? Both sides are saying that Bakhmut does not have any strategic value. If it does not have strategic value, why do you need to spend the lives of so many soldiers? This, to me, is senseless killing.
BM: Help me understand why China has not condemned the Russian invasion and called for a withdrawal. The basic core of China’s thinking on foreign affairs are the five principles of peaceful coexistence. They are in the preface of the Chinese constitution. They are mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. Russia violated all of them on 24 February 2022. If Russia violates the most sacred principles affirmed by China, about international affairs, why hasn’t China condemned Russia?
FC: Well, we have said that we support every country’s independence, sovereignty and territorial integrity. I think that is sufficient and everybody takes that message, including Russia.
BM: But China is not condemning Russia.
FC: We have our own diplomatic style and I think at this stage, actually, a simple condemnation does not solve the problem. It may reduce your space for diplomacy – if all countries take the side of one country, then who is going to come out as a mediator for peace? But it doesn’t mean that we are condoning any action specifically in this conflict.
BM: But you agree that Russia started the war, not Ukraine.
FC: That’s for the historians to decide.
BM: Let me turn to this concept from the European Commission president Ursula von der Leyen, of the distinction between de-risking and decoupling. I have been told by my sources that when she talked to Xi Jinping he was not happy with the distinction because he doesn’t believe it’s a real distinction. But do you believe it’s a real distinction? And do you think it’s a useful distinction?
FC: First, let me say that I’m glad that European leaders, including the United States, have realised that decoupling from China is neither realistic nor desirable. Secondly, with respect to de-risking, let me say that this is a very vague term and it is an evolving concept. The European leaders need to explain to us, to the public, what exactly de-risking entails. But if de-risking means ridding China out of the global industrial and supply chain, especially when it involves key technology, we are firmly opposed to that.
As a matter of fact, in our view the basis for the so-called de-risking policy is the so-called dependency, right? Of course, we appreciate every country’s desire to maintain a resilient supply chain. But at the same time, we need to realise that we should not exaggerate the so-called dependency in the relationship between China and the EU.
China is dependent on Europe for many other things. For instance, the most prominent example is the semiconductor and, especially, chip-making equipment. In our view, dependency is not dangerous. What is dangerous is to weaponise that dependence. If the EU has the political will to alleviate the concerns, China is ready to talk to them and come to some form of agreement and not to weaponise the dependencies that one side may have on the other.
[See also: Why we need a more balanced approach to China]
BM: The EU is discussing the eleventh package of sanctions, which could be approved as early as next week. In the documents that I have seen, there are the names of eight Chinese companies, although I’m not entirely sure if they’re Chinese companies or just registered in China, Hong Kong. If the sanctions come to pass, what will China’s reaction be?
FC: If the European side imposes sanctions on Chinese companies, without providing us with any solid evidence to show that these companies are engaged with activities that may circumvent or had circumvented the EU sanctions on Russia, then we will certainly retaliate. As a government we have the obligation to safeguard the legitimate interests of our companies.
But let me also emphasise that we want to resolve this issue in a cooperative way. Unfortunately, we have approached the EU side, and we have not been given any clear explanation. But the one thing they did tell us is that they did not have solid evidence that those companies have re-exported the items they have imported from EU companies to Russia. But unfortunately, the EU side has not responded to our gesture to resolve this in a cooperative manner.
They say that this is not an extraterritorial application of their sanctions. This is exactly an extraterritorial application of sanctions. This is exactly what the US has been doing when they sanction foreign companies: they put foreign companies on what they call the Entity List. If, despite all our efforts to resolve this in a cooperative manner – which actually I still believe there is time, we still have a few days – then there will be strong responses. It will not be good for either side.
BM: Just to clarify: China would be willing to work with the EU to address a question of circumvention if the EU provided evidence? You could perhaps even punish the companies if you agreed with the evidence?
FC: I don’t know if “punish” is the right word.
BM: But you would be able to address the issue in China with those companies, if they showed evidence?
FC: Yeah, that’s the essence of a collective way of resolving the concerns. But again, they need to give us the evidence, they need to show us that these companies are re-transferring the dual-use items they have imported from Europe.
BM: Let me turn to CAI, the Comprehensive Agreement on Investment. People have told me that China would be willing to remove the sanctions against European parliamentarians if the EU promised to revive CAI and to sign it. Is this true?
FC: CAI is an important bilateral agreement. Both sides have spent huge efforts and have shown great flexibility in order to achieve that. Such an agreement will help the economies of both sides and will go a long way towards resolving many of the concerns that the EU or European companies have via the Chinese market. But unfortunately, this issue has been politicised. China has been making several proposals trying to unlock this deadlock. We do hope that the EU can respond in a similar manner.
BM: Who do you blame for the failure of CAI?
FC: There are a number of anti-China politicians who do not want to see this important agreement go through.
BM: Anti-China politicians in Europe?
FC: In Europe and also in the United States. We know that the US has always been a very important external factor in the China-EU relations. This has been shown in the public statements by European leaders.
BM: But don’t you think it’s counterproductive for China to ask Europe to be more autonomous? Probably the reaction from Europe will be to do the opposite, because it sounds like pressure from China.
FC: How can you say that we’re putting pressure [on you] if we ask you to be independent? China, in past decades, is maybe the only big power that came out in clear support for the integration of Europe – you can check the record. We do see Europe as an important force on the global stage, both politically and economically. Europe has such a long history and such a splendid civilisation, there is no reason Europe should become – quote, unquote – vassals to any other country. Of course, they will not become vassals to China. We don’t have that ambition.
BM: Do you understand why many people in Europe are angry at China? To give you an example, your colleague in Paris, Lu Shaye, said in April that post-Soviet states did not have established sovereignty and established borders. Three of these states are members of the European Union. So if you tell the European Union that three of its members are not real countries, people are offended.
FC: I think the spokesperson of the foreign ministry has made our position extremely clear. So there is no question about China’s position concerning the independence, the sovereignty and the territorial integrity of all the former republics of the former Soviet Union. I think what Mr Lu said was grossly misinterpreted.
BM: He was on television, everyone saw it, there’s no interpretation. He said that.
FC: You’re not here to discuss his remarks, right?
BM: Do you think the EU is divided on China?
FC: In my view, some politicians look at China from a strategic and realistic point of view, which we’ll welcome. Unfortunately, there are others whose thinking is more tainted by ideology. We do not deny that there are differences between us in terms of ideology and our specific issues related to human rights. But our view is that our common interests far outweigh our differences. So we should not allow the differences to define our relationship. Unfortunately, nowadays, there is this narrative about so-called democracy vs autocracy. I think this narrative is both misleading and, I would say, even dangerous.
BM: Is China a democracy or an autocracy?
FC: We see ourselves as a democracy. So that’s why we say this is a misleading narrative. Who gives a country the right to define whether other countries are democracies or autocracies? It’s dangerous in the sense that if you divide the world into two different ideologies, into two different blocs, you will be in effect taking the world back to the old Cold War days. That’s why I have been saying to the Europeans, how China and the EU handle our relations will, to a very large extent, determine how the world will look tomorrow. People need to have this sense of history. We need to have this sense of responsibility to the world and to our future generations, to our children’s children. Because we do not want one to see the world going back to the Cold War.
BM: Final question: is Crimea part of Ukraine?
FC: I can give you a very short and easy answer for that: China stands for the independence, sovereignty and territorial integrity of all countries, including Ukraine.
[See also: Why China and its trading allies are well-placed to topple the dollar]
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This article appears in the 31 May 2023 issue of the New Statesman, The Rise of Greedflation