Europe- China relations continue to deteriorate over economic and political issues

The relations between Europe and China are growing more tense every passing day thanks to several factors such as the Covid-19 pandemic, economic coercion China’s support for the Ukrainian invasion, human rights violations, and the Taiwan Strait Conflict. European countries are now mulling reducing their dependence on China as well as restricting economic investments there. This comes as a big jolt to China as it became Europe’s biggest trading partner just a few years ago. The European investment in China has been through a few big companies while no new firm now is interested in entering the Chinese market, said New York-based Rhodium Group.

According to a report by the Rhodium Group, European groups started leaving China due to the country’s links with the ongoing geopolitical tensions, anti-business ‘Zero Covid’ policy, and economic uncertainties amid slow growth. “Virtually no new European firms have chosen to enter the Chinese market in recent years,” said the group.[1]“A few big firms are propping up the numbers there. Many others are reassessing their presence,” said Noah Barkin, the managing editor of Rhodium’s China practice.[2]Nomura Holdings,  a global financial services group, has downgraded its forecast for China’s 2023 annual growth to 4.3 per cent from 5.1 per cent.[3] Earlier, Goldman Sach too slashed the growth to 4.5 per cent from the earlier projection of 5.3 per cent.[4]

Britain, which was said to be China’s best partner in the west in 2015, is now seen as the harshest critic of Beijing’s policies.[5]Suppression of minority communities in Xinjiang, Tibet, and violation of basic rights in Hong Kong and security threats are seen as reasons for London parting ways with Beijing. To Beijing’s dismay, the UK has so far blocked Chinese tech giant Huawei, revoked the license of the Chinese broadcaster CGTN, and granted refuge to millions of dissenters from Hong Kong. Even it has stopped selling chip design software to a Chinese company citing security reasons.[6] Moreover, it is restricting Chinese investment in UK projects.[7]

Another major European power Germany has lost interest in doing business with China and in China. Talking of a “more robust trade policy” toward China, German Economy Minister and Vice-Chancellor Robert Habeck said “The time of naivety toward China is over.” Experts interpreted the comment as Germany discouraging trade and business with China. “The German government no longer wants to provide incentives for German companies to expand business in China,” said Tim Rühlig of the German Council on Foreign Relations (DGAP).[8]       

Taking a dig at Chinese President Xi Jinping’s policies and regulatory crackdowns, European Union Chamber of Commerce in China president Jörg Wuttke said “Ideology trumps the economy…Predictability has been challenged by frequent and erratic policy shifts. China is not the stable sourcing destination that it used to be.” The chamber said China cannot take European business for granted as it ceased to be the stable sourcing destination that it used to be. “If China persists with such an approach, the business environment will continue to become more challenging…European companies no longer attach great importance to the China market,” the chamber said in its 2022-23 position paper.[9]          

Now many European companies are looking for an alternative. “They don’t even want to consider China. (European companies’ preferences are) clearly Southeast Asia, India and other parts of the world,” said Wuttke.[10] About 23 per cent of European companies in China have decided to shift out of China.[11] Many European countries are getting closer to India, China’s biggest rival in Asia.[12][13] Moreover, the European Union has proposed to ban goods made using forced labour, which is mainly aimed at Chinese products from Xinjiang.[14] Since the ban cover production, manufacture, harvest and extraction, the trade between China and European Union will not remain smooth and normal.[15]        

Several European countries including Estonia, Latvia, Lithuania, Slovakia, and the Czech Republic have risked their trade with China as they decided to openly stand with Taiwan amid Beijing threatening to annex the self-ruled island with the use of military force. EU has already passed a resolution slamming China for flaring up conflicts in the Taiwan Strait and the South China Sea. It said that it was convinced that China’s“ provocative actions against Taiwan and in the South China Sea must have consequences for EU-China relations.” Thus, the differences over economic and political issues appear to deteriorate Europe-China relations further.

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