Europe Reasserts Middle Path on China, Pushing Back on Biden

(Bloomberg) — President Xi Jinping started his week overseas mending ties with the US, and ended it with European leaders making the case for resisting the Biden administration’s sweeping chip curbs on China.

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The shift in sentiment amounts to a victory for Xi on just his second foray outside of China since the pandemic began — a span that had seen Beijing’s relations with the US and its allies go from bad to worse. In October, President Joe Biden restricted the sale of semiconductors and chipmaking equipment to China in a bid to stem its economic development, and asked key allies to comply — raising fears of a split in the global economy.

On Friday, French President Emmanuel Macron called for engagement with Beijing and resisting efforts to divide the world into competing blocs. That followed similar appeals from German Chancellor Olaf Scholz, who visited China earlier this month, and efforts by Dutch Prime Minister Mark Rutte to coordinate with other key chipmaking nations in resisting US pressure.

“Now, progressively, a lot of people would like to see that there are two orders in this world,” Macron said in a speech to business executives at the Asia-Pacific Economic Cooperation CEO summit in Bangkok. “This is a huge mistake, even for both the US and China.”

“We need a single global order,” he added, a line that drew extended applause.

The French leader’s comments in particular show Europe is finding its footing in carving out a middle ground when it comes to China. While calls have grown in some European capitals to get tougher with Beijing on issues related to human rights and democracy, the sweeping US export controls on chips — which may soon be extended to other strategic technologies — have shifted the conversation from fears about China to concern about American overreach.

‘Little Appetite for Confrontation’

With Germany heading towards recession and Europe facing a harsh winter without cheap Russian oil and gas, “there is little appetite for confrontation with Beijing,” said Noah Barkin, managing editor of the Rhodium Group’s China practice.

“For all the rhetoric about standing up to Xi, forging a common European front and mitigating the risks of economic engagement with China, the actions over the past month have fallen short,” he said. “The risk, if this continues, is more cracks in the transatlantic relationship. We are already seeing some of these cracks in Europe’s reaction to recent US technology controls aimed at China.”

Xi sought to exploit the divisions on his six-day trip to attend the Group of 20 summit in Bali and APEC in Thailand, during which he met with roughly 20 leaders — many of whom he hadn’t seen face-to-face in at least three years. In a meeting with Rutte in Bali, Xi urged the Dutch leader to avoid “decoupling” as the US piles pressure on ASML Holding NV, which has a virtual monopoly on a type of machine needed to make the most advanced chips.

“We must oppose the politicization of economic and trade issues and maintain the stability of the global industrial chain and supply chain,” Xi told Rutte on Tuesday. The Chinese leader also called for increased cooperation in high-tech manufacturing with South Korea in a meeting with President Yoon Suk Yeol, whose nation is home to chip giants Samsung Electronics Co. and SK Hynix Inc.

Later in the week on Thursday, Rutte met with Yoon during a visit to Seoul, where the two leaders pledged greater cooperation. A day later, Dutch Foreign Trade Minister Liesje Schreinemacher said the US should not expect the Netherlands to unquestionably adopt its approach to China export restrictions.

“The Netherlands will not copy the American measures one to one,” Schreinemacher said in an interview with Dutch newspaper NRC published on Friday. “We make our own assessment — and we do this in consultation with partner countries such as Japan and the US.”

The Biden-Xi summit showed that the world’s largest economies understand their responsibility to overcome divisions, but risks remain of a greater bifurcation without follow through in subsequent discussions, according to International Monetary Fund Managing Director Kristalina Georgieva.

“We are in a world that is going from one shock to another — pandemic, war, inflation, cost of living crisis,” the Bulgarian economist told Bloomberg Television on Saturday. “And if we add on top of it the fragmentation in the world economy, it would be throwing gasoline on a fire. Nobody benefits from it.”

The US moves to restrict trade with China have also come under criticism in Asia, where nations like Singapore have warned against cutting off Beijing economically. Many governments in the region also viewed US House Speaker Nancy Pelosi’s trip to Taiwan earlier this year as unnecessarily provocative.

Biden appeared to address those concerns after his meeting with Xi, telling reporters he did not see “any imminent attempt” by China to invade Taiwan and made clear the US policy toward the self-governed island “has not changed at all.” He said Xi was “straightforward,” adding that “I think that we understand each other.”

Avoiding a ‘Cold War’

“I absolutely believe there need not be a new Cold War,” he said. In subsequent days, the US and China restarted talks on the military and climate change.

Although major European leaders are increasingly resistant to rising pressure from Washington, they are far from reaching a consensus on how to deal with an increasingly assertive China.

Former Soviet bloc countries in particular are coming to view Beijing’s economic influence over the continent with suspicion. Finnish Prime Minister Sanna Marin on Thursday warned of Europe’s technological dependency on China, noting the risks of becoming too reliant on an authoritarian regime.

Xi’s diplomatic support for Vladimir Putin, who invaded Ukraine shortly after declaring a “no limits” friendship with the Chinese leader, has also helped strengthen US-Europe bonds. The Chinese leader has recently moved to alleviate some concerns about his relationship with Putin by drawing a red line on the use of nuclear weapons, which he mentioned during a meeting with Scholz and later repeated with Biden.

Altogether, Xi’s actions at least have Europe thinking about a middle path. In an extended metaphor during his APEC speech, Macron likened the US and China to “two big elephants” in a jungle.

“If they become very nervous and start a war, it will be a big problem for the rest of the jungle,” he said. “You need the cooperation of a lot of other animals.”

–With assistance from Cagan Koc, Debby Wu and Stephen Engle.

(Updates with talks resuming)

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