Updating the EU strategy on China: Co-existence while de-risking through partnerships

The EU's relations with China will not return to their pre-Covid pandemic state as the costs and risks clearly outweigh the benefits by now. The EU’s approach to China will need to be based on co-existence while protecting European values and interests. Co-existence does not imply accepting dependence. De-risking policies must continue by further deploying existing defensive instruments and new ones within the framework of the EU economic security strategy but with full involvement of member states and other European stake holders. While accepting the trade-offs of more economic security is needed, building stronger partnerships can reduce the costs of de-risking. Such partnerships cannot stop at the US and must involve the G7, other like-minded countries, as well as relevant countries in the Global South.

This policy brief is a joint publication with Bruegel. It was written by Alicia García-Herrero, Senior Fellow at Bruegel and a Member of the Advisory Board at MERICS, and Abigaël Vasselier, MERICS Director Policy & European Affairs and Head of Program Foreign Relations.

Key findings

• EU-China relations have deteriorated markedly since the EU introduced a three-pronged strategy in 2019 based on partnership, competition and systemic rivalry. Firstly, China’s support for Russia’s aggression to Ukraine and the increasingly anti-Western foreign policy aiming at altering the international rules-based are key foreign policy reasons. Secondly, China’s structural deceleration and increasing self-reliance, coupled with the EU’s growing critical dependence from China, especially for its digitalization and decarbonization are important economic reasons.
• The EU, especially at this juncture with a change in leadership, must realize that relations with China will not return to their pre-COVID pandemic state.
• While there is no need to change the EU’s overall strategy, it seems important to shape expectations as to what our relationship with China should aim at, namely co-existence while preserving the EU’s values and interests. Cooperation will still be needed to address global problems, in which China plays an important role but the EU cannot offer a blank cheque in exchange for China’s cooperation. 
• Secondly, within co-existence, the EU must pursue de-risking, so as to critical dependences from China, especially for its energy and digital transition but also when excessively exposed to China’s market, often at the cost of forced technology transfer. While the EU has formally engaged in de-risking from China, as enshrined in its nascent European economic security strategy, the path towards ensuring the necessary de-risking for non-harmful co-existence, is yet to be achieved. 
• To that end, we offer a three-pronged approach, which focuses on (i) increasing coherence and coordination with all European stakeholders; (ii) refining our economic security strategy while accepting its trade-offs; and (iii) using partnerships as the best offensive tool.
• For the first objective, setting a “European China House” could foster discussion and coordination of strategic issues with a larger constituency. Secondly, Member Sates need to be more involved in building a comprehensive approach, including realising in the national risks assessment, together with companies, but also in the shaping and implementation of measures to de-risk, with the overall coordination of the Commission.
• For the second objective, the full implementation of existing defensive instruments is needed but also adding new ones, such as a better coordination of export controls, of security in research cooperation and a new outbound investment screening mechanism. The trade-offs stemming from pursuing more security will need to be made explicit so as to be able to mitigate them.
• Thirdly, the EU needs to rely more on partnerships, beyond the US. This includes the G7 but also other like-minded countries, such as Australia and South Korea, with valuables experiences in de-risking. Last but not least, the EU needs to develop mutually beneficial cooperation proposals with relevant emerging and developing economies. 

You can download the analysis as a PDF:

This Policy Brief is part of the project “Dealing with a Resurgent China” (DWARC) which has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061700.

Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them.