EU chief urges caution in tech trade with China: ‘It is neither viable nor sustainable…’

The European Commission’s head, Ursula von der Leyen, warned of China’s toughening strategy but urged risk reduction and communication.

Ursula von der Leyen of the European Union warned of a deliberate toughening in China’s strategy, with a new era of security and control, but urged the bloc to respond by working to reduce risks rather than decoupling from the Asian nation.

Despite US pressure for a tougher EU stance on China, the head of the European Commission, the bloc’s executive, argued for “diplomatic stability and open communication lines with China” in a speech in Brussels.

“I believe that decoupling from China is neither viable nor in Europe’s interest,” von der Leyen said on Thursday. “Our relationships are not black and white, and neither should our responses be.” This is why we must prioritize de-risking over decoupling.”

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European leaders are attempting to fine-tune their relationship with China as it becomes a more difficult interlocutor, owing in part to Xi’s close ties to Russian President Vladimir Putin. Von der Leyen stated that China’s position on Russia’s invasion of Ukraine will be “decisive” in EU-China relations.

According to EU trade data, China is Europe’s second-largest trade and investment partner, with the two economies exchanging €795 billion ($863 billion) in goods and services in 2021. Europe imports more goods from China than any other country, and China’s massive 1.4 billion consumer market remains an important destination for European auto, pharmaceutical, and machinery exports.

Von der Leyen’s speech comes ahead of her trip to China with French President Emmanuel Macron next week, during which both leaders will meet with Xi. Their visit comes after the visit of Spanish Prime Minister Pedro Sanchez and German Chancellor Olaf Scholz in November.

According to von der Leyen, Chinese President Xi Jinping “essentially wants China to become the world’s most powerful nation.” “For some time, we have seen a very deliberate hardening of China’s overall strategic posture.” And it has now been matched by an escalation of assertive actions.”

Investment Management

Von der Leyen stated that the EU is preparing plans, including the creation of a new instrument to control European investments abroad in critical sectors, in order to strengthen its toolbox in dealing with China.

“We must ensure that the capital, expertise, and knowledge of our companies are not used to strengthen the military and intelligence capabilities of those who are also systemic rivals,” von der Leyen said.

Her commission, she added, is working on a targeted outbound investment instrument that would focus on a small number of sensitive technologies where investment leakage could jeopardize national security. The plan will be included in a new Economic Security Strategy that will be released later this year.

The proposal comes as European capitals become increasingly concerned about China’s expansionary ambitions in areas such as trade, technology, and foreign relations.

Von der Leyen wishes to reduce risks in critical areas such as the economy and trade, but he also wishes to collaborate on climate, health, and biodiversity.

However, some countries, including France, the Netherlands, and Lithuania, want to not only de-risk the relationship but also decouple from China, according to people familiar with the situation. According to the people who spoke on the condition of anonymity because the discussions are private, The Hague is one of the capitals in support of the proposal for outbound investment screening.

Xi used two days of talks earlier this month in Moscow to firmly align with Russia against the US. Xi’s visit to Russia, his first since Putin invaded Ukraine just over a year ago, was a political coup for both leaders. Xi saw an opportunity to counter-punch the US and bolster his image as a global statesman, while Putin could demonstrate he has the backing of one of the world’s most powerful leaders even as the US and its allies try to isolate him.