Tensions in Sino-European relations have increased in recent years as a result of ongoing political disputes over a variety of issues and economic competition between the two sides. Hence, on 7 December 2023, the two parties convened their 24th summit in Beijing, designated the “Summit of Choices”, with the objective of deliberating on global strategic issues of mutual concern. The summit marks the first face-to-face meeting between the two parties in over four years, a period that was marked by a rapid progression of global events and transformations, including the proliferation of the Covid-19 pandemic and the Ukrainian conflict.
Contentious Issues
Many contentious issues between the two parties dominated the agenda of the 24th EU-China summit, chief among them being the ongoing trade imbalance in favor of the Chinese economy, which is the second largest globally.
Trade Imbalance: This year’s summit had a specific focus on the trade imbalance between China and the European Union (EU), which has been increasing in recent years. European Commission President Ursula von der Leyen emphasized that the EU will not accept a significant trade imbalance with China. She also expressed a preference for negotiated solutions to address this imbalance, which is currently advantageous to Beijing.
The trade deficit between China and the EU experienced a historic peak of €400 billion in favor of China, reflecting 58 percent annual growth. In 2022, European imports into China totaled €626 billion, while exports to China amounted to approximately €230.3 billion.
This deficit can be attributed to several factors, including European companies’ inability to penetrate the Chinese market, the preferential treatment given to domestic Chinese firms, surplus production capacity in China, and the majority of exports being directed towards Europe subsequent to the closure of certain markets to Chinese goods. As a consequence, European markets were inundated with Chinese electrical vehicles, solar panels, and medical devices, which impeded prospects for domestic manufacturing expansion and posed a threat to industrialization.
Ties with Russia: The long-standing ties between China and Russia have caused concerns within the EU. The EU has requested that China, being a permanent member of the United Nations Security Council, take international responsibility for putting an end to the conflict in Ukraine and has urged it not to support Russia’s attempts to bypass the sanctions imposed by Western countries.
Notably, the amount of trade between China and Russia reached $190 billion in 2022, an annual increase of 30 percent over 2021. From January to November of 2023, the trade volume increased steadily to $218.2 billion, surpassing the target to be reached by 2024.
China sold semiconductors to Russia for over $500 million in 2022 alone, an increase from the $200 million sold in 2021. Based on estimates from the Bank of Finland Institute for Emerging Economies, Beijing has become one of Russia’s leading trading partners due to the impact of the Russo-Ukrainian war and the international sanctions imposed on Russia. Beijing now accounts for 45 percent to 50 percent of Russian imports, compared to approximately 25 percent before the war began. Beyond trade and investment relations, a mutual objective between Russia and China is to challenge the dominance of the United States dollar in the global economic system through the advancement of multilateral organizations like the Shanghai Cooperation Organization and the BRICS.
Climate Change: Given China’s significant contribution to carbon dioxide emissions—which reached about 26 percent in 2022—the summit deliberated on the issue of combating climate change. China emits 12.7 billion metric tonnes of carbon dioxide annually, making it the world’s largest source of emissions. Furthermore, it failed to affix its signature to the Global Renewables and Energy Efficiency Pledge during COP28. Early in 2023, Beijing declared its intention to expedite the development of coal-fired and natural gas power plants, coinciding with an intensified emphasis on energy security prompted by electricity scarcity and the unpredictability of international fuel costs.
Human Rights: The EU, in reiterating its concerns regarding the human rights situation in China, particularly the forced labour policies, the maltreatment of human rights defenders and minority groups, and the ongoing deterioration of political and civil rights in Hong Kong, has consistently brought the human rights file into the forefront of bilateral discussions with China.
As a result of Beijing’s human rights violations against Uyghur Muslims in the Xinjiang region, located in the far northwest of the country, the EU levied sanctions against four Chinese officials on 22 March 2021. In addition, the EU has also levelled accusations against the Chinese authorities, alleging that they have engaged in genocidal acts and employed systematic methods of torture against the Muslim minority. The sanctions encompass asset freezing and the prohibition of Chinese officials from entering EU member states. In retaliation, the Chinese government resolved to sanction ten European individuals and four entities, prohibiting their entry into China, Hong Kong, and Macau and obstructing the operations of affiliated companies and institutions. The decision was based on the pretext that the entities and individuals were spreading false information regarding China’s treatment of Uyghur Muslims, which would be detrimental to China’s sovereignty and interests.
The Course of Sino-European Relations
Despite many contentious issues between China and the EU, they maintain strong economic ties, which can be explained as follows:
Trade Exchange: In 2022, China ranked as the EU’s second-largest trading partner, trailing only the United States. In 2020, Beijing managed to take the lead in trade exchanges with the EU. The combined trade volume between Europe and Beijing amounted to €856.3 billion. European exports accounted for €230.3 billion, while imports from Beijing were valued at €626 billion. This resulted in a trade imbalance of approximately €395.7 billion, as depicted in figure 1.
Figure 1: China-EU trade exchange
Source: Eurostat, China-EU international trade in goods statistics
Approximately 2.5 percent of the GDP of the Eurozone comes from trade with China. In 2022, Germany emerged as the leading exporter of goods to China, with a value of €106.9 billion, whereas the Netherlands ranked first among EU member states in terms of imports from China, with a value of €130 billion.
Machinery, automobiles, electrical equipment, and chemicals make up the bulk of EU-China trade. China continues to be a major supplier of light manufactured goods to Europe, including video game consoles, home furnishings, clothing, shoes, and textiles, whereas many EU countries export substantial amounts of agricultural goods, food, and leather to China.
Investment Relations: Europe is widely recognized as a significant recipient of Chinese foreign direct investment. Since 2000, the value of Chinese foreign direct investment has consistently increased, peaked at €73.3 billion in 2016, and then declined until 2022, when it stood at €7.9 billion, an 83 percent decrease from 2016. Additionally, the worth of Chinese acquisitions in Europe exhibited a 22 percent year-on-year decline, reaching €3.4 billion.
Chinese investments in clean energy projects are concentrated in the automotive sector, particularly in Germany, Britain, France, and Hungary. These countries accounted for the majority of Chinese acquisition and merger deals in Europe, as well as about 88 percent of direct Chinese investments in Europe.
Several factors contributed to the 2022 decline in Chinese investments in Europe, the most notable being the COVID-19 pandemic and its effects on the global economy in general and the Chinese economy in particular. In effect, Covid-19 has been a contributing factor to a reduction in Chinese cross-border mergers and acquisitions, let alone heightened geopolitical tensions (e.g., the Ukrainian conflict, which impeded the movement of foreign direct investments in Europe) and mounting apprehensions concerning the political ramifications of economic integration with China. As a result, Europe adopted a more circumspect stance towards Beijing and tightened regulations regarding the inflow of Chinese capital into its EU member states.
In an effort to restrict the flow of sensitive technological knowledge to Beijing, a minimum of ten out of sixteen investment deals executed by Chinese entities in 2022 were halted in the infrastructure, semiconductor, and technology sectors, which are all sensitive and strategic, according to a study published by the Mercator Institute for China Studies (MERICS) and the Rhodium Group.
The decline in Chinese investments in Europe can be attributed to factors pertaining to China’s internal environment, in addition to the European stance on Chinese investments. Foreign capital outflows have been subject to stricter controls by Beijing since 2016, compelling domestic firms to reinvest their funds in the domestic economy rather than in foreign firms. Meanwhile, China’s implementation of the “zero Covid-19” policy over the past three years has resulted in a decrease in foreign direct investment in other countries.
In short, the 24th China-EU Summit sought to address contentious issues and global strategic concerns of mutual interest, including the escalating trade imbalance that had been advantageous for Beijing in recent years.
