Compelled to take a side in the US-China faceoff, its own unity in disarray, Europe is at a crossroad. Can it chart a safe route out of the gathering storm?
Dragon’s Shadow over Europe
Ancient China called itself ' the Middle Kingdom’ as it considered itself as the centre of the cosmos, the kingdom which was at the heart of heaven and earth. In 2013, on becoming the General Secretary of the CCP, Xi Jinping launched the “national rejuvenation” to regain its lost heritage. Today, it is in competition with the United States to become the largest economy on the globe and is poised to replace ‘Pax Americana’ with ‘Pax Sinica.’
China leveraged its membership of multilateral institutions like the World Trade Organisation (WTO) to gain access to markets with reduced tariffs without complying with (Intellectual Property Right) IPR rules. The European Union’s economic openness made it attractive for large Chinese investments, giving China entry into the global hi-tech market Europe, which felt trapped between the insular Trump Administration and an aggressive Putin, and leaned towards China which projected itself as a reliable, rational and durable business partner.
In 2013, the Chinese launched the Belt and Road Initiative (BRI). It is a common perception that the BRI is focussed on Asian and African participants. In fact, the erstwhile communist states of Central and Eastern Europe (CEE) form a significant bloc in the BRI. The Chinese formed the “16 (CEE) + 1 (China),” which with the addition of Greece, has now become "17+1." Out of these 17 countries, 12 are EU members, and four are potential candidates for EU membership. China is deeply involved with these countries to work out a framework for cooperation which excludes the major European players.
Europe is increasingly opening itself to substantial dependency upon China for its trade. Chinese investments in the European Union in 2016 had reached a record high of 35 billion euros from 700 million euros in 2008.
Beijing has shares in European airports as well: 9.5% in Heathrow, 49.9% in Toulouse, and 82.5% in Hahn near Frankfurt.
Britain has accepted Huawei's involvement in non-core parts of its 5G infrastructure. Countries like Portugal and Hungary have ignored the political leverage that comes with China's promises of investment, and cash-strapped Greece welcomed Chinese state-owned Costco's 67 % stake in the port of Piraeus. Italy has become the first G7 member to join China's BRI with an MOU worth 2.5 billion euros. China has also projected investments up to 7 billion euros in the Italian ports of Genoa and Trieste.
Can the West Counter China’s Rise?
The United States and Europe have many differences. However, one strategic issue that both agree on is the need to counter the rising influence of China. This was clearly enunciated in the Munich Security Conference 2020 by Austria and Norway who expressed their deep concern at China's intrusion into the economic and political fabric of Europe. Both the US and Europe agree on reducing reliance on Chinese supplied technology on the grounds of national security and commercial data safety. The EU, along with its transatlantic allies- US and Canada have lodged 21 cases against China for unfair trade practices.
Europe’s fears stem from the realisation that the opportunities presented by China have a hidden cost. History shows that using trade and commerce along the ancient silk route and the Maritime Road, ancient ‘Middle Kingdom’ leveraged trade to garner influence and later, establish its suzerainty. The European Union has acknowledged China as a systemic rival in its policy document released in March 2019.
European strategists are alarmed by the fact the Chinese state-owned enterprises (SOEs) are heavily invested on European ports, rail links and utilities, despite recently introduced controls on private capital outflows. European leaders have not taken meaningful steps to close any vulnerabilities. To this, the US Defence Secretary, Mark Esper, said that European countries have to “wake up” to Beijing’s “nefarious strategy” of taking control of sensitive emerging technologies, such as 5G.
France, the United Kingdom and Germany are leading the charge against the Chinese rise in Europe, calling for the protection of their core technologies and demanding a more stringent screening of investments.
The lack of strategy to address China's expansion into Europe is likely due to the political stagnation within these countries. China, on the other hand, is doing its best to keep European decision-making divided by pursuing regional forums like "17+.” European media calls this as “undermining European solidarity.”
China, with a consumer base of 1.4 billion, has a market which cannot be ignored. While strategic concerns may be on the rise, Europe cannot afford to shun China, given the shortage of alternatives in cost, good technology, labour, and areas like AI and 5G.
Chinese foreign investments have also declined considerably after peaking in 2016, as it is restricting private foreign investment to preserve its foreign reserves. Amidst its economic slowdown, China has directed its capital towards domestic use. The Wuhan Fever is likely to further restrict China’s overseas investments.
The former Chinese ambassador the Britain, Fu Ying, tried to assuage European fears by saying, “Do you really think the democratic system is so fragile it could be threatened by this single hi-tech company, Huawei?”
In the clash of titans, it is only the multilateral institutions that can re-establish a rule-based regime for international trade. Europe must lead the efforts to reform the World Trade Organisation.
European Union and the United States must work towards creating a standard for trade and investments as part of broader transatlantic trade negotiations. They could also work with the International Monetary Fund to achieve transparency in BRI loan terms.
China is not a direct military threat to Europe, but its investments in European infrastructure can be critical in a future confrontation. Also, Europe's NATO commitments will make it binding on its European members to ally the US in any future US-China shooting war.
In the case of the Balkans, China has become more active by capitalising on the fact that the European Union has failed to prioritise the region. If the European Union can mobilise its financial instruments swiftly and make them available to the Balkans, the latter would not need to lean on China for development.