A complicated new EU-China showdown is quietly taking shape

Last month, Contemporary Amperex Technology Limited (CATL), the world’s largest battery company, started building a massive joint venture plant in Spain. It came weeks after Spain’s King Felipe visited Beijing, seeking a stronger EU-China relationship as US commitments wobble. Except Spain, electrified by the potential job creation, ran into a problem: CATL wants to bring 2,000 Chinese workers to build the plant. What’s happening in Spain is part of a complicated new showdown between the European Union and China. At one end, China’s demands are forcing Europe to choose between economic security and international relations. At the other end, Europe is opening and closing doors at the same time, squeezing China. While Spain battles a Chinese company’s labour plans, French President Emmanuel Macron is threatening tariffs unless Beijing fixes its trade surplus with the EU, which reached €306 billion (US$359 billion) last year. It’s a strange move. France wants access to China, but seemingly without allowing more Chinese access to Europe. That may not be possible. Chinese fashion retailer Shein, for instance, reports 145 million active users from the EU on its platform, around a third of the EU population. The choices of European consumers, not European governments, are drawing China deeper. And while Brussels bangs the drum of industrial competitiveness and clean energy, Europe is wholly dependent on China for the rare earths that underpin its manufacturing. Moreover, 90 per cent of its installed solar panels are Chinese, making China the foundation of its green transition. The EU is locking and unlocking hands with China. It has reopened discussions around the Chinese electric vehicle trade after introducing tariffs of up to 45.3 per cent. Almost simultaneously, it has launched foreign subsidy investigations into Nuctech, a Chinese company selling security equipment, and Temu, raiding the online retailer’s office in Dublin. Adding to the push and pull, the EU has abandoned a World Trade Organization case against China that led to the adoption of its anti-coercion instrument, which lets Brussels retaliate economically against foreign actors. Weeks before, it was still threatening to use the “trade bazooka” on China as rare earth supply dried up. There is no longer clarity as to what direction either side is moving in. And the situation may be about to get a lot more complicated. South Korea’s footprint in Europe is eroding as Chinese companies advance. In September, for the first time, Chinese carmakers sold more vehicles than their South Korean competitors in western Europe. In 2022, South Korea controlled almost 80 per cent of Europe’s battery market. This has dropped to around 30 per cent as China’s share climbs towards 60 per cent. Unlike before, when the EU had to balance just between Washington and Beijing, others could soon enter the picture, like Seoul or New Delhi, complicating decision-making. Clean energy may also become a more thorny subject. Amid US warnings its energy grid could be exposed because of Chinese equipment, the power outages in Portugal and Spain earlier this year, the first of their kind in the region, have raised fears in Europe that Chinese components – specifically, inverters – in European grids could be manipulated. This issue is a new lever that Brussels could pull at any moment, hampering China-EU relations. China and the EU are in a strange situation. They know what is happening, but do not know what to do. And it is not just governments in limbo. While around 70 per cent of European firms in China are re-examining their supply chain strategies, Volkswagen Group is developing a new chip in China. And Nvidia just regained US approval to export its H200 artificial intelligence (AI) chips to China. The Western business community is as divided on China as their governments. There is also the question of geostrategy. As Europe’s relationship with America unravels, it seeks new horizons. Before, China was in Europe’s theatre. Now, Europe is entering China’s theatre, wooing regions like Central Asia and Southeast Asia. Sour relations with Beijing could limit how far Europe can go with other economies, which are deeply tied to China. As the EU-China showdown progresses, there are knock-on effects Brussels has to watch out for. The big question is how China shifts gears. As China’s strategic patience wears thin, the next flare-up could see Beijing viewing the EU like it does the United States, phasing out European goods as it has with American ones. But it’s not a simple equation for Beijing either. Mexico has just announced new tariffs of up to 50 per cent on an array of Asian products, a move seen as a curb on Chinese imports that puts it squarely in the US corner. US trade deals with Malaysia, Cambodia and Vietnam have changed Asia’s geoeconomics. And with Russia occupied in Ukraine, and the US squaring off against Iran and Venezuela, China’s list of close partners it can count on for support is shortening. With advanced and emerging economies shifting away from China, the reliance on regions like Europe will only grow. For now, both sides still need each other. For now, there is nowhere else to turn. But behind this reliance, irritation and paranoia are growing. The core glue, like clean energy, is turning into core threats. The core relationships, like with the US, are eroding neutrality. As the showdown plays out, mutual needs will disappear as both sides accept they can only walk together so far.

A complicated new EU-China showdown is quietly taking shape

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}For now, both sides still need each other and there is nowhere else to turn. But behind this reliance, irritation and paranoia are rising

For now, both sides still need each other and there is nowhere else to turn. But behind this reliance, irritation and paranoia are rising