Huge trade relationship at stake as China and EU meet to discuss Russia

CNN

By Michelle Toh, CNN Business

China and Europe’s top leaders are set to meet on Friday, as their vast and growing trade relationship threatens to be overshadowed by differences over Russia and other geopolitical tensions.

At the virtual EU-China summit, Beijing is expected to face pressure from one of its top trading partners over the war in Ukraine, which will be the main focus of the talks, according to the European Union. Chinese President Xi Jingping and Premier Li Keqiang will also discuss business ties, human rights and climate change with European Council President Charles Michel and Ursula Von der Leyen, president of the European Commission.

Europe trades more goods with China than anyone else. But in recent weeks, concerns in the West have spiked over Beijing’s refusal to condemn the Russian invasion of Ukraine.

“Senior EU officials have unsuccessfully sought to convince Beijing to push Moscow toward deescalation,” Eurasia Group experts wrote in a note Tuesday. “[They] will now seek to enlist Xi, but the feeling in Brussels is that China is not interested in pressuring Russia.”

The divergence over the Russia-Ukraine crisis stands in contrast to China and Europe’s economic ties, which have deepened during the coronavirus pandemic.

Here’s a look at where things stand — and what’s at stake.

What’s on the table

China abstained from voting on a United Nations Security Council resolution condemning Russia’s invasion of Ukraine in February, troubling many in the West.

“The way in which China handles this conflict will have bearing on the future overall of the EU-China relationship,” Reinhard Butikofer, head of the European Parliament’s delegation for relations with China, told reporters ahead of the summit.

In a statement, EU leaders said they would focus on “the engagement of the international community to support Ukraine, the dramatic humanitarian crisis created by Russia’s aggression, its destabilizing nature for the international order and its inherent global impact.”

China has acknowledged the tension in the room, but pushed back on any assertions of wrongdoing.

“The current international situation is volatile,” Chinese Foreign Ministry spokesman Wang Wenbin said at a press conference Wednesday.

Beijing has already urged the United States — which, along with the European Union, has imposed tough sanctions against Moscow — not to undermine its “legitimate rights and interests,” adding that China and Russia would “continue to conduct normal economic trade cooperation.”

China has long sought to drive a wedge between the United States and European Union, with officials and state media often pointing to the importance for the bloc’s “strategic autonomy” from Washington.

A top trading partner

Despite the pressure, China and the European Union are heavily reliant on each other for hundreds of billions of dollars in trade each year.

China overtook the United States in 2020 as Europe’s biggest trading partner for goods, with the overall value of trade reaching €588 billion ($650 billion), according to EU statistics office Eurostat.

In 2021, the trend continued: Overall China-EU trade in goods reached €695.5 billion (approximately $777 billion), compared with €631.4 billion ($704 billion) in US-EU trade.

China was the number one source of EU imports and the third largest destination of EU exports, after the United States and United Kingdom, according to Eurostat.

Europe’s trade with the world’s second largest economy has soared over the past decade. China logged some of the highest annual growth rates for both EU imports and exports from 2011 to 2021, Eurostat said in a report.

However, the European Union still considers the United States to be its biggest overall trading partner, taking into account the exchange of services and foreign investment. China ranks second in that respect, followed by the United Kingdom and Switzerland.

Who trades what

Cars, machinery and telecom equipment are some of the most traded goods between Europe and China.

For Europe, autos and vehicle components are by far the hottest exports, while aviation and electrical gear are also popular.

Meanwhile, baby carriages, data processing machines, furniture and other household items are among China’s big sellers into Europe. Many products flow into the Netherlands, home to Europe’s biggest port in Rotterdam.

The region’s top exporters to China are Germany — which alone accounts for €104.7 billion ($116.5 billion) of the goods shipped to China — followed by France and the Netherlands.

Currently, however, tensions are high over one particular, much smaller EU country: Lithuania.

In January, the European Union launched a case against China at the World Trade Organization, accusing Beijing of “discriminatory trade practices” against the Baltic state.

In a statement, the European Commission said that China had started to “heavily restrict or de facto block imports from and exports to Lithuania, or linked to Lithuania,” after it allowed self-ruled Taiwan to open a de facto embassy under its own name in Vilnius.

The move enraged the Communist leadership in Beijing, which claims Taiwan as part of its territory, despite having never governed it.

Asked about the matter at the time, Chinese Foreign Ministry spokesperson Zhao Lijian told reporters that “China has been following WTO rules.”

“The problem between China and Lithuania is a political, not an economic one,” he said.

Janka Oertel, director of the Asia Programme at the European Council on Foreign Relations, said the case would likely be top of mind for EU leaders on Friday.

“Brussels will have to send a strong signal of unity to deter further — implicit or explicit — attacks,” she said.

There is also little hope for a revival of a planned China-EU investment deal, which was previously shelved due to Beijing’s sanctions against European Parliament members over their stance on Xinjiang.

Given the current plethora of issues, that is “a non-starter” for now, said Eurasia Group analysts.

— CNN’s Beijing bureau, Irene Nasser, Julia Horowitz, James Frater, Martin Goillandeau and Luke McGee contributed to this report.

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