Behind the buzzwords: What China’s priorities mean for Europe

With the National People’s Congress (NPC) wrapping up in mid-March, Xi Jinping and his acolytes have officially embarked on a new five-year governance mission. Having secured his position as both secretary general of the Chinese Communist Party (CCP) and the country’s top leader for the third time, Xi might have just reached the peak of his power. But unprecedented challenges are mounting in front of him, with a slowing economy, an ageing population, and the international environment changing to China’s detriment. As cracks emerge yet again in European unity on China, European countries and companies need to understand the important role they play in this new context to avoid playing into Beijing’s hands and to rebalance their position towards China.

Xi’s overarching goal is to maintain the CCP’s rule and legitimacy, which for many decades has been grounded in the party’s ability to deliver fast economic growth. With its export-oriented model and ability to attract foreign investment, combined with the West’s desire to engage with Beijing, China has been one of the biggest beneficiaries of economic globalisation. Over the past decade, however, the Chinese leadership has realised that both systemically and politically this model might not be sustainable in the long run, as the weaponisation of trade, development of cutting-edge technologies, and emergence of new hybrid threats reframe the rules of the game in the international arena.

Beijing has therefore begun to move towards a new economic model that nurtures the domestic market and higher value-added industries, such as high tech and innovations, to make China’s economy more self-reliant and competitive. This has been evident in strategies such as Made in China 2025, China Standards 2035, as well as Beijing’s “dual circulation strategy”, which combines domestic strengthening with selective cooperation with foreign companies and markets. Xi’s next five years will be all about gradual implementation of both the existing and new policies, aiming to achieve high-quality development coupled with ongoing securitisation of both economic and socio-political life. In the context of growing Sino-American tensions, the covid-19 pandemic, and the war in Ukraine, Xi has accentuated the theme of securitisation on many occasions, stating in his speech at the NPC that “security is the foundation of development and stability is the prerequisite for prosperity”. Xi has adopted a well-known term from the CCP rhetoric to describe this effort: ‘seeking progress in stability’.

Through this economic model for growth, Xi also hopes to put some of China’s domestic troubles to rest – and by doing so maintain the CCP’s legitimacy. ‘Common prosperity’ is an umbrella term for the CCP, the precise content of which has changed under consecutive leaders. At the NPC, Xi explained that achieving common prosperity would mean “putting the people first” by cracking down on corruption, ensuring more equal income distribution, perfecting the social security system, and enhancing public services. He also aligned it with his plans to carry out “self-reform” or ‘self-revolution’ of the party – a process  which allegedly aims to uphold the unity of the party leadership, and a euphemism for the ongoing crackdown on Xi’s opponents.

China’s plans for achieving common prosperity are also designed to reassure the private sector amid Beijing’s regulatory crackdown on tech giants and some other sectors. Li Qiang, China’s new prime minister, recently explained that “private enterprises will enjoy a better environment and broader space for development” and stressed that “government officials at all levels must sincerely care for and support the development of private enterprises”. With many investors increasingly sceptical about the long-term attractiveness of the Chinese market, Li’s remarks addressed both domestic entrepreneurs and foreign ones.

Beijing knows that its efforts to create a new development paradigm still depend largely on China’s ability to maintain economic ties with the outside world. Although the long-term goal is to make China more self-reliant, this cannot be achieved overnight. From this perspective, Xi’s policies will also endorse the idea of “high-standard opening up”. Under this banner, China claims to be willing to ease market access and reduce risks associated with foreign investment by, for example, cutting items on the so-called negative lists for market access that limit or prohibit foreign investment. Moreover, by attracting foreign investment in strategically important sectors, China’s top leadership wants to narrow the technological gap between itself and other advanced economies, most notably the United States.

The narrative of high-standard opening up will likely form the basis of Beijing’s continued efforts to reassure its international partners in the West, especially in Europe, that despite political differences, pragmatic cooperation with China is still feasible. Beijing will try to convince international audiences that US-led decoupling endangers stability. Along these lines, China will exploit any signs of the lack of unity within the European Union to attempt to drive a wedge between the continent and the US. French President Emmanuel Macron’s recent trip to China and the way Beijing has handled it diplomatically serve as a case in point. Xi rolled out a red carpet in front of Macron, presenting him as the most influential ‘voice of reason’ in Europe and a true European leader, not afraid of ‘standing up’ to the US. Macron’s remarks about Europe needing to resist pressure to become “America’s followers” echo a widespread argument in the Chinese state-affiliated media that EU “independence” from the US is key to the long-term stability of China-EU ties. Beijing will likely continue to appeal to the individual political preferences of the most powerful European leaders, such as Macron’s idea of Europe’s “strategic autonomy”.

The new economic context will also put large businesses in a tricky position. In its relations with China, the EU is advocating ‘de-risking’, whereby it plans to limit its reliance on China in strategic sectors  to maintain the European market’s resilience and competitiveness. Many European firms, especially from bigger member states, might feel tempted to accommodate to China’s demands instead of bearing some of the costs associated with the EU’s de-risking agenda – primarily the relocation of production from China to other countries. Beijing will also try to exploit this by encouraging foreign firms to align their operations and standards with the Chinese market, which would complement Xi’s dual circulation strategy. This might also be tempting for European firms, which would be more protected from external in the event of a serious political crisis between China and the EU if they are only catering to the Chinese market.

Xi’s remarks at the NPC confirm that the CCP knows that China cannot develop in isolation from the outside world, yet its modernisation has not and will never equal Westernisation. By pursuing this economic model, Xi will attempt to shield China from external shocks while preventing social, economic, and political crises at home. European countries and the EU will remain crucial partners for Xi’s China, but the more disunited the continent is, the better for Beijing. From this perspective, the task of rebalancing the EU’s position towards China to better reflect Xi’s revisionism and the challenges it presents seems both more pressing and more difficult to achieve.