It’s a make-or-break moment for China’s relationship with the European Union, as the bloc’s trade chief calls on Beijing for more openness and honesty.
“We are at a crossroads. We can choose a path towards mutually beneficial relationships. A path based on open, fair trade and investment, working hand in hand on the great challenges of our time,” says Valdis Dombrovskis, executive vice president of The European Commission said this on Monday at Tsinghua University in Beijing.
“Or we can choose a path that slowly drives us apart. Where the shared benefits we have enjoyed over the decades weaken and fade away. And as a result, our people and economies face reduced opportunities,” he added.
This is one of the strongest statements from European officials and follows data showing that the EU will have a trade deficit of almost 400 billion euros with China in 2022.
“Last year, the EU registered a record amount of bilateral trade with China of 865 billion euros ($921 billion). But this is very unbalanced, because the EU has a trade deficit of almost 400 billion euros,” Dombrovskis said before an audience in Shanghai on Saturday. where he started his four-day trip to China late last week.
The visit, which has been in the works for some time, coincidentally came less than two weeks after the European Commission, the EU’s executive branch, opened an investigation into Chinese subsidies to electric car makers.
While the EU claims that Chinese support for electric vehicles is causing disruptions in the European market, Beijing authorities criticize what they describe as “protectionist” positions from Brussels.
Dombrovskis is using the trip to explain to his Chinese counterparts that the investigation aims to create fairer trade practices, and that the EU has no intention of cutting ties with Beijing.
In recent months, the EU has placed increasing emphasis on the idea of de-risking China – a concept that seeks to bridge the gap between a more aggressive decoupling from the US and the EU’s recognition that China is a crucial trading partner.
“Reducing the risks. This means minimizing our strategic dependencies for a select number of strategic products. Act in a proportionate and targeted manner to preserve our open strategic autonomy,” Dombrovskis clarified in a speech in Shanghai.
Reduce risk, don’t disconnect
European officials have emphasized that they have no plan to decouple from China and have tried to influence the United States to take the same approach.
In a joint statement from the Group of Seven, the world’s seven largest economies, the US agreed on the need to reduce risks from Beijing.
“It looks more like China is decoupling from Europe, and Europe is becoming more and more dependent on China,” Jens Eskelund, president of the European Union Chamber of Commerce in China, told CNBC’s “Asia Squawk Box” on Monday.
“If you look at the facts, at the numbers, it looks like the decoupling is going the other way,” he said, noting that China has “been engaged in reducing risks for decades.”
One of the areas where the EU is looking to reduce risks is the electric vehicle sector, after the share of such Chinese-made cars sold in Europe rose to 8% this year. European officials have said this share could reach 15% by 2025.
Developments in the EV market are particularly important in the run-up to a European deadline to end sales of new diesel and petrol cars by 2035.
Eskelund also said European carmakers are setting up factories and have up to 95% of their entire manufacturing value chain in China.
“They’re creating jobs, they’re paying taxes in China,” he said, adding: “What we’re looking at now is… 100% imports from China. [coming] into Europe.”
When asked about possible retaliation from China over the investigation, Eskelund claimed that both Europe and Beijing have “very deep interests” in trying to resolve the matter before it reaches a point where punitive tariffs are imposed.
“The two sides need to sit down and have a mature conversation about what some of the barriers are,” he said.
— CNBC’s Lee Ying Shan contributed to this report