As U.S. Seeks Calmer China Ties, Europe Gets Tough | Mint

As U.S. Seeks Calmer China Ties, Europe Gets Tough

European officials will raise what they say is an oversupply of goods produced in China and exported to the EU.
European officials will raise what they say is an oversupply of goods produced in China and exported to the EU.

Summary

European leaders plan to warn Chinese leader Xi Jinping that the bloc is prepared to impose new sanctions and trade penalties unless it acts to address economic frictions.

BRUSSELS—European Union leaders plan to warn Chinese leader Xi Jinping that the bloc is prepared to impose new sanctions and trade penalties on his nation unless it acts to address economic frictions and rein in exports to Russia of goods used for its war in Ukraine, EU officials said before a summit in Beijing Thursday.

While Washington has moved recently to ease tensions with China, European strains with Beijing have sharpened.

In a sign of that growing gulf, as the EU’s top leaders flew to Beijing on Wednesday, an Italian official said Rome had formally told China that Italy was withdrawing from its Belt and Road Initiative, the latest European country to do so. The U.K. also announced Wednesday its first sanctions against Chinese companies for supporting Russian war-related manufacturing.

In advance of the summit, where Xi and Premier Li Qiang will meet European Commission President Ursula von der Leyen and European Council President Charles Michel, EU officials said they would put atop their agenda China’s cooperation with Russia and prod Beijing to offer more humanitarian aid for Palestinians in the Gaza Strip, where Israel is conducting a large-scale military operation.

On the trade side, European officials will also raise what they say is an oversupply of goods being produced in China and exported to the EU and elsewhere at low prices, undercutting domestic producers. The bloc will try to convince Beijing to take steps to curb that production. If that doesn’t succeed, the EU could impose trade barriers, a senior official said, although such a move is considered a last resort.

The EU’s trade deficit with China has roughly doubled during the past two years, to more than $400 billion, a situation European officials view as unsustainable and which they say reflects both barriers impeding European businesses in China and Chinese subsidies.

European officials in recent weeks have said that between 70% and 80% of Russian dual-use goods found on the battlefield in Ukraine have come from Chinese companies. The EU officials said that, despite some signs that Beijing has started to curb some exports, they see an increase in sales of some military products of great use to Russia.

The EU has so far steered clear of sanctioning companies from mainland China for providing militarily usable goods to Moscow. Earlier this year, the EU removed from its proposed sanctions list five Chinese companies that the bloc believed had been exporting goods to Russia. The EU did proceed with sanctions against three Hong Kong-based companies.

EU officials said they acted in response to Beijing’s promise to clamp down on the commerce, a claim that China’s EU ambassador denied.

However, with the EU set to approve a new round of sanctions against Russia as soon as next week, officials said they would warn Beijing that Brussels will add around a dozen companies to a commercial blacklist if Xi doesn’t commit to act.

“We would like China to take care of some of the entities that are circumventing our sanctions," the senior EU official said. “The preferred option is that China deals with it themselves. But we have tools to deal with it ourselves if necessary."

China has portrayed itself as a neutral party on Ukraine but has echoed the Russian narrative on the war and expanded economic ties with Russia during the conflict. European officials say they will also prod the Chinese leaders to rejoin a peace-talks dialogue that Ukraine established to garner more support for its conditions for ending the war. China attended a meeting of senior officials in Saudi Arabia in August but has since stepped away from talks.

Europe’s approach to China has toughened over the past few years, although the bloc is divided on how to work with Beijing. Hungarian Prime Minister Viktor Orban and some others have pushed for closer ties with China and Germany has remained hesitant on proposals that could disrupt its extensive economic links and investments in China.

Beijing has made some recent moves to ease tensions. It is holding discussions with Lithuania about a de facto trade blockade connected to the EU country’s ties to Taiwan. It has also started granting visa waivers for 15-day trips to its five biggest EU trade partners.

EU officials including von der Leyen increasingly see China as an economic rival and are pursuing a strategy they describe as de-risking to reduce the bloc’s reliance on China for vital products. However, there is a consensus in Brussels and most EU capitals that there should be strong engagement with Beijing. Some European officials believe now is a good time to push for action given that China faces economic difficulties and so may be more willing to make concessions.

Xi’s “clear goal is a systemic change of the international order with China at its center," von der Leyen said in a speech earlier this year.

No joint statement is expected after the summit, EU officials said.

European officials say they want to focus economic discussions on their concerns about the size of the trade deficit with China and the country’s overproduction. The EU has developed trade-defense tools in recent years and can use them to address the problem, officials have said. The bloc’s executive body earlier this year announced an antisubsidy investigation into electric vehicle production in China, which could lead to tariffs.

In 2022, the EU was China’s second-largest export market and its top import supplier, according to EU data.

While overcapacity from China, in sectors including steel and aluminum, has been a concern in the past, that is now spreading to critical clean-technology industries that Europe hopes will be at the heart of growth, including electric vehicles and wind turbines.

The bloc hopes to convince Chinese officials to take measures on their own. It is in Beijing’s interest not to dump products “and thereby have markets essentially close for them," the senior EU official said.

Chinese officials have warned in the past that sanctions on Chinese companies could lead to reciprocating measures by Beijing. They have also hit out against restrictions on European high-tech exports to China and warned that the electric-vehicle probe could damage bilateral trade and raise prices for consumers.

“If the EU sets strict restrictions on the export of high-tech products to China on the one hand, and on the other, hopes to greatly increase export to China, this may not be a reasonable expectation," said China’s Foreign Ministry spokesman Wang Wenbin.

The EU is also looking at other proposals that could affect trade with China. Brussels faces pressure from Washington to place tariffs on Chinese steel exports. Officials have also proposed screening EU investments in China to protect the bloc’s economic security.

Italy’s withdrawal from the Belt and Road Initiative follows Baltic countries’ exit from a regional forum Beijing used for talks with Europe’s smaller member states.

Italy was careful to avoid embarrassing China by keeping conversations on the initiative largely private. The exit decision was conveyed through a written notification sent through diplomatic channels.

The government of Prime Minister Giorgia Meloni made no secret of its desire to withdraw from the agreement, which had drawn criticism from Washington as the West has been trying to contain China’s economic and diplomatic clout.

The Belt and Road memorandum, signed by a previous Rome government in 2019, was set to automatically renew for another four-year term unless Italy formally withdrew before the end of this year.

Margherita Stancati and Sha Hua contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com and Kim Mackrael at kim.mackrael@wsj.com

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