Ladies and gentlemen,
Getting China right has never been more important than today. And I am especially grateful for your invitation at the third European China Conference. The ECFR has not only analysed but shaped European foreign policy for over fifteen years. MERICS is one the most authoritative sources of expertise on China. And you have put together an amazing programme, where rigorous research meets policy making. You will analyse China’s position on issues of core European interest – from the race for leadership in the clean transition to the conflicts in our region. You will look at the Chinese Communist Party’s steer on the economy, but also, and crucially, at what happens below the surface, within the Chinese society.
And all of this is particularly important today. China is not the same country as ten years ago. Its economy, its policies and its global footprint have changed. So, getting China right requires first and foremost that we get the facts right. This is why we are investing more and more in our knowledge of China, not only with our Horizon Europe research programme, but also by hiring more China experts within the European institutions. Additionally, we set up a China fellows program in our inhouse think-tank. Because there can only be dialogue if we understand each other.
Our relationship with China is a determining factor, for our future economic prosperity and national security. With two wars raging just outside our Union’s borders – in Ukraine and Gaza. And with an uncertain economic outlook. In these turbulent times, there is strong need for strategic stability in how we deal with China. And for this, we must be honest in assessing how China is evolving. Let me start by looking at China’s economic posture, before I move to its diplomatic and military posture.
China’s economic trajectory is changing profoundly. The country is heading into a period of slower growth. And economic imbalances in China matter tremendously to us today. In 2022, China’s trade surplus with the EU was the highest in history, just below 400 billion euros. Its current global trade surplus is the largest that any country has ever had in history. And this is the intentional result of China’s policies. China’s industrial policy today is not only creating much more competitive industrial players.
Overcapacities in protected industries are flooding global markets and can undermine our industrial base. The paradigms of “self-reliance” and “civil-military integration” have substantial spill-overs for the world. In parallel, China has become less welcoming of foreign businesses. Many European companies in China feel this new climate. 30% of them report a year-on-year revenue decrease. Almost two-thirds expect that their difficulties will increase in the next year. More and more, the imperative for security and control on the economy trumps the logic of free markets and open trade.
These domestic trends in China are coupled with a more assertive posture abroad, including here in Europe. China has increasingly resorted to trade coercion, boycotts of European goods, and export controls on critical raw materials. Just think about the recent preparation of potential export restrictions on gallium and germanium, which are essential for goods like semiconductors and solar panels. This shows that while we do not want to decouple from China, we do need to de-risk parts of our relationship. And we are building our de-risking strategy upon three pillars. First, defence of our legitimate economic interests. Second, dialogue to address our differences. And third, diversification with our partners.
On the defence of our interests, our work begins right here at home. European industries and tech companies like global competition. They know that it is good for business. It creates good jobs here in Europe. And we are working to strengthen our own competitiveness. Competition is an invitation to sharpen our saw. It should bring out the best in us. But competition is only true as long as it is fair. And today, there are great concerns about fairness and security vulnerabilities in the clean tech sector, including for example EVs. There is clear overcapacity in China, and this overcapacity will be exported. Especially if overcapacity is driven by direct and indirect subsidies. This will worsen as China’s economy slows down, and its domestic demand does not pick up. This distorts our market. And as we do not accept distortion from the inside, we should not accept it from the outside either. This is why we have launched the anti-subsidy investigation on Chinese EVs. Europe is open for competition. Not for a race to the bottom.
But while we protect our interests, we are also ready and willing to address our disagreements through dialogue. This is my second point. Our goal is to achieve a level playing field in our trade relationship with China. And this will be at the centre of our Summit with China in early December. We will go to China in good faith. We will never be shy in raising our concerns. But we must leave space for a discussion on a more ambitious relationship that benefits both of sides. And we will keep engaging with China on how we can make competition fairer and more disciplined. The story of how we relate to China is not yet fully written. Nothing is predetermined, we have agency and China is capable of change. We expect action from China to deal with the current imbalances and I am convinced that this would also be in China’s long-term interest.
The third point on de-risking is diversification. Just as companies diversify, countries need to diversify too. This is central to Global Gateway, our new way to partner with third countries abroad. Global Gateway is not only about making our own supply chains more resilient. It is also investing in local value chains in our partner countries, local processing capacities for raw materials, and in skills for the local workforce. We are finally making use of our massive economic assets in a much more strategic way. We are being more geopolitical in how we build our economic partnerships. Because geopolitics and geoeconomics cannot be seen as separate anymore.
This leads me to my next point, on China’s diplomatic and military posture. China pursues a global order that is sino-centric and hierarchical. It pushes an agenda that downplays universal rules, while championing the primacy of national interests. And this is opposed to our own interests and values. We must recognise that there is an explicit element of rivalry in our relationship. But this rivalry does not have to be hostile. It can be constructive. So, we must be balanced and strategic in our response.
Cooperation with China on global issues is possible and is happening. Think about climate change. Our economies are at very different stages on the path towards zero emissions. But both China and Europe agree on the need for global action against climate change. China is introducing a nation-wide Emissions Trading System. And we have worked together on a number of important deals, for instance the historic Global Biodiversity agreement. There is room to define together common rules and solutions to challenges we all share.
But we must also recognise that China’s views on the “global security architecture” are not by default aligned with ours. This is clear when we look at the situation in the Indo-Pacific. China’s assertive posture in Taiwan, the South and East China Seas affects not only our partners, such as the Philippines, but our own global interests. Our own supply chains and trade routes are at stake. And we have to be very frank on this, as a foundation for a constructive relationship.
The same is true beyond the Indo-Pacific. Different regional theatres are increasingly linked. China states that it is always impartial and favours peaceful solutions, for instance in the Middle East. So, every measure of influence that Beijing has needs to be used to prevent further escalation, and to work on the day-after. China clearly aspires to playing more of a global role. And this new role should come with more responsibility, not less, for global peace and security.
The same is true on Russia’s war of aggression against Ukraine. China is a permanent member of the UN Security Council. This comes along with a special responsibility. China says it upholds the UN Charter. But it does not distance itself from Russia’s war of aggression. So how do we respond to that? I believe that the way forward is to keep engaging with Beijing, so that its support to Russia remains as limited as possible. We must make clear that the way China positions itself on Russia’s war will define our mutual relationship for the years to come.
Ladies and gentlemen,
China’s ability to influence the world – for good or for ill – has grown exponentially in the last ten years, since President Xi rose to power and since Merics was created. We cannot look at China only as a trading partner, or an industrial powerhouse. But also as a technological competitor, a military power, a global player with a distinct and diverging idea of the global order. So, if we want to get China right, we must be able to understand it in all its complexity and intricacy. We must make sense of China’s ongoing transformations, if we are to achieve strategic stability in our relationship. And for this, we need you. We need your in-depth analysis of a changing reality. And constant exchange between the experts’ community and policy-makers. The future of Europe’s relationship with China is yet to be written. And we can only write it together with you.
Thank you again for having me, and let me wish you all a great European China Conference.
Read the speech in French here.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.