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Andrew A. Michta is dean of the College of International and Security Studies at the George C. Marshall European Center for Security Studies, and a nonresident senior fellow in the Atlantic Council’s Scowcroft Center for Strategy and Security.
A few weeks ago, while attending the Munich Security Conference, I witnessed the arrival China’s Director of the Office of the Central Foreign Affairs Commission Wang Yi.
The pomp and attention given to Wang was unmistakable, as was the coverage of his subsequent speech, restating the familiar Beijing talking points on China’s approach to “making the world a safer place.”
Both the speech and the subsequent moderated discussion made clear that Wang had come to Munich to drive a wedge between the United States and Europe — to attack America and to woo Europe. And much of the subsequent conversation in the hallways of the conference venue underscored that after three decades of deepening economic relations, China is very much a “power in Europe,” despite its geographic distance.
By virtue of its investments, its access to every level of European societies and its accompanying growing influence among the Continent’s business and policy elites, China is poised to significantly expand its role in European politics. And the decisions Europe now has to make when it comes to relations with China going forward will go a long way in shaping transatlantic relations in the coming decade.
As Beijing finds its access to American technology and its research and development (R&D) base evermore restricted, access to European corporations and the Continent’s R&D base will become that much more important. At the same time, Europe’s — and especially Germany’s — dependence on Chinese subcomponents and market access has grown to a point where Beijing has significant leverage in dealing with European governments.
It’s also worth noting that just before COVID-19 hit with full force, the cumulative foreign direct investment (FDI) flows from the European Union to China reached over €140 billion, while at the time Chinese FDI into the EU stood at approximately €120 billion. And despite a decline in EU investment in China during the pandemic, 2022 saw a dramatic reversal of this trend, with EU investments in the country growing by a staggering 92.2 percent year-on-year — and those from Germany in particular growing by 52.9 percent — according to recent data. Though the EU’s investment is still relatively modest considering the size of the Chinese economy, it is targeted at critical supply chains that European industry needs, and it is likely to grow exponentially in the coming years.
Likewise, Chinese investment in Europe has prioritized a wide range of European critical infrastructure — especially ports, airports, power companies, wind and solar farms, as well as telecommunications companies. In some areas, it has been able to buy some of the most innovative European companies — for instance Germany’s KUKA Robotics, a leading supplier of intelligent plant systems.
Thus, China’s increasingly central importance as a business partner for Europe will shape policy decisions across the bloc in the next two to three decades, putting Europe’s priorities on a likely collision course with U.S. strategic goals, which will focus on confronting China in economic, military and, increasingly, ideological domains.
Today, European businesspeople and analysts say they see China’s market as indelibly indispensable to Europe’s continued economic success. Business leaders argue that China has the largest internal market in the world, with 1.4 billion potential customers, and they point to a well-developed Chinese manufacturing sector as critical to their own supply chain networks. They also argue that China has a favorable geographic location, being close to emerging markets in Asia and key maritime routes.
In general terms, Europe’s analysts see China as the world’s top economy when it comes to purchasing power parity, thanks to decades of explosive growth. For this, they point to the fact that labor costs there remain comparatively low and, most importantly, to what they see as complementarity between the high value-added manufacturing in Europe and China, as well as the Chinese consumer market’s potential as critical to growing their exports. That latter point is repeatedly articulated in in Germany, where exports account for close to 40 percent of the country’s GDP.
So, while the current debate across the pond in Washington is mainly centered on the war in Ukraine, and increasingly about how far the U.S. should go in aiding Ukraine against Russia, some argue that our support for the war is a distraction from the real adversary — China. However, what’s missing from this discussion is that prioritizing China vs. Russia is not an either-or proposition, as China is a close ally of Russia, and it is already a force in Europe.
What happens in Europe now — not just in terms of the outcome of this war, but how Europeans define their relations with China in the future — will shape transatlantic relations with key European allies. And Europe’s choices when it comes to its China policy will greatly influence the outcome of U.S. competition with China in other theaters too.
* The opinions expressed here are those of the author and do not reflect the official policy or position of the George C. Marshall European Center for Security Studies, the U.S. Department of Defense, or the U.S. government.