Chinese Premier Li Qiang waves to German Chancellor Olaf Scholz as he returns with him.
John McDougall | AFP | Getty Images
Europe is charting a new course in its relationship with China, but officials in the region say they fear retaliation if they get it wrong.
The momentum behind the idea of taking a risk in China is growing. At the G7 meeting in late May, both the United States and Europe agreed to reduce their dependence on Beijing, rather than sever ties entirely.
In recent years, the United States has become increasingly vocal about China’s threat to national security. At the same time, European policymakers are taking a more cautious approach – aware of the importance of the Chinese market to their domestic companies.
A senior EU diplomat involved in the talks between the 27 EU capitals, who declined to be named due to the sensitivity of the issue, told CNBC that he was “definitely” aware of possible Chinese retaliation. “But that’s why we need to talk about it,” the diplomat said.
Another anonymous official working in the European Union, one of Europe’s largest economies, also said: “There will always be countries that worry about this or that, but that doesn’t mean we shouldn’t.”
The whole of the EU is figuring out what removing the China risk means. Ursula von der Leyen, president of the European Commission, the bloc’s executive arm, said it had raised specific EU concerns about Beijing, including human rights issues and negotiations for fairer competition and market access.
On Tuesday, the European Commission suggested that the EU should review its foreign investment screening policy and strengthen export control regulations. The agency did not say China was directly responsible for the ideas, but said the EU needed to minimize risks “in the context of rising geopolitical tensions and accelerating technological change”.
The EU’s 27 heads of state will discuss the topic at a summit later this month.
The Chinese embassy in Brussels was not immediately available for comment when contacted by CNBC on Thursday.
Lithuania, a Baltic state in northeastern Europe, is a good example of a country aware of possible Chinese retaliation. In 2021, it will become the first European country to set up a Taiwan representative office under the name of Taiwan. Most countries in the region use the name of the city of Taipei.
China condemned the move because Beijing considers Taiwan to be part of its territory, not entitled to independent diplomatic relations and therefore not required to be represented in Lithuania. As a result, China withdrew its ambassador to Lithuania and imposed a customs blockade on Lithuanian goods imported into China.
“For years, the West has said that economic cooperation will convince dictators to support a rules-based international order. But all we have done is feed their economies while making them break all the rules. China is betting that we will repeat the same mistakes. Time to try something else ,” Gabrielius Landsbergis, Lithuania’s foreign minister, tweeted in April.
Earlier this month, the European Commission called on more EU countries to ban Chinese telecom groups Huawei and ZTE.
So far, 10 countries in Europe have banned or restricted the two companies from using their 5G networks. They fear the two companies pose a risk to the security of the European Union.
China slammed Europe’s position, adding that the commission had no legal basis to ban the telecom giants, Reuters reported.
An EU official, speaking on condition of anonymity due to the sensitivity of the issue, said: “We have not seen the same level of retaliation” following the announcement compared with individual countries.
But the official said: “If we act under a common framework, we will be in a better position to retaliate.”
European leaders are still figuring out how to reshape their relationship with what they say is a more assertive China, but their staffs are aware of the delicate balance that needs to be struck between reducing dependence on China and not disrupting it.