The European Union’s latest bid to reset its trade and economic relationship with China is already floundering, with some member states and officials involved in the planning skeptical that the bloc is ready to take decisive action should diplomacy fail.
Despite a renewed campaign to take a tougher stance toward Beijing, the EU doesn’t have the political will to institute meaningful change or pick a fight with China, according to people familiar with discussions among the bloc’s leaders as well as talks in the European Commission, which handles trade matters for the EU.
Member states are aligned on the severe stakes posed by China’s dominant economic position. But leaders can’t yet agree on what tangible steps to take to fix a trade deficit that now exceeds €360 billion ($410 billion) or how to make domestic industries competitive against Chinese companies that rely on state subsidies, said the people, who spoke on the condition of anonymity.
“It is clear that Beijing has no intention to act unilaterally against what Brussels sees as rampant industrial overcapacity fueled by industrial subsidies and insufficient domestic demand,” Gabriel Wildau, a managing director at the advisory firm Teneo, wrote in a note. “There is no sign of policy action forceful enough to materially reduce the trade surplus with Europe.”
In a statement, the commission’s deputy chief spokesperson, Arianna Podestà, described the EU’s approach to China as “engagement through dialogue, while pursuing a policy of de-risking and diversification.”
She added: “It is of primary importance that we restore balance in our trade relationship with China.”
Beijing has so far been reluctant to focus talks on moderating its exports, preferring instead to facilitate more EU exports, according to the people. But the EU is keen to tackle both issues, given the vast trade gap as well as China’s market barriers and moderate consumption. China is also open to jointly monitoring for trade spikes.
Beijing is pursuing a transactional approach to negotiations and wants the EU to reciprocate any changes it makes, said the people. The EU has proposed “white lists” of trusted companies that could avoid resubmitting applications for critical supplies, and is asking Beijing to reduce market access constraints. The bloc will also keep pushing for China to abate its exports, the people said.
