The sum and substance of the EU's China dilemma

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 The sum and substance of the EU's China dilemma

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• Major partners: Both the EU and China have been major trade partners for long now, and account for roughly 35% of world GDP (PPP). It was EU that worked hard to get China into the WTO and China supported the EU project. Germany's industrial value rose by 37% from 1995-2012, largely due to supply chains based in China (and not the US).
• June 2020: The European Authorities publicly said that "they have to engage with China for their own global objectives, based on interests and values". That shows EU won't disengage with China anytime soon, due to the COVID-19 pandemic. And EU clarified it won't take sides between the US and China. 
• 2019 Strategic Outlook: The EU Commission published the "A Strategic Outlook" document in 2019 which described China as a cooperative partner, economic competitor, and a systemic rival with alternative governance models (read 'authoritarianism'). So from just 'economics', the EU broadened its China understanding to a trinity - partner, competitor, systemic rival.
• Overall package: The EU realised that as China's power and resources grew rapidly, EU's own security was in peril. China was building new relations - The 16+1 format in which Central and Eastern European states were involved. It was meeting the Nordics and southern Europeans too. The PLA Navy sailed into the Baltic Sea for joint exercises with Russia in 2017. China acquired Kuka (a high tech firm) in Germany, and ports in Greece.
• China's approach: Its economic practices were backed by strategic motives, and was threatening the European Project itself! A single European entity was being fragmented due to Chinese links with sub-groups.
• Pandemic in 2020: China tried using the confusion inside EU to launch a new line of propaganda. The EU retaliated strongly blaming Russia and China for it, asking them to stop social polarisation and poisoning of democratic debate.
• China's aggression: The new aggression in Hong Kong, on the LAC with India, and in the South China sea has warned everyone. The European dilemma is clear - China is crucial for economic health, and deadly for strategic health.
• Earlier concerns, and now: The EU fought over issues like market access, industrial subsidies, over-capacities, stealing of IPR, and China's approach to security of digital networks. But today, the EU is talking of its own security in light of China's global strategic and military actions, while balancing EU's economic needs. In that trinity of issues, now "systemic rival" is dominating.
• China's response: Some in China say that "Europe's star is fading". Sadly, as US is withdrawing from global leadership, China is making use of the vacuum being created. Chinese now say that "EU, US and Japan want to curb China, but China, Europe and Japan can gain a lot together".
• EU won't break away: The EU won't join the "against-China" camp, and their firms in China are there 'for China'. EU still wants President Xi Jinping to make reforms like the ones by Deng Xiaoping in 1992 and Zhu Rongji in 1998. Over the next year, if due to pandemic the world demand does not revive, or Chinese are unable to fully restore the supply chains, then investor may move elsewhere.
• India-EU relation: If India acts fast, we may use this opportunity, as situation is favourable after UK's withdrawal. EU understands India's importance in the Indo-Pacific. India should try to put back on track the "Broad-based Trade and Investment Agreement" and work with EU on 5G, AI and emerging technologies. This shouldn't be missed.

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