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Flags of the European Union and China are seen in this multiple-exposure illustration.
Viewpoint: Amid deepening divisions, EU and Chinese leaders set to meet this week
European Commission President Ursula von der Leyen and European Council President Charles Michel will visit Beijing on Dec. 7 for in-person meetings with President Xi Jinping and Premier Li Qiang. The two sides want to show a commitment to dialog at a time when their relations are coming under mounting strain, as underscored by the recent opening of an EU probe into unfair Chinese competition in the electric vehicle sector.
Similar to last month’s meeting between Xi and US President Joe Biden, this week’s EU-China summit is not expected to produce any major breakthroughs. To find out more, we spoke with Emre Peker, a director for Eurasia Group’s Europe practice, and Anna Ashton, a director for the China practice.
Why is this meeting happening now?
Emre Peker: The last time Xi and the EU’s top two officials met in person was in 2019 in Beijing, before the pandemic struck. They have met virtually a couple of times since. This week’s in-person gathering is meant to showcase Brussels and Beijing’s willingness to maintain a healthy dialog despite their growing differences.
Anna Ashton: Both sides have sought increased engagement since Beijing began lifting its strict COVID policies toward the end of 2022. The EU-China trade and investment relationship is crucial for both. Other issues of common concern include climate change, global health, and the Russia-Ukraine conflict.
What does the EU want to achieve at the summit?
Peker: Among other issues, the EU wants to address growing imbalances in its economic relations with China as well as the war in Ukraine. A key priority is to highlight the EU’s willingness to take measures to protect itself against Chinese industrial subsidies and overcapacity, which are contributing to a record-high trade deficit with China. Brussels will also seek greater Chinese collaboration on enforcing sanctions against Russia by presenting a list of Chinese companies that will be targeted for penalties unless Beijing helps halt the trans-shipment of dual-use goods. Lastly, the EU will seek to convince Beijing that Europe’s stance on China is distinct from that of the US, particularly on economic matters, to obtain more cooperation and avert escalating tensions.
What does China want?
Ashton: Protecting trade and investment ties with the EU has grown more important for Beijing given the economic headwinds it faces at home. Moreover, Chinese authorities worry about the EU’s drift toward China policies resembling those of the US and want to hammer out a distinct and more cooperative path for China-EU relations. But progress is likely to be limited given their differences on a range of issues. These include the flood of Chinese EVs entering the EU; EU steps to bolster export controls on dual-use goods — particularly tech products — and consider outbound investment screening; the obstacles faced by European companies to doing business in China; and European accusations of Chinese circumvention of sanctions on Russia.
What are the best-case outcomes we can expect?
Peker: On the economic front, a best-case outcome would be an agreement from Beijing to immediately remove trade barriers for certain EU products (such as medical devices and infant formula) and take steps that would facilitate greater market access and investment opportunities for European companies generally. On the diplomatic front, China would proactively collaborate in enforcing sanctions on Russia and commit to more diplomatic engagement on Ukraine’s 10-point peace plan.
Ashton: China’s ties with the EU are strained, but not as fraught as those with the US, so theoretically there is potential for deliverables that equal or surpass those of the Biden-Xi summit, where the two sides agreed to cooperate on bilateral irritants such as fentanyl precursors and military-to-military dialogue. China could offer narrow concessions on market access, but given the limited receptiveness shown to EU trade and investment concerns, does not appear likely to offer broad concessions. Though China and the EU continue to harbor sharply different views about the causes of the war in Ukraine and essential terms for its resolution, Beijing could signal a willingness to participate in future rounds of talks.
How do you expect EU-China relations to evolve over the medium term?
Peker: Given the expectation that the summit will not deliver any major breakthroughs, the EU will likely continue to harden its stance against China, raising the risk of Chinese commercial retaliation. The EU will not likely be able to convince Beijing of its autonomy from the US on China policies, hurting EU ambitions to establish more constructive engagement with China. Therefore, the EU is likely to seek open communication channels and stable commercial ties in the medium term, while trying to reduce dependencies on China in the long run.
Ashton: Beijing is unlikely to shift the EU away from its assessment that China has become an economic competitor. Therefore, China will continue its efforts to drive a wedge between the EU’s and the US’s approaches to relations with China, but its success in this regard will largely be determined by the politics of EU member states and the policies of the next administration in Washington.
Edited by Jonathan House, senior editor at Eurasia Group.
A Philippine flag flutters from BRP Sierra Madre, a dilapidated Philippine Navy ship that has been aground since 1999 and became a Philippine military detachment on the disputed Second Thomas shoal in the South China Sea.
Rough waters in the South China Sea
Philippine officials say a Chinese coast guard ship and an accompanying vessel rammed a Philippine coast guard ship and a military supply boat in the South China Sea on Sunday. The incidents took place near the Second Thomas, or Ayungin, shoal in the Spratly Island chain near a Philippine naval outpost in an area Beijing claims as its territorial waters.
The outpost was built atop a World War II-era warship that was purposefully grounded in 1999 to serve as a bulwark against China’s expansionism in the area. Situated 200 kilometers off the Philippine coast, its personnel rely on regular resupply deliveries from the mainland. The Chinese coast guard claimed the Philippine vessels “trespassed” “without authorization” despite several radio warnings and blamed the Philippines for the collisions. In response, MaryKay Carlson, US ambassador to Manila, posted to X that “the United States condemns the PRC’s latest disruption of a legal Philippine resupply mission to Ayungin shoal, putting the lives of Filipino service members at risk.”
The confrontations follow a near-miss earlier this month when a Chinese coast guard vessel came within three feet of colliding with a Philippine coast guard ship. In the past few months, Chinese vessels have also reportedly sailed dangerously close to Philippine government ships at which they fired water cannons and deployed “military-grade lasers."
China has long attempted to enforce the “nine-dash line” by which it claims ownership of 90% of the South China Sea. Analysts believe Beijing’s increased belligerence is designed to test the limits of the US-Philippine defense treaty, by using “gray zone” tactics just below the threshold that would trigger US engagement. Should China overstep either by accident or design, however, America could be drawn into yet another armed conflict – when it is already supporting allies on two other fronts, in Ukraine and Israel.The headquarters of the People's Bank of China is pictured behind an iron chain in Beijing.
Will China’s property woes get political?
As China’s financial troubles mount, analysts forecast stormy skies for its economy — and potentially, its politics.
Much of the turmoil centers on the country’s real estate sector, which has traditionally driven up to 25% of its economic growth. Last Friday, property development giant China Evergrande Group filed for bankruptcy in the US after two years of restructuring. The same day, Hong Kong’s Hang Seng Index announced that it would be dropping Country Garden Holdings, the country’s largest property developer, from its listing as of Sept. 4. Earlier this month, Country Garden missed a deadline to pay $22.5 million in loan interest and is described as “teetering on the edge of default.”
There have been several attempts to right the nation’s economic ship in recent days. China’s securities regulator announced a series of reforms to boost investment in its capital markets. Its Ministry of Public Security announced a relaxation of internal migration rules to combat urban labor shortages. And the People’s Bank of China attempted to shore up the renminbi by injecting Rmb757 billion ($104bn) of short-term liquidity into China’s banking system and cutting medium-term financing rates.
Household consumption — so low that there are fears of deflation — makes up only about 38% of GDP in China, compared with around 68% in the US, so increased consumer spending is an obvious choice for spurring economic growth. On Monday, the bank modestly cut one-year and five-year loan prime rates to make it easier for businesses and households to borrow money and boost consumer spending.
Why this matters: Apart from risks to both China’s and the world’s economy, there is concern that worsening economic prospects could incite the Chinese government to ramp up repression at home and aggression aboard. Former Special Assistant to the US Secretary of Defense Hal Brands warned that "China may act more aggressively in the near term — as its military capabilities mature — to lock in gains while it still has the chance." And President Joe Biden opined earlier this month that China’s economic woes present a “ticking time bomb” which could lead its leadership to “do bad things.”
Topping that list? Military action against Taiwan. China’s latest show of force in the region saw 42 warplanes and eight vessels dispatched to the South China Sea after Taiwanese Vice President William Lai stopped over in the United States en route to Paraguay.
Such a demonstration may be as much for domestic as external consumption to assert Xi Jinping’s authority and quell the grumbling of Chinese citizens, some of whom are angrily asserting their rights as their property investments tank. A whopping 90% of China’s households are homeowners, and most household debt is in the form of mortgages. That debt hit 63.5% of GDP in the second quarter of 2023, so if the country has its own Lehman Brothers moment, it could make the 2008-09 financial crisis look quaint by comparison.U.S. President Joe Biden delivers remarks on voting rights during a speech on the grounds of Morehouse College and Clark Atlanta University in Atlanta, Georgia, U.S., January 11, 2022.
Hard Numbers: Biden ditches filibuster, Afghan aid, global economic slump, Chinese lockdowns
60: After sending mixed signals during his campaign and in office, US President Joe Biden now wants to get rid of the Senate filibuster in order to pass voting rights legislation. The current rule allows the minority to block any law that doesn’t have the 60 votes needed to end debate in the 100-member upper chamber of the US Congress.
5 billion: In its largest-ever country appeal, the UN says it needs $5 billion from donors to avert a humanitarian catastrophe this year in Afghanistan. Afghans face dire conditions this winter, including a risk of famine for up to one-third of the population.
4.1: The World Bank expects the global economy to grow by just 4.1 percent this year, 1.1 percentage points less than in 2021, amid a pandemic-related slowdown that will hit developing countries the hardest. COVID variants, inflation, supply-chain woes, and less government stimulus are to blame.
20 million: Some 20 million people are now under COVID lockdown in China. Anyang in Henan province became the third Chinese urban center to quarantine all its residents after detecting a couple of omicron infections, upping the pressure on China's zero-COVID policy less than a month from the Beijing Winter Olympics.