Chinese officials and businesses are seeking a rapprochement with the EU amid Donald Trump’s trade war, but the bloc remains deeply sceptical of becoming a dumping ground for goods diverted from the US.
Beijing is looking to deepen ties with the world’s largest trading bloc with the hope of finding alternative markets for its goods in the face of steep US tariffs. China has dispatched trade delegations to European capitals in recent weeks and factories are exploring rerouting goods to the continent’s markets.
EU leaders have also publicly expressed the need for greater co-operation, a strong contrast to previous declarations stating a need to “de-risk” supply chains from Beijing.
But a reset in EU-China ties would need to overcome deep differences over China’s huge trade surpluses, the barriers to accessing its own market and Beijing’s tacit support for Russia’s war in Ukraine.
“It is time for China and Europe to start over,” said Zhang Yansheng, a senior researcher at the state-run China Academy of Macroeconomic Research think-tank.
Trump’s tariff upheaval “gives us the opportunity to rethink our trade relationship — China should export more to Europe and import more as well”, he added.
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Trump has imposed new tariffs of up to 145 per cent on Chinese exports, threatening to curtail the flow of trade between the world’s two biggest economies. Beijing has retaliated with 125 per cent tariffs.
The EU, meanwhile, has been hit by 10 per cent tariffs, which could increase to 20 per cent if talks fail to accommodate Washington’s demands.
Trump’s chaotic manoeuvring has set off a flurry of outreach between Beijing and Brussels, as both sides seek a counterpoint to the US.
Chinese leader Xi Jinping told visiting Spanish Prime Minister Pedro Sánchez last week that China and the EU should “jointly resist unilateral bullying”.
Even European Commission president Ursula von der Leyen, who has been a proponent of “de-risking”, told Chinese premier Li Qiang last week that the two sides should work together to provide “stability and predictability” for the global economy.
“Both need alternative markets as well as a sense of stability,” said François Chimits, an economist at the Mercator Institute for China Studies. “Tactically, a move towards more bilateral co-operation between these two economic heavyweights expands their potential leverage in any talks with the US as well.”
China’s commerce ministry has sent trade delegations in recent weeks to events in Stockholm, Budapest, Oslo and Hanover to drum up interest in investing in China, where foreign companies have complained of barriers to market access.
Peter Burnett, chief executive of the China-Britain Business Council, noted that Beijing sent a large delegation to an “Invest in China” event this month at London’s Queen Elizabeth II Centre. “For international business, China is saying you are welcome and we want you to do more,” he said.
Chinese manufacturers and exporters are also looking to buyers in European markets for their wares. “We’re working hard to expand our business in Europe and elsewhere — and we’re making progress,” said a manager at Petpal, a major Chinese pet-food maker.
The US tariffs will accelerate the “trend of Chinese companies going global”, said Jaromir Cernik at CTP, a big investor in European industrial property. He added that Chinese demand for factory and warehouse space in Europe was growing.
But a European business figure familiar with the Chinese delegations said EU governments had little to offer, as many companies were reluctant to invest in China. An EU Chamber of Commerce in China survey last year found that more than a quarter of respondents were pessimistic about their growth potential in China and 44 per cent about their profitability.
Weak domestic consumption in China has also created deflationary pressures, intensifying price competition and making the country a less attractive market for foreign companies.
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Any détente would also have to overcome significant frictions. The EU has criticised China over its alliance with Russia and backing of Moscow’s invasion of Ukraine. Belgium is investigating Huawei, the Chinese telecoms champion, for allegedly bribing members of the European parliament, allegations it denies.
Xi is also planning to snub a summit marking 50 years of bilateral ties, while forcing von der Leyen and European Council president António Costa to travel to Beijing in July for a meeting that was due to take place in Brussels.
But the Chinese leader will attend a Victory Day parade in Moscow marking 70 years since the end of the second world war.
China’s exports to the bloc were more than double its imports last year, and EU leaders have accused Beijing of cultivating industrial overcapacity to offset economic weaknesses at home, flooding the continent’s markets with low-cost goods and undercutting homegrown industry.
Von der Leyen last month echoed Trump’s concerns about trade deficits, saying some countries were “taking unfair advantage of the current rules”.
The EU has opened trade defence investigations into goods ranging from electric vehicles to plywood, some resulting in tariffs of more than 100 per cent. Beijing has hit back with probes targeting EU pork, cognac and dairy products.
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“Europe’s relationship with Beijing has been plumbing new lows due to growing trade imbalances, China’s support for Russia and a rise in Chinese cyber attacks across Europe,” said Noah Barkin of the Rhodium Group consultancy. “It is difficult, given this backdrop, to envision some sort of détente between Brussels and Beijing.”
But if trade talks with the US fail to broker any reprieve from tariffs, the EU “could decide that even a bad deal with Beijing is preferable to a two-front trade war with both the US and China”, Barkin added.
Von der Leyen recently told the Financial Times that the EU would “take safeguards” against dumping, adding that Li had promised to take steps to support domestic consumption and soak up excess production.
China and the EU have also agreed to step up high-level dialogue and negotiations to resolve levies on Chinese electric vehicles.
Beijing can count on some German companies with a significant footprint in China to back closer ties. A policy paper circulated among German corporate representatives in China this week called on the incoming government in Berlin to “play a more active role” in supporting their business interests in the country.
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Freight prices point to early signs of a trade reordering. The Ningbo Containerised Freight index showed rates to the US west coast plunged 18 per cent for the week until April 11 from the week before, while prices to the Mediterranean rose 15 per cent.
Zhang at the Academy of Macroeconomic Research said there was a “big misunderstanding” last year between China and the EU, noting that a delegation he attended had received a cool reception.
“[Europeans] were looking at China with a biased perspective, they wanted ‘de-risking’ from China’s industrial and supply chains,” he said, though he conceded that the Chinese side was “flexing our muscles too much”.
“China and Europe need to re-understand each other,” he said.
Additional reporting by Nian Liu and Wenjie Ding in Beijing and Florian Müller in London. Data visualisation by Haohsiang Ko in Hong Kong
