Xi’s visit underlines the hard choices the European Union faces on China

President Xi Jinping’s European tour, which started on 6 May in Paris, is his first for five years. That is a long time considering that the European Union is China’s largest market and that Xi has been on many other foreign visits – not least to Russia – since November 2022, when China started its post-pandemic reopening. The choice of European destinations (France, Serbia and Hungary) is also telling as a demonstration that Xi is happy to visit the heart of the EU but has other options.

Still, Xi’s stop in Paris, was important for several reasons. French President Emmanuel Macron has become the staunchest supporter of a stronger European Union. He is clear that a strong EU needs Russia to be defeated in Ukraine, and that the EU must also safeguard its own strategic autonomy, now encapsulated in the EU economic security strategy. Both objectives are very much related to China. 

In terms of Russia, official exchanges between Putin and Xi are at record high and China has repeatedly abstained from United Nations resolutions condemning Russia’s aggression against Ukraine. Meanwhile, Chinese economic and financial support for Russia is not limited to imports of oil and gas at very appealing prices (as is the case for other emerging economies, notably India). Most importantly, China (with North Korea and Iran) is reportedly the main provider of everything Russia needs to keep its war machine going: from trucks to chips to drones.

Such Chinese exports risk being classified officially as dual-use or as weapons components, as US Secretary of State Antony Blinken warned during a trip to Beijing in April. So far the EU has imposed fines on only a small number of Chinese companies delivering dual technology to Russia, compared to a much longer list of companies sanctioned by the US. A warning to Xi from Macron on this issue might have been more strident than previously, but Xi knows that Hungarian Prime Minister Viktor Orban (who Xi will meet last in his European trip) can block such sanctions because EU external action requires unanimity.

On EU economic security, Macron had European Commission President Ursula von der Leyen at his side when he met Xi at the Elysée. She was able to spell out the full list of EU economic concerns – if not grievances – with China’s economic model, namely that China’s industrial policy is creating ever-growing excess capacity with devastating consequences for foreign competitors, including  European firms.

The focus of the conversation has clearly shifted from market access (after decades of unsuccessful attempts to give EU companies more access to the Chinese market) to China’s flood of exports into the EU, at increasingly low (and according to the EU mostly subsidised) prices, stemming from overcapacity in China, though Xi’s response has been that China just has a huge comparative advantage arising from innovation and economies of scale.

It seems difficult – if not impossible – to see China making any concessions to reduce the flood of Chinese imports into the EU. Meanwhile, President Xi has offered to support the EU green transition even more by having Chinese electric vehicle manufacturers establish additional factories in the EU. Such factories are mushrooming, with good access to EU funding, as they become part of the EU plan for domestic production of green tech. Beyond the subsidies, by setting up factories in the EU, China avoids the countervailing duties that would be imposed on imported Chinese EVs if the EU’s ongoing anti-subsidy investigation warrants it. 

Once Xi’s visit to Europe is done, the next steps will be much tougher for the EU. On Russia, the United States is reportedly working on sanctions on Chinese banks that finance exports of dual technology to Russia. This would create heavy pressure for the EU to follow. On economic security, Xi’s denial of the problem leaves the European Commission no choice but to continue ongoing investigations into EVs and wind turbines. The moment of truth will come when the EU needs to take real action on either of these two fronts and the differences between EU members become unavoidable.