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he year 2022 witnessed several tensions in EU–China relations, mostly due to COVID-19-related supply chain disruptions, the Russia-Ukraine War, and Taiwan. The question here is to what extent these crises could affect relations between the EU and China in the long run.

Diplomatic relations between the European Union and China go back to 1975. Following the signing of a trade agreement in 1978, bilateral trade increased significantly. The door to a new cooperation opened after the Trade and Cooperation Agreement was signed in 1985 thanks to China’s opening up and the regular visits between European and Chinese diplomats and businesspeople.

The EU-China relationship keeps evolving in the 21st century with intensifying commercial ties, especially as a result of the worldwide economic crisis. Today, the EU-China relations have become more complex.

Growing economic partnership

Trade is the main factor motivating EU-China relations with commercial partnerships and mutual investments creating mutual dependency over time.

The EU has been China’s largest trade partner since 2004, and China was the EU’s second-largest trade partner. Today, China surpassed the United States to become the EU’s largest trade partner mostly thanks to the high demand during the pandemic.

In 2021, bilateral EU-China trade in goods reached €1.9 billion a day.

According to statistics, between January and August 2022, trade between China and the EU increased by 8.8%, and the EU investment in China increased by 123.7%.

Three EU member states had a trade surplus with China, according to the goods trade balance with Germany accounting for the biggest surplus.

“China and the EU are indispensable trade partners. The EU was China’s biggest trade partner for 16 years (until 2019), and China has been the biggest trade partner for the EU since 2020. Even as the pandemic rages around the world, trade between China and the EU has continued to grow.

This reciprocal trade relationship plays a fundamental role in the respective economic development and social prosperity, especially in this era with an increasing risk of geopolitical conflict,” Dr. Zang Shumei, a research fellow at the School of Politics and International Relations at East China Normal University, told Politics Today.

Who needs whom more – China or the EU?

Commercial activities and economic interests generally foster diplomatic ties. However, the fact that the EU member states do not act as a single block makes relations more complicated. For example, Greece blocked an EU statement at the UNHRC in June 2017 criticizing China’s human rights records. Another significant host of Chinese investment, Hungary, has repeatedly blocked EU statements criticizing China’s record on human rights under President Xi Jinping.

Despite efforts by EU policymakers to diversify the bloc’s trade and investments, commercial ties with China are strongly established and resist alternations, and Europe is still one of Chinese investors’ most preferred destinations.

Nevertheless, after decades of China feeling it is just a financial gamble for European firms, market conditions have become far more challenging due to restrictive COVID-19 policies, slowing economic growth and rising geopolitical tensions.

Additionally, the insufficiency of investment reciprocity is detrimental to European interests. In terms of labor and manufacturing costs, logistics systems, and industrial parks, China continues to be a competitive manufacturing hub. Twenty-four EU member states had a trade deficit with China. The Netherlands had the largest deficit, followed by Poland and Italy. “We find that the trade deficit has been growing between the two partners. But we should not simply conclude that one needs the other one more. China and the EU will continue to need each other, not only in trade but also in various global issues,” stated Dr. Zang.

The United States as third actor in the EU-China relations

There is a third factor affecting EU-China relations: the United States. The Ministry of Foreign Affairs of China and the European Union are two major forces of multilateralism. Upholding multilateralism has been one of their most important common understandings and shared responsibilities.

There are diverging opinions in the European Union about the limits of acting in accord on foreign and domestic policies. Countries from the former Eastern European bloc tend to seek U.S. protection through NATO and favor the U.S. presence and policies.

Moreover, these countries still need to make urgent infrastructural investments as their economies develop slowly. This is the same reason why, conversely, some countries of the former Eastern European bloc have approached China’s Belt and Road Initiative positively.

Cultivating its relations further with the 16+1 states in Eastern Europe, China is aware of this internal difference. Meanwhile, China’s presence in Eastern Europe makes an anti-China stance at the EU level less likely.

Relations between Lithuania, an EU member state, and China stopped in July 2021 after Lithuania decided to allow the Taiwanese Representative Office in Lithuania to be opened in Vilnius under the name “Taiwan.”

Overall, it is clear that member states’ political stances on China will not be the same, but some EU members have a bigger impact on the decision-making process. Dr. Zang argues that “Macron’s insistence on Europe’s strategic autonomy shows traces of Gaullism, even though this autonomy is severely threatened by the current crisis in Ukraine. Such an insistence on French and European autonomy has been an important positive element for constructing good Sino-French and Sino-Europe relations.”

China-Lithuania relations reached a breaking point in July 2021 over Lithuania’s decision to allow a Taiwanese representative office to open under the name of “Taiwan” in Vilnius. The de facto embassy officially opened in November of the same year.

This move was received by China as an attack on the “One China” policy. Only 15 nations have formal ties with Taiwan, while most others have informal relations with the country through trade offices under the name of “Taipei” to avoid conflict with China.

As a result, Lithuania was hit by sanctions like never before by China. These Chinese sanctions were “unconventional” and included Lithuanian exports, EU products containing Lithuanian parts, as well as raw material imports from China.

China downgraded its diplomatic ties with Lithuania and recalled its ambassador in August 2021, and three months later, its consular services were suspended until further notice. Last December, the Lithuanian embassy in China was shut down.

Earlier this year, Lithuania’s president Gitanas Nausėda stated on news radio Ziniu Radijas that the name of the office was a “mistake” and that the nation is now dealing with its consequences as both Lithuanian companies and European companies that procure parts from Lithuania express concern.

Tit for tat?

High-tech and infrastructure are issues of repeated dispute between China and Lithuania. In September, Lithuania’s Defense Ministry had urged consumers to dispose of their Chinese phones. The statement came after its National Cyber Security Centre prepared a report assessing the security of 5G technology mobile phones sold in Lithuania. It found that Xiaomi mobiles had a built-in censorship feature that could be activated remotely, and that Huawei’s devices had cybersecurity issues including data leakage.

Both companies have denied these claims. In 2019, Lithuanian intelligence made allegations that a Chinese company had been spying on Lithuanian individuals, with the Chinese Embassy considering these allegations “totally unacceptable.” In May of the same year, the Lithuanian Parliament had voted to ban “unreliable” manufacturers from the electronic communications market including China’s Huawei.

The legislation required high-technology companies to act in compliance with national security interests. In Huawei’s case, Lithuania’s military intelligence stated that Chinese law required companies to share information with the government. The decision came after a suggestion from the chairman of Lithuania’s Parliamentary Committee, Laurynas Kasčiūnas, who stated that manufacturers from “non-democratic” countries should be identified and that Lithuania would not be part of the “China-controlled technosphere.”

China, Russia’s invasion of Ukraine, and Lithuania

As an ex-Soviet nation, communist regimes have a negative connotation for Lithuania. Therefore, it advocates a tougher stance against Russia and China. Especially with Russia being its next-door neighbor, the invasion of Ukraine has put Lithuania and former Soviet nations at unease.

China’s relationship with Russia and its unwillingness to condemn Russia over Ukraine paints an even more tainted image for Lithuania. The Chinese Foreign Minister Wang Yi reaffirmed on Monday, March 7, 2022, China’s position on the issue and emphasized that China’s relationship with Russia was “rock-solid.”

In accordance with its value-based foreign policy, Lithuania distanced itself from China. The approach takes principles in the constitution such as democracy, independence, and rule of law as its basis. China has been criticized over the years by Lithuania on different occasions.

Last year, Lithuania signed a joint statement with 13 countries criticizing China over the lack of transparency in the WHO’s COVID19 report. A few months later, the Seimas, the parliament of Lithuania, passed a motion condemning China for committing genocide against the Uyghurs, calling on the UN to start an investigation into the issue.

The Chinese Communist Party (CCP) views Western values as “hostile and harmful,” and associates them with China’s competition with the U.S. Following the tensions resulting from the de facto embassy of Taiwan in Lithuania, the Chinese media claimed that it is the U.S. influence on Lithuania that shapes Lithuania’s foreign policy attitudes towards China.

The article describes the Baltic nation’s strategy as “to woo and follow the U.S. and be a ‘loyal puppet’ that barks the fiercest at the U.S.’ strategic rivals in exchange for protection.”

In light of ongoing tensions between the West and Russia, China’s ally in the region, the ties between the Baltic nation of Lithuania and China are likely to remain uneasy for now.

After seven years of negotiations, The European Union (EU) paused a trade deal with China over a battle of sanctions and counter-sanctions.

The E.U. and China signed the fundamentals of the Comprehensive Agreement on Investment (CAI) in December 2020. The trade deal aims to guarantee a stable framework of conditions for trade and investment in each other’s markets. But to enter into force, the trade deal needs ratification from the E.U. member states and the European Parliament, where it faces vigorous opposition.

The E.U. imposed sanctions against China’s violation of human rights on the Uyghur Muslims in the Xinjiang region on March 22, 2021. It is the first time that the E.U. imposes these sanctions against China since the 1989 Tiananmen Square massacre. As a response, China sanctioned several E.U. citizens, including five members of the E.U. Parliament and E.U. human rights and security committee members. China’s foreign ministry specified that all relevant personnel and their family members will be prohibited from entering mainland China and its administered regions.

China’s retaliation against the E.U. members sparked concern among European representatives. “China’s sanctions on MEPs, the Human Rights Subcommittee, and E.U. bodies are unacceptable and will have consequences,” tweeted President of the European Parliament Davide Sassoli. But the remark over the violations of human rights on Uyghurs was anticipated by the President of the European Commission Ursula Von Del Leyen in the E.U.-China summit in June 2020, where she reiterated that human rights and fundamental freedoms were non-negotiable for the E.U.

The Chinese Foreign Ministry stated that the accusations on human rights issues in Xinjiang are based “on nothing but lies and disinformation. Moreover, it highlights that the European sanctions interfere in China’s internal affairs and undermine China-EU relations.”

Amid the battle of sanctions and countersanctions, U.S. President Joe Biden can breathe a sigh of relief over the EU-China trade deal. Following the freeze of the deal, the United States, Canada, and the United Kingdom joined the E.U. sanctioning China. U.S. Secretary of the State Antony Blinked welcomed the European sanctions by describing the coordinated sanctions as a “united transatlantic response” to those who violate or abuse international human rights.

But for the United States, the stake of the E.U.-China trade deal is much bigger than a trade agreement. Biden aims to end unilateralism and seek a united front with the E.U., Japan, and other partners in its trade war with China. Thus, the CAI could represent a serious risk to achieve his goal.

The CAI eases the market access between the E.U. and China. China will provide a higher level of access for several sectors and guarantee fair treatment for E.U. companies. Furthermore, the CAI regulates forced technology transfer by prohibiting several investment requirements that obstacle the technology transfer.

In a nutshell, the trade deal would provide companies with a much safer environment for conducting their business, especially in general manufacturing industries, the automotive sector, and financial services. If implemented by China, those CAI could advantage E.U. businesses, but it would disadvantage U.S. competitors.

Both German and French companies are among those European firms that would benefit more from the E.U.-China investment.

In the E.U., politicians and human rights activists are concerned about whether Europe should be deepening its economic ties with China. This not only because of the issues over Uyghurs but also due to China’s policy in Hong Kong and its use of mass surveillance technologies. Furthermore, E.U. diplomats and officials have also criticized German Chancellor Angela Merkel and French President Emmanuel Macron’s push to finalize the deal with China.

Both German and French companies are among those European firms that would benefit more from the E.U.-China investment. Critics also came from the European Parliament. Diplomats and members of the European Parliament criticized Merkel for rushing to finalize the deal and not focusing on the forced labor rights protection in China.

However, Merkel aligned herself with the E.U. message to Beijing speaking at a press conference at the G-7 summit held in Cornwall, United Kingdom, last week. She warned that the E.U. will only ratify its investment agreement if China makes progress on labor rights.

The United States would be damaged in the framework of an E.U.-China deal. The most beneficiary of the trade deal would be European companies due to easier access to the Chinese economic infrastructure. For its part, China would attract more investments and could place itself in a favored position.

At the geopolitical level, the United States wants to restabilize ties with the E.U. and divert European attention from the appealing Chinese economic opportunities. China made some progress in expanding its influence during the Trump administration. Thus, the E.U.-China deal would impact the Biden administration’s efforts to unify the front to increase leverage on China.

But the tension raised over the violation of human rights marks a shift in the E.U.’s policy of achieving closer economic ties with China. Also, the latest G-7 summit seems to have strengthened the relations between the United States and the European countries over China. However, the E.U. is cautious. It bears in mind and acknowledges the importance of China not only as an economic party but also as a partner in climate change cooperation.

As Biden aims to freshen up the transatlantic cooperation to contain Beijing, European countries are much more cautious to unravel the economic ties with China. The E.U.-China economic relations benefit both powers. In 2019, the E.U. was China’s biggest trading partner, while China was the E.U.’s second-largest partner. The E.U.-China trade in goods is worth around €1.5 billion a day. Moreover, the E.U.-China import-export was worth almost 500 billion in 2019, according to the E.U. figures.