Two of Europe’s leading economies, Germany and the UK, on Thursday signalled a markedly chillier stance towards China. Together, they show the impact of China’s growing authoritarianism, its ruptured relationship with the US, its sabre-rattling towards Taiwan and European misgivings over Beijing’s close ties with Moscow.
Germany’s first ever China strategy reflects how the world has changed. China is its largest trading partner, and a crucial market for its industrial powerhouses. Yet Berlin flagged that it had decided to “de-risk” its ties, ignoring a warning by Qin Gang, China’s foreign minister, that de-risking could mean “de-opportunity, de-co-operation, destabilising and de-development”.
At the same time in Britain, a scathing parliamentary report found that London’s response to China’s “increasingly sophisticated” spying operations have been “completely inadequate”. It added that the UK was “singularly failing to deploy a ‘whole-of-government’ approach” to the problem of China.
Berlin’s adoption of a comprehensive policy shows the importance it now attaches to diversifying its supply chains and export markets away from the country, so reducing its exposure to external shocks. Its strategy aims to identify vulnerabilities, make German companies more aware of the risks of doing business in China, and make clear Berlin will not bail them out if they get into trouble. The 64-page document is worthwhile reading for those in other EU capitals. It could also point a way forward for the UK.
Both the UK and Germany are keen to maintain access to a Chinese market that is home to an estimated 550mn middle-class consumers. Their goal should be to establish what the Biden administration has called a “small yard, high fence” — tight restrictions on investment and trade in a small number of technologies linked to national security, but permitting other forms of commerce. In practice, there will be a sizeable grey area, as many technologies are dual-use. But as Janet Yellen, US Treasury secretary, told China’s premier Li Qiang last week, though the US would sometimes need to pursue targeted actions to protect national security, this should not “needlessly worsen our bilateral economic and financial relationship”.
Germany is wary of becoming overly dependent both on a Chinese supply chain of industrial components and on the Chinese market itself. The UK’s concerns are more related to espionage. The UK has begun to systematically vet Chinese inward investment deals under the 2021 National Security and Investment Act. Last year, it used its powers to “call in” eight transactions involving Chinese-linked investments into British companies — weeding out at least some perceived security threats.
Nevertheless, like Germany, the UK needs to be clearer about the parameters that should govern its future engagement with China, describing in which sensitive technology areas commerce should be prohibited or subject to regulatory review. This applies mainly to Chinese acquisitions of UK companies and Chinese corporations investing in areas of UK critical infrastructure. But it should also cover UK companies transferring technology to Chinese counterparts in China.
Security tensions between China and Europe have deepened considerably since Xi Jinping, China’s leader, has infused Beijing’s world view with suspicion for the US-led west. It may not be possible to insulate every sector and every industry in Europe from Chinese security concerns. Germany and the UK have to strike a balance between protecting vital sectors and infrastructure and keeping trade and commercial relations flowing.
Source: Economy - ft.com
