Inconclusive – will EU leaders miss the chance to get tough on China?

Those hoping that EU leaders might strike a more combative position against China at next week’s summit in Brussels are going to be disappointed. 

June had been billed, by some EU official points, as a turning point in relations, with two major summits – G7 and European Council – and a series of meetings between EU and Chinese top trade officials.

The European Commission wants member states to support an ‘overcapacity instrument’ that would prevent China from deliberately over-producing steel and a raft of other products to depress prices and bankrupt European rivals. 

The EU’s yawning trade deficit with China poses a long-term, systemic threat to the bloc’s economy that far outweighs the dangers from US president Donald Trump’s tariff threats.  

On Tuesday (9 June), Beijing’s commerce vice-minister, Ling Ji, was due to meet with new EU trade director Ditte Juul Jorgensen in Brussels.

Juul Jorgensen has replaced Sabine Weyand, who has been dispatched to the Siberia of EU officialdom – a post at the European University in Florence – after clashing with the commission over the legality of its trade deal with Trump.  

Yet the draft EU Council conclusions which are circulating among reporters – a version of which will be issued after the summit – do not make a single mention of China. 

Instead, they report that EU leaders held “a strategic debate on the issue of global macroeconomic imbalances.” 

Leaders also called for “decisive progress… on fostering Europe’s industrial renewal and innovation and reducing dependencies, and on investment.”  

That suggests that Beijing’s lobbying and continued refusal to engage with the EU’s critique of its industrial over-supply has paid off. The debate will be kicked down to an EU summit in October. 

Clues lie in a paper signed by Spain, Italy, the Netherlands, France and Lithuania in late May, which stated that the EU needed to take a tougher stance to “systemic and structural industrial overcapacity” – phrases often taken as shorthand for Beijing.  

Germany, whose own economy is increasingly reliant on Chinese inputs but whose trade deficit with China is set to clear €100bn this year, was not among the signatories.

For its part, Spain, which has received billions of euros of Chinese investment in digital and energy infrastructure projects, later withdrew its signature. 

That points to Beijing’s astute investment across a number of EU economies which have created precisely the “dependencies” that EU leaders want to reduce. 

And it’s not just within the EU. Commission officials are increasingly worried about Morocco, which has been the recipient of more than $6bn (€5.2bn) of Chinese investment in electric vehicle production. The result is that Morocco overtook South Africa last year as Africa’s biggest carmaker. 

EU trade commissioner Maroš Šefčovič, for his part, has warned that Morocco’s contribution to Chinese industrial over supply is a “big, big issue” for the bloc’s economy. 

He added that the EU needed a specific instrument to force companies to diversify their suppliers and tackle over-reliance on China. 

There are signs that German attitudes are changing. 

“Either we fight back, or China will cripple parts of our industry”, Manfred Weber, the German leader of the centre-right ‘EPP’ group in the European Parliament, told the German press last weekend. 

Weber, whose Christian Social Union is allied to the largest party in the Berlin government, added that the EU needed to implement tough trade policy instruments “decisively and without hesitation”. 

But that is unlikely to be next week.