Europe Takes Tougher Stance Toward China in Boost to US Policy

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(Bloomberg) -- Stung by China’s close ties with President Vladimir Putin and its repression at home, European nations are putting new limits on Chinese exports and investments in a tack that’s more in line with a strategy championed by Washington.

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Countries such as Germany and Italy are following the Netherlands’ example and studying export and investment controls adopted by the US, according to public statements and numerous people familiar with leaders’ thinking. The main driver is China’s continued alliance with Russia despite the invasion of Ukraine, but also its perceived aggression overseas and against its own people.

The change amounts to a major shift for a continent that previously bridled at the US push to unwind economic ties with China. While important differences remain, it reflects a growing frustration — and sense of vulnerability — toward the leaders of the world’s second biggest economy as the conflict in Ukraine rages on.

That change has been accompanied by far more critical public comments from senior officials who previously had been wary of speaking out against Beijing.

“China for us is a partner, competitor and systemic rival,” German Foreign Minister Annalena Baerbock told lawmakers in Berlin after visiting China earlier this month. “Unfortunately our impression was — I want to emphasize unfortunately — that the systemic rival aspect is growing ever stronger.”

“Not only because China is behaving more in an offensive fashion externally — one could also say aggressively — but also more repressively domestically,” she said. She called Chinese actions home and abroad “more than shocking.”

The US and the EU have been working to develop tools to slow China’s progress in fields including semiconductors and defense. The allies are discussing export controls, tighter screening of investments and increased cooperation on critical materials.

German Chancellor Olaf Scholz has been in close talks on the issue with the US, which is pushing for a global blockade of China’s access to key goods. One target: limiting the export of chemicals to China that are used to make semiconductors.

Even Italy, which has has maintained close ties with Beijing, is looking at ways to limit the influence of China’s Sinochem on tire maker Pirelli SpA, of which it is the largest shareholder. Possible measures include limiting information-sharing on sensitive technologies with any Sinochem-appointed board members.

Prime Minister Giorgia Meloni is also leaning toward pulling out of an agreement to join China’s controversial Belt and Road Initiative, which has funded $900 billion in infrastructure projects globally. Italy is the only Group of 7 country that signed up to the plan.

Those changes will please President Joe Biden’s administration, which has sought to present a united front with allies and spread the burden of the inevitable economic consequences that will come with more confrontation.

“Burden sharing when it comes to taking some economic hit to protect your national security is harder to quantify, and then harder to implement,” US National Security Advisor Jake Sullivan said at an event at the Brookings Institution on Thursday. “But it’s the fundamental concept that is what makes alliances function effectively.”

“Ignoring economic dependencies that had built up over the decades of liberalization had become really perilous,” he said.

China and economic security will be main topics when G-7 leaders meet in Japan next month, according to an official familiar with the discussions. There’s broad agreement on the need to reduce risks but not break completely. Momentum is growing for a way to coordinate reaction against economic coercion without doing anything automatic.

There’s been “patient work across the G-7 and beyond from US officials to build consensus on export controls, investment screening, Taiwan and a number of other issues,” said Andrew Small, a senior fellow in the Indo-Pacific program at the German Marshall Fund. “Europe and the US have been moving in the same direction on the same issues for similar reasons with China, just at different speeds and often using different language.”

There are notable caveats to the approach. Those were exemplified by French President Emmanuel Macron’s recent trip to Beijing, where he said Europe should avoid being dragged into a conflict between China and the US over Taiwan.

European countries including France — as well as Germany — want to make sure that there isn’t a decoupling from the Chinese market. Like the US, they want more to reduce risk in sensitive areas, including quantum computing, biotechnology and critical minerals.

Another challenge for Europe is the differing views among its 27 member states. Those will likely be on display when the bloc’s leaders meet in Brussels next month and a China strategy will discussed.

Yet officials say the European Union’s over-reliance on Russian oil and gas, and the painful process of diversifying its energy sources following Moscow’s invasion, forced the bloc to rethink its policy of engaging with autocratic countries.

Washington and the European capitals shared concerns about challenges posed by “economic coercion, the weaponization of economic dependencies, and non-market policies and practices,” European Commission President Ursula von der Leyen and Biden said in a joint statement last month.

“Russia’s invasion of Ukraine has also sharpened European perceptions of how geopolitical risk matters for the economy,” Small said. “And China’s backing for Russia has heightened the sense of China as an ideological and security threat.”

--With assistance from Chiara Albanese and Ania Nussbaum.

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