Europe is no one's vassal, 'relaxed' Xi Jinping tells EU leaders in Beijing

EU leaders are arriving back in Brussels with few concrete deliverables but a sense that Beijing is in no doubt as to the problems in their relations - and that this time they listened.

At Thursday's summit, the Europeans felt their concerns were being taken seriously by Chinese President Xi Jinping and Premier Li Qiang compared to recent interactions - one of which was famously panned as a "dialogue of the deaf" - even if they remain far apart on core issues like trade and Russia.

When European Council President Charles Michel travelled to Beijing a year ago, he was subjected to long lectures from Xi on topics ranging from the United States, to Taiwan, to human rights.

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This time, there were no such diatribes. A "relaxed and non-confrontational" Xi told Michel and European Commission President Ursula von der Leyen that China considers Europe to be a "pole" in its own right, and certainly not a "vassal" of anyone, according to several people briefed on the talks.

This minor semantic play will give Europe ammunition to counter claims often made by Chinese diplomats that it is beholden to the United States, and is partly viewed as a product of a relative stabilisation in US-China ties in recent weeks too.

The EU went to China with a few big asks. One was to rebalance a lopsided trading relationship that saw the EU trade deficit double in two years and to address overcapacity and subsidies in the Chinese economy. They want Beijing to stop its firms circumventing sanctions on Russia, and to re-engage with Kyiv-backed talks with which it has dabbled, but failed to commit to in the long term.

On none of these issues did they feel they were completely shut down by Xi and Li, even if the needle remains substantially unmoved across the board.

There is a sense that Beijing's top leadership is concerned about swirling economic headwinds and wants desperately to avoid a full-blown trade war with the EU. Xi himself raised the Moody's downgrade warning for China's credit rating on Tuesday, saying it showed how the West fails to understand the world's second biggest economy.

He was warned in return that the EU market will not remain open forever if Beijing's policies do not change. China was asked to rein in bank lending and lower production targets for some manufacturing sectors.

The Europeans were told that China's policies are compatible with its own legal system. But the message received by some in Brussels is: domestic policies can change, even if Beijing will not structurally change its economic path.

"Politically, European leaders will not be able to tolerate that our industrial base is undermined by unfair competition," said von der Leyen at a press conference on Thursday.

On trade, the Chinese leadership agreed to work in technical groups with EU officials to discuss overcapacity, which Europe feels will result in cheap Chinese hi-tech goods landing in its relatively open market.

When the Europeans raised the 1,000-plus issues flagged by the EU Chamber of Commerce in China, Li said he was not aware of them, but committed to having his staff work through them in detail with EU staff.

"Will it solve the problem on its own? No. Is it a step in the right direction? Of course," said one well-placed source.

Brussels is hugely concerned about China's growing capacity as a carmaker, with a probe ongoing into state subsidies for electric vehicles. On Thursday, the Chinese leadership pointed out that Volkswagen sells only 20 per cent of its cars in Germany, so what's the difference?

"They came with a lot of data and arguments, not to accept our opposition, but to counter argue. When we talk about excess capacity, excess what does it mean, excess in respect to what?" said a third EU official.

There is no expectation that China will move away from its long-standing policy of using state subsidies to promote priority sectors. "Why would they? This is their growth model," said a fourth official.

European Council President Charles Michel, Chinese Premier Li Qiang and European Commission President Ursula von der Leyen at the Great Hall of the People in Beijing. Photo: Xinhua alt=European Council President Charles Michel, Chinese Premier Li Qiang and European Commission President Ursula von der Leyen at the Great Hall of the People in Beijing. Photo: Xinhua>

But through technical groups - an idea floated by von der Leyen - it is hoped that Brussels can point to specific pain points in the Chinese economy, and that there may be some policy tweaks that could lessen the impact.

There will be suspicions that Beijing is buying time, trying to avoid opening another front with Europe when its own economy is struggling, and enabling its companies to pump more goods into the EU market before access diminishes.

But at the same time, Brussels is willing to offer that time - it too would prefer not to engage in economic warfare with such a powerful opponent, and its industries have largely asked the commission to pursue diplomatic resolutions.

On Russia, the EU presented Xi and Li with a list of 13 companies accused of selling European-made dual-use goods to the Russian military. These are turning up on the battlefield and killing Ukrainians, they said.

Xi told the Europeans he was "attentive" to this, according to several sources familiar with the discussion, and said that China has an export control regime of its own. So whereas there was little expectation that Xi would admit any wrongdoing on Beijing's part, Brussels is pleased that he was "happy to engage".

Von der Leyen told the Chinese leadership that she understood not all of the circumvention was being done by Chinese companies. In June, for instance, it was discovered that Russian entities registered in mainland China and Hong Kong were among the biggest culprits.

This is seen as a way of allowing Beijing to tackle the problem while saving face, but it remains to be seen whether it will put a stop to it.

There was no firm commitment to return to Ukraine-backed peace talks, but nor was it dismissed out of hand. It is thought that Beijing prefers to engage in smaller formats on matters like this.

The Chinese side wanted to find a way of mutually lifting bilateral sanctions introduced in 2021, after the EU targeted officials accused of orchestrating mass human rights abuses in Xinjiang. The stumbling bloc there, however, is that the EU does not see the situation improving in the western Chinese region.

On Taiwan, Xi got reassurances that Brussels would not support any move for independence, and in return they feel like Beijing understood that altering the status quo by any means - including force - would have serious consequences.

"We are opposed to any unilateral attempt to change the status quo by force. The EU maintains its one-China policy and I trust that China is fully aware of the serious consequences of any escalation in this area," Michel told reporters - a message he also delivered behind closed doors.

Discussions on the Middle East were described as "constructive", while Michel asked for Beijing's help to investigate the rupture of a Finnish-Estonian gas pipeline, with suspicion centred on a Chinese ship that was operating in the area.

Xi reacted positively to the request, and officials found him unusually engaged - briefed on technical matters that would ordinarily reside with underlings. Sources are doubtful that the summit will alter the downward trajectory in the relationship, but in Brussels it proved that the adage rings true: it's good to talk.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.