This is part of our special feature, Thinking Eurasia Now.
If we conceive of Eurasia as the largest continental area comprising all of Europe and Asia, the EU and China are located at its opposite ends. These ends were in the past connected through the Ancient Silk Road—a 4,000 miles long transportation route connecting ancient China with Western Europe. Chang’an (today’s Xi’an) was the eastern terminus of the route, while the western endpoint was in Daqin, the Chinese name for the Roman Empire. This original Silk Road declined at the end of the fifteenth century but was revived to take on its modern form in 2013 by Chinese leader Xi Jinping. Called the “One Belt One Road” and later the “Belt and Road Initiative” (BRI), the initiative was followed in 2015 by the launch of the “Made in China 2025” (MiC 2025) strategy. The BRI is a program of connectivity spanning across over 146 countries; it includes two facets: the overland Silk Road Economic Belt and the Maritime Silk Road. It has aimed to enhance trade between countries and regions and allow China to use its excessive production capacity, invest overseas, and better secure its supply of energy. MiC 2025 is a state-led industrial policy that aims to make China a self-sufficient leader in global high-tech manufacturing by replacing the use of foreign technology with that of innovations developed in China, thus rendering Chinese companies more competitive in global markets.
The BRI and MiC 2025 are emblematic of China’s rise and have placed Europe in the middle of a geopolitical confrontation between China and the US. Indeed, these initiatives have challenged the US (Allison 2017) with the rivalry intensifying in 2018 under former US President Donald Trump when the US-China tech trade war became a defining feature of international relations (Zhang and Pu 2019). This environment narrowed the possibilities for the EU to develop policy responses (Korolev 2019) and pushed the EU to seek its own strategic autonomy, defined as “a third way” (Romanyshyn 2021). The strategic implications of BRI and MiC 2025 on the US-EU-China economic relationship and Eurasia have been numerous. In this article, I argue that over the past decade Eurasia has become strategically more important than it was before, as it has emerged as a geo-economic space that neutralizes economic security norms between the US and China. These norms include standards, practices and regulations by which states abide in their economic interactions.
Background: the EU-China economic relationship
China has become the EU’s fastest growing export market. Since the 2000s, China’s expanding middle class has benefited many Western European companies in sectors such as the automobile and luxury goods industry. However, the BRI and MiC 2025 have directly brought China into the European economy, as illustrated by a peak in Chinese foreign direct investments (FDIs) in Europe in 2016 (42 billion dollars, compared to 23 billion dollars in 2015). These FDIs have made the geographical distance between the two extremities of Eurasia less relevant and presented new challenges for Europe. China has presented the BRI as mutually beneficial; however, European policy makers and business representatives have been skeptical, for example about the Chinese taking ownership of European ports. The question of security threats was also posed.
Between 2013 and 2015, European political and business leaders reacted positively to the BRI and MiC 2025, seeing those initiatives as opportunities for European companies. However, this perception changed and the initial enthusiasm was replaced by disillusion and promise fatigue across the EU, as only a small number of European firms were able to participate in BRI-related projects and the initiative had not become sufficiently open and transparent (European Union Chamber of Commerce in China 2020; Lau 2021). A major turning point happened in 2016 when the major German robot maker SME Kuka was acquired by the private Chinese manufacturer of household appliances Midea for 5.2 billion US dollars. Owing to the leading role of Kuka in Industry 4.0 applications,[1] the German government tried to intervene in June 2016 and create a German business alternative to the Kuka acquisition bid. However, Midea was able to offer a strong package “adding long-term job guarantees in Germany to the promise of new opportunities in the thriving Chinese robotics market” (Huotari 2017, 65). Additionally, the German government did not have legal means to block the takeover; at that time, it could only block acquisitions if they jeopardized energy security, defense, or financial stability (Sheahan and Copley 2016). Kuka was considered to be a “crown jewel” of German industry; hence, when Midea purchased Kuka “some people said this is really strategic, and we lost something which was very important to us” (Anonymous senior scholar, Interview with the author, August 24, 2021). Kuka’s takeover had a transformative effect in the way European business elites viewed China. Many of them became aware that trusting China as a partner came with risks many did not realize existed before the takeover. Therefore, since 2016, European political and business elites have been increasingly concerned about the lack of reciprocity, unfair practices, the unleveled playing field, and the potential loss of technological know-how in its relation with China.
This new negative perception of China culminated in 2019 when the European Commission and the High Representative for the Union for Foreign Affairs and Security Policy, in their strategic outlook, mentioned China as a “partner” but also as “an economic competitor in the pursuit of technological leadership,” and “a systemic rival promoting alternative models of governance” (European Commission 2019, 1). “Competitor” implies the fact that China rose from low to high-tech manufacturing very quickly and thus started competing in industries where many European companies are strong. “Systemic rival” refers to China’s state-led economy’s underlying unfair practices. The new tripartite characterization of China as a partner, competitor, and systemic rival underscores both continuity and change in the EU-China relationship. Economic engagement has remained central to that relation, which the EU has sought to make more balanced, as highlighted by the three priorities included in the strategic paper. These priorities aim to:
(1) deepen the engagement of the EU with China to promote common interests at the global level;
(2) create more balanced and reciprocal conditions to govern the economic relationship; and
(3) adapt policies internally to maintain prosperity, values, and social models (European Commission 2019).
At the same time, the competitive dimension of the EU-China economic relationship has been premised upon the fear that China may gain excessive leverage and erode the EU’s cohesion (Reuters 2021);[2] and concerns have emerged about the possibility that Chinese FDIs made under the MiC 2025 initiative may be used to control key European companies in key industries, which would allow China to eventually outcompete European high-tech manufacturing producers in their areas of strength. Furthermore, the use of the term “systemic rival” in the EU’s 2019 strategic outlook marks a stern change in tone and clearly reflects a perception of risks and growing distrust vis-à-vis China. This perception has been boosted by China’s increasingly assertive foreign policy—especially in the South China Sea—and its breaches of international legal commitments and violations of human rights in Hong Kong and Xinjiang.
China’s rise—especially its investment strategies under the BRI and MiC 2025 strategy—combined with a lack of economic reciprocity and the 2016 spike in Chinese FDI in Europe’s strategic sectors have contributed to a shift in Europe’s perception of China’s state-led economy and have led Europeans to identify potential risks posed by China to the EU economy. The 2019 strategic outlook recognizes these risks in stating that the balance of risks and opportunities has shifted (European Commission 2019). In consequence, the EU has begun recalibrating its economic engagement with China and developing a toolbox of hedging tools to maximize opportunities and minimize risks.
European hedging tools
In the face of the rise of China, the EU’s defensive approach has contrasted with the US’s confrontational approach (UCL European Institute 2020). In the US Trump’s policy of confrontation and decoupling from China was not effective, although Trump might have rightfully identified many factors Europeans also disapproved of in their relationship with China. However, his policy objectives about reducing China’s influence have not been fulfilled. The EU has faced difficulties in redesigning its approach to the emergence of China as a global economic actor and in particular in relating to a partner that is both a competitor and a systemic rival (European Commission 2019). According to the EU 2019 strategic outlook, China “requires a flexible and pragmatic whole-of-EU approach enabling a principled defense of interests and values” (European Commission 2019, 1). However, this approach has resulted in hedging, which is defined by Cheng-Chwee Kuik (2008, 2016) as a two-pronged approach that entails a simultaneous adoption of returns-maximizing and risk-contingency policy options. These policies are deliberately contradictory and mutually counteracting in nature to maximize rewards and at the same time offset risks (Kuik 2008, 2016). The EU’s economic hedging vis-à-vis a rising China has thus consisted of both cooperative economic policies (economic pragmatism and binding engagement to maximize returns) and assertive economic policies (internal and external economic balancing to mitigate risks).
In its relation with China, the EU has practiced economic pragmatism by promoting trade and investment flows, which have led to mutual dependencies between the two partners. These dependencies have raised the stakes for both parties, bringing them to favor a stable economic exchange. Between 2000 and 2019, the volume of trade between the EU and China expanded almost eightfold to 633 billion US dollars (Zenglein 2020). In 2020, the EU imported 468 billion US dollars worth of goods from China—more than from any other country—and exported 230 billion US dollars worth of goods to China (Fuest 2021). Moreover, in 2021 and 2022, China was the third destination for EU exports of goods (10.2 percent and 9 percent respectively) and the first importer of goods to the EU (22.4 percent and 20.8 percent respectively) (Eurostat 2023). Additionally, EU institutions have planned to double their investment in connectivity cooperation with China, with the launch of a 2 million US dollar study of rail transport corridors between Europe and China (Barkin 2021).
The EU has used binding engagement as another component of its hedging strategy vis-à-vis China to maximize economic opportunities offered by China’s rise. By creating communication avenues and agreements, direct engagement has resulted in a network of platforms allowing the EU and China to dialogue, which has facilitated cooperation, the discussion of issues, and the shaping of China’s policy choices. The most important mechanisms of binding engagement have included the EU–China 2020 Strategic Agenda for Cooperation, the EU–China Summit and Leaders’ Meeting, the EU–China High-Level Trade and Economic Dialogue, the EU-China Connectivity Platform, and a proposal for a Comprehensive Agreement on Investment (CAI). The CAI aimed to modernize and replace bilateral investment treaties concluded by individual EU member states with China with a single, uniform legal framework for EU-China investment relations to render economic relations with China more predictable. However, this binding engagement was frozen in 2021 when the EU used retaliatory sanctions against China for its treatment of the Uyghur population in the Xinjiang province.
To remedy the asymmetric openness of China and mitigate risks stemming from economic engagement with China, the EU has developed a web of economic defense instruments comprised of investment and trade defense measures, the first of which has been a screening mechanism for incoming FDI on grounds of national security and public order.[3] In 2017, France, Germany, and Italy jointly proposed a mechanism to that effect that was entered into force in 2019. Other recent or developing tools have included a 5G security toolbox, a white paper on foreign subsidies, an anti-coercion instrument, export control regulations, a plan for a supply chain law, the Chips Act (aiming to strengthen Europe’s competitiveness and resilience in semiconductor technologies and applications), and an international procurement instrument. Most of these regulatory instruments were adopted or proposed after 2019 and resulted in internal economic balancing.
The EU has also passed external measures as part of its economic balancing strategy, which has been conducted toward China through transatlantic cooperation. EU and US policies vis-à-vis China started increasingly converging after the Biden administration took office, especially in the framework of the US-EU Dialogue on China and the EU-US Summit. Specifically, new structures were created, such as the EU-US Trade and Technology Council, which has prioritized the security and resilience of supply chains, in particular for semiconductors (Arcesati and Stec 2021). The EU has also engaged with other like-minded partners to balance the influence of China in the global economy. For instance, in 2021 the EU launched a program of collaboration on sustainable connectivity with India; this program follows a format similar to that of the 2019 Partnership on Sustainable Connectivity and Quality Infrastructure signed between the EU and Japan and provides an alternative model of governance to China’s BRI. In addition, the EU has decided to revamp its own connectivity strategy, renamed “Global Gateway,” to “create links, not dependencies” (European Commission 2021). Similarly, the G7 leaders at the 2021 summit launched a new global infrastructure initiative—the Build Back Better World—to address strategic challenges brought about by China’s BRI (The White House 2021).
Eurasia as a space for “norm neutralization”
As a result of its new foreign economic policy strategy, Europe finds itself in a dual position abiding with values that are closer to those of the US and seeking economic benefits from its relationship with China (Li 2021). This ambiguity makes it difficult for the EU to balance the impact of China’s strengthening. The EU wants to keep options open while preserving its strategic autonomy, which has resulted in the neutralization of norms. This “norm neutralization” aims at finding a way to compromise with both the US and China. In practice, the EU has adapted its economic policies to promote gains, prevent losses, and accommodate both the US and China rather that antagonize them. While the new regulations have mainly targeted Chinese firms, most of them have constituted indirect measures applicable to all foreign investors, as to avoid Lex Sinica, which describes laws that would be only applicable to China and Chinese businesses. Such measures have allowed the EU to engage with China in a critical yet measured way while remaining within the scope of the EU norms and practices.
In addition, individual EU member states have been hedging between China and the US. For instance, in 2019 Italy signed a BRI Memorandum of Understanding (MoU) with China, despite strong opposition from the US. However, the MoU did not follow the Chinese template and instead included Western principles and standards, which sent a positive signal to the US without alienating China. China nonetheless accepted the new draft because signing a BRI MoU with a G7 country represented a significant political gain. Both Germany and Italy also experienced pressure from the US to exclude Huawei from their 5G networks; instead, they tightened their regulations to make it more difficult for all Chinese vendors to participate in 5G networks. As such, they did not impose a blanket ban on Huawei and retained authority on the implementation of the legislation. By doing so, they met US demand without jeopardizing their economic relationship with China.
Consequently, European countries have used hedging to deal with the rise of China as an economic actor within the constraints of a major power competition. The EU does not want to lose China as a trading partner or investor (Ferguson 2019; European Commission 2012) and therefore has not chosen to solely push back against China using only assertive measures. In order to retain its autonomy, the EU has also not resorted to bandwagoning with China (Wang 2021) but used economic hedging to develop the necessary tools and flexibility to keep options open and oscillate between a transatlantic and a Eurasian approach to its relations with China.
Europe: an “appendage of Eurasia”?
In 2018, Henry Kissinger stated that conflictual transatlantic relations would turn Europe into “an appendage of Eurasia” at the mercy of China (Rough 2021). I suggest that the US has actually helped Europe in its relation with China, preventing Europe from becoming tied by a Eurasian or transatlantic understanding. The concept of Eurasia could thus be understood as a “norm neutralizer,” as it makes it possible for Europe to answer the demands made by the US and China. Europe has rebalanced its economic engagement with China and has cooperated or pushed back when necessary through its hedging strategy. In terms of economic policies, this strategy has meant maintaining an economic engagement and at the same time trying to gain concessions from China on market access. The EU has also sought to protect the integrity and strength of the single market by addressing trade and investment risks and cooperating with other partners.
Some obstacles must be overcome to make the EU’s strategy toward China sustainable. The EU must speak with one voice in its relationship with China, which has been a key challenge. Furthermore, there has often been a disconnect between what policymakers deem necessary (i.e., human rights and environmental standards) and what is feasible for companies. A recent example is the EU’s new supply chain law that caused discontent among Austrian industry associations, which claim that it is not possible for businesses to supervise the entire supply chain. The EU’s anti-coercion law may also create problems. Indeed, this instrument will be proposed by the European Commission but must be finally accepted by the member states, which may result in internal divisions (Duchâtel 2022). Therefore, European economic hedging may not be sustainable in the long term. However, it shows that critically engaging with China is possible without direct confrontation. Both a frank dialogue highlighting and expanding areas of agreement and cooperation and the admission of areas of disagreement and suspicion are necessary to maintain a healthy and fair competition with China, which will lead to progress. In contrast, binary thinking and polarization is detrimental because it may lead to uncontrolled competition between the major powers. Research on perception and misperception (Jervis 1976) and on the political psychology of biases and heuristics offer useful guidance in the understanding of the mental framework of the various actors. This research can help better identify red flags and real threats, distinguish different risks and opportunities, and lead to more effective negotiations. As David O’Sullivan put it: “The only thing we should worry about besides a successful China is a non-successful China” (UCL European Institute 2020).
Finally, it is also important for Europe to actively involve itself, connect, and cooperate with other countries in Eurasia, in particular in Southeast Asia, which has a long experience in its relation with China and can offer valuable insights and alternatives. The EU recently started engaging with this region in an attempt to diversify and de-risk its exposure, for example to limit its reliance on China for critical raw materials necessary for electric car batteries. The same focus should be placed on people-to-people connectivity to promote networks of friendships with the Eurasian sphere and minimize polarization.
Barbora Valockova is a PhD candidate in public policy and global affairs at Nanyang Technological University in Singapore. Her research focuses on norm diffusion in EU-China and EU-ASEAN relations and on behavioral approaches to foreign policy analysis.
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[1] Industry 4.0 strategy “aims to ensure an industry fit for future manufacturing in Germany. It supports the integration of cyber physical systems and Internet of Things and Services with an eye to enhance productivity, efficiency and flexibility of production processes and thus economic growth.” (European Commission 2017, 3).
[2] For instance, in 2021, Hungary blocked an EU statement criticising China’s new security law in Hong Kong.
[3] Recent works have theorized FDI screening mechanisms and state intervention into cross-border mergers and acquisitions as a form of non-military internal balancing. See for instance, Lenihan, Ashley T. 2018. “A theory of non-military internal balancing.” In Balancing power without weapons: State intervention into cross-border mergers and acquisitions, 31-69. Cambridge: Cambridge University Press; Chan, Zenobia T., and Meunier, Sophie. 2022. “Behind the screen: Understanding national support for a foreign investment screening mechanism in the European Union.” The Review of International Organizations 17: 513–541.
Image: Shutterstock | “Golden Bridge on Silk Road” sculpture on display at the Olympic Green ahead of the upcoming Belt and Road Forum for International Cooperation.
Published on September 12, 2023.
