Ursula von der Leyen’s frenemies with Xi Jinping: Trade interdependence but different values

  • + Von der Leyen’s European Commission has identified China as one of the main perpetrators of online misinformation about coronavirus in the EU. 
  • + EU leaders do not want to abandon multilateralism nor to interrupt its economic relations with Xi Jinping’s country.
  • + The 22nd bilateral Summit between the EU and China took place and the leaders from both sides aim to further cooperate
Source: European Union External Action

Why is von der Leyen frenemies with Xi Jinping?

Answer: Both powers consider their mutual relations as necessary, but EU leaders won’t tolerate certain behaviours from China.

Lately, tensions have aroused between von der Leyen and China’s leaders. After some investigations, the European Commission identified publicly that China – and Russia – are the perpetrators of online misinformation in the EU territory during the coronavirus pandemic. It was the first time that the Commission explicitly accused Xi Jinping of fake news spread. This action is included in the EU’s plan to tackle disinformation, as it would be easier to strengthen the EU’s geopolitical position if its menaces have names. 

Furthermore, the European Commission fears the penetration of Chinese investments in its markets. Some of these investments are backed up with subsidies from the Chinese government; concretely, a 60% of China’s direct investments come from state-owned companies. As a consequence, the European Commission response has been to establish tariff measures to non-EU countries who are seeking to buy more than a 35% of an economically relevant EU company. 

This action has not pleased China’s representatives, and some have qualified the measure as a creation of new trade barriers under the pretext of foreign subsidies, and also as negative signals to the global market. Moreover, China alleged that these foreign subsidies have the objective of encouraging environmental protection among others and, thus, are in compliance with WTO rules

This tariff decision, which has slightly damaged EU-China relations, comes at the same time as the end of a Chinese dispute with the WTO. China wanted to receive the status of market economy in trade investigations, which would have strengthened China’s position. If the outcome had been favourable to China, Beijing could have stopped accepting EU and US “anti-dumping” taxes on cheap Chinese products.

To all the above, Xi Jinping’s decision to impose the national security law in Hong Kong must be added. A political movement that von der Leyen highly criticized. 

These events have occurred weeks before the 22nd bilateral EU-China summit. The summit was held via videoconference and Ursula von der Leyen, accompanied by Josep Borrell, and Charles Michel were the representatives of the EU. On China’s side, Xi Jinping and Li Keqiang attended the meeting. The Chinese Prime Minister shared Jinping’s position, highlighting China’s role as an ally of the EU and omitting any controversial aspects.

All leaders agreed on the need of and desire for further economic cooperation, as well as in climate change, technology or public health security. But the tensions were served, and it was not a friendly summit. The European Union leaders reiterate their desire of economic reciprocity and rules-based relations. The summit ended up without a joint press conference nor a final declaration.

What does Xi Jinping want?

Answer: Xi Jinping and his Prime Minister are looking for an expansion of China’s power and influence, but also for further economic development with the EU as a partner. 

Xi Jinping knows that his country needs to maintain good relations with the EU, as it is vital for economic and geostrategic reasons. The supreme leader of China’s Communist Party wants a strong position of China in the world and to expand its influence in his regional context but also further. 

The US and Trump’s foreign policy is seen as a threat to China’s global position on the world stage. Moreover, China’s relations have been damaged since the irruption of the coronavirus crisis, and currently they are in a trade war which is leaving none indifferent. This has led to the European Union becoming the arbitrator of both sides. 

The EU is one of the most important markets for the Chinese economy, as China exported goods for a value of 362€ billion and imported for a 198€ billion in 2019. Thus, in Xi Jinping’s ambition to make China the strongest global actor, the development of good trade relations with EU leaders is imperative. Now that his relations with Trump are damaged in their global competition, the EU-China relation is a pivot in western society and, as a consequence, vital in geopolitical terms. 

China’s expansionist strategy through economic and foreign investments has been hurt by the EU decision on tariff measures. That action taken by the von der Leyen’s Commission doesn’t go hand in hand with Xi Jinping aspirations on global trade and commercial policies. So, China’s President is not happy at all with EU leaders.

Before the summit, Xi Jinping said that Europe must see an opportunity in China, and not a threat. What is clear is that Xi Jinping needs a good relation with the EU and must avoid a US and EU partnership against Chinese interests. So, it is expected further efforts in their economic relation and understanding. 

What does von der Leyen want?

Answer: A relation with China in equal terms, and with commitments to follow international rules

As Xi Jinping and other global leaders, Ursula von der Leyen wants a stronger Europe in the world – it seems a trending topic in global politics nowadays. It is one of her main objectives as the European Commission President. To reach this objective she formed a clearly geopolitical Commission, and remarked the fact that the EU needs to speak again the language of power. 

In order to strengthen the EU’s position in the world, von der Leyen has several instruments available. One of them is economic alliances and development of the European Union. As von der Leyen has shown in the past during her career as a defence minister with feminist ambitions, she is not afraid to take steps in order to achieve what she proposes. So, she has been the first to publicly accuse Xi Jinping’s country of producing and spreading fake news in European territory. 

If the European Union needs to be stronger in terms of economy and geopolitics, we are sure that von der Leyen is going to take the decisions needed to make it a reality. And one of these decisions has been to impose tariffs on Chinese products – among others from third countries – when behind them there are national subsidies. 

As a consequence, we see an EU which is not afraid of asking for reciprocal economic relations with the Asian giant. Von der Leyen saw that the movements in European markets made by China were distorting the economy and damaging the development of EU companies. That is to say, to ensure EU control over EU companies. What von der Leyen, and Charles Michel, want in the long term is to boost the EU’s economy and to expect a Chinese behaviour according to international regulations. 

Only by protecting the EU market against dumping and subsidies measures can the EU develop a stronger position in the global dashboard and reach strategic autonomy.

We have to bear in mind that von der Leyen wants another structure in EU-China bilateral relations, based on respect to international rules and reciprocity. But the European Union’s economy is highly reliable on China’s market, and needs to maintain good trading relations in order to keep on its own economic development.

Furthermore, one of Merkel’s objectives during her presidency at the Council of the EU, which is shared by von der Leyen – one of her political allies for decades -, is to conclude an investment agreement with China. Thus, further trade cooperation must be reached. 

What is von der Leyen doing?

Answer: Von der Leyen is pressuring on China’s leaders in order to give a boost to multilateral mechanisms and to further develop their economic relations.

For Von der Leyen, the partnership with China is crucial, as both powers share a leading role in trade, climate and technology. But also because of the defence of a multilateralism system to regulate global order. Nonetheless, this relation must be “more rules-based and reciprocal, in order to achieve a real level playing-field”, the EC President stated. An opinion that she shares with Charles Michel when he said that the EU will defend its values and interest in its relation with China.

As a consequence, von der Leyen’s actions would be guided by a need of defending the “European way of life” and values, as well as by a desire of building strong trade ties with Xi Jinping’s regime. This is not the first bilateral meeting in which we have seen von der Leyen’s willingness to deepen trade relations with powerful partners. Earlier, in June 2020, she met with Japan’s Prime Minister. Thus, von der Leyen’s strategy is not only achieved by means of leading the fight against climate change or increasing military resources in the EU, but also by economic pressure and agreements.

Von der Leyen has already taken many actions regarding China’s behaviour in European territory. As it is stated above, after investigations, the European Commission has accused China for targeting cyberattacks to EU hospitals and spreading fake news, not only in Europe but in other countries. 

On the other hand, she has established a new tariff system in order to avoid state-owned foreign direct investments which don’t comply with anti-dumping regulations or respect market economy. A measure that has generated discontent in the Chinese leader, since it is a brake on the expansionist trade policy that China had been developing in Europe, and the world, for years.

During the Summit that took place at the end of June, the tension could be breathed. Von der Leyen encouraged continued cooperation in strategic areas, but only on equal conditions in terms of market access. What the European Union wants is to put pressure on China to behave in accordance with international standards, and to play by the same rules that von der Leyen is playing by. That is to say, respect of fundamental rights, data protection and subsidies regulation

Von der Leyen is making clear the European Union’s position in its relations with China. However, it also wants to deepen its cooperation with Xi Jinping, not only economically and technologically, but also in the fight for a multilateral system, where there is no choice between the United States and China.

Who is winning and what about you?

Answer: Currently, neither EU leaders nor China’s leaders are winning. But it is the start for a renewed relation.

We are currently experiencing what some are calling a new Cold War. It’s about the trade dispute between Trump and Xi Jinping. Both leaders seem to be playing a zero-sum game. In view of the growing tension, which has been exacerbated by the coronavirus crisis and the faltering of international markets, the European Union must take a stand. And the position that von der Leyen is taking is to maintain the multilateral mechanisms, to defend its values and its way of doing things. 

The EU does not take a position either with the US, with whom it shares cultural and commercial aspects, or with China, one of its main trading partners. What von der Leyen is seeking, through Josep Borrell and his own actions, is to strengthen the EU’s strategic autonomy. Therefore, a new scheme in its relations with China must be drawn up, in order to end a dependence that has been seen with the last crisis.

This latest Summit, and the direction that the EU is taking in its external relations, is consistent with its search for dialogue and leadership in the construction of a new global order. China is and will be an ally, but new rules have to be implemented. This is a reality in constant evolution, and further development of their relationship will be of great interest, especially after the tariff measures adopted by the EU. 

A relationship between the EU and China in which limits have been set can be very beneficial for European companies. Not only will this affect the products that reach European consumers, but it will also give a boost to the industry within the Union itself. This may be detrimental to Chinese companies, and therefore to their employees. But it may also result in a spread of the European economic model in those companies.

Claudia María Yáñez Sangil

Research and Analysis Intern