Flashpoints | Economy | East Asia

How the EU’s Security Approach Affects China-Europe Relations

Whether in Germany or the EU as a whole, expanded concepts of security are threatening economic exchanges with China. 

How the EU’s Security Approach Affects China-Europe Relations
Credit: Depositphotos

On June 14, Germany unveiled its first-ever National Security Strategy, introducing the concept of “integrated security.” This conceptualizes security as a wide-ranging notion relevant to all levels of government and society, encompassing the economy and supply chains, technological development, cybersecurity, and human rights policy.

Similarly, on June 20, the European Union published a report on its approach to enhancing economic security, aiming to reduce security risks related to supply chains, critical infrastructure, and digital technology. Once again, such an approach extends connotations of security to the economic and technological fields, under an abstract “de-risking strategy.”

The EU’s de-risking approach or Germany’s integrated security concept both expand the scope of security, which risks providing executive agencies with the leeway to abuse restrictive measures on economic and technological exchanges. This trend is gradually jeopardizing normal trade and technological exchange between the EU and China, as well as mutual trust.

First, the tendency by the EU and its member governments to generalize the concept of security is making security issues in China-EU economic and trade relations more complex. China and the EU enjoy one of the world’s largest trading partnerships. In 2022, China was the third largest partner for EU exports of goods (9 percent) and the largest partner for EU imports of goods (20.8 percent). However, with the EU adopting a broad security perspective, what was once a pure economic relationship has become more complex. The EU no longer considers just economic interests when formulating trade policy, but also security concerns such as data and supply chain security.

Although Ursula von der Leyen, president of the European Commission, admitted that most of the China-EU trade in goods and services “remains mutually beneficial and ‘un-risky,’” the EU and its member states have not clearly defined the scope of “de-risking.” Rather, they are considering restricting exports to China, following the United States’ restrictive measures on high-tech trade with China. In January of this year, Dutch officials reached a deal with the U.S. to restrict the Netherland’s ASML from selling advanced microchip manufacturing equipment to China. Furthermore, Germany is engaged in negotiations to curtail the export of semiconductor-manufacturing chemicals to China.

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Neither the Dutch nor the Germans have provided a convincing reason why these exports to China harm their national security. Beijing, however, argues that such export restrictions damage normal trade and technological exchanges with China and limit China’s development of advanced semiconductors.

Furthermore, the EU’s broad security perspective presents challenges for normal trade and interaction between business actors in China and the EU member states. Some restrictive measures based on security risks have been rushed through without engagement with European industrial representatives and consideration of the actual cost, leading to dissatisfaction and defiance by European companies.

Taking telecom networks as an example, this month the European Union was reported to be considering a mandate to prevent its member states from incorporating potentially risky firms like China’s Huawei into their 5G networks. This primarily stems from the EU’s broad security perspective, where networks are no longer merely tools for information transmission but also vital components of national security. However, EU officials have never presented any reports grounded in technological standards or risk assessments on Huawei or its products. They have only expressed security concerns and suspicions over Huawei possibly falling under the control of the Chinese government at some point in the future. As a result, Huawei has faced market pressure in Europe, and some countries have even banned Huawei from participating in 5G network construction.

Timotheus Höttges, head of Deutsche Telekom, said that he would continue defying the EU unless forced to remove Huawei by Germany’s government. Höttges has argued that replacing Huawei in the control center of its 5G network is sufficient to protect German telecom infrastructure.

Huawei plays a significant role in supplying uncritical equipment like antennas to the European 5G network market, which poses no security risks. According to Strand Consult’s data, Deutsche Telekom maintains about 80,000 Huawei antennas across around 25,000 sites. The cost of dismantling all of Huawei’s mobile equipment would be about $3.2 billion.

Huawei’s case provides a typical example of how the broad security perspective hinders mutually beneficial trade in goods between China and Europe. EU officials insist on excluding all of Huawei’s products from the European telecom market without considering the opinions of companies and the cost of exclusion.

In addition, the expansive concept of security adopted by the EU, along with restrictive measures derived from it, will likely further undermine political trust between China and Europe. Networks, technology, data, etc., are now defined as security issues, transforming what were previously economic or technological questions into political ones. For instance, the EU’s security concerns about Chinese tech products such as Huawei’s equipment could also be viewed as distrust of the Chinese government. This could amplify political disagreements between China and the EU, making cooperation on climate change, public health, and other global challenges more difficult.

The freezing of the EU-China Comprehensive Agreement on Investment (CAI) since 2020 is evidence of the decreasing mutual trust between these two actors. Even at a meeting between Chinese President Xi Jinping and von der Leyen in April, the CAI was not discussed.

Moreover, the weakening political trust between China and the EU may result in increasing restrictive or scrutinizing measures on bilateral trade and investment, which will damage business confidence in the other’s market. In the long term, this could lead to gradual decreases in economic interactions and people-to-people exchanges, potentially resulting in EU-China decoupling – something EU leaders have emphasized they are keen to avoid.

According to a 2022 report by the China Chamber of Commerce to the EU, Chinese enterprises’ overall score for the EU’s business environment has declined from 73 points in 2019 to 65 points in 2021. A full 96 percent of surveyed companies expressed concerns about the EU’s new regulations on foreign subsidies. Many Chinese companies believe that the EU’s “international procurement tools” (40 percent) and “corporate sustainable development due diligence directive” (35 percent) negatively impact their operations in Europe. As mentioned above, some Chinese companies have faced challenges and pressure in conducting their business in Europe, particularly in the telecom and renewable energy industries.

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Similarly, European companies in China have also faced challenges and uncertainties regarding China’s policy and China-U.S. strategic competition. Based on a European Chamber survey this year, 59 percent of European companies surveyed believed that political factors have challenged their business in China in 2023. Additionally, 53 percent of companies have decided not to expand their business in China, marking a 15 point increase from 2022.

In conclusion, the broadening of security perspectives by the EU and its member states has introduced complexity into China-EU economic and trade relations, negatively impacting normal business interactions and undermining political trust between both parties. This expanding view of security, which now includes networks, technology, and data, has political implications, further straining the already complex relationship and obstructing potential cooperation on global challenges. As such, there is a pressing need for both the EU and China to address these issues and engage in constructive dialogue, aiming to strike a balance between security concerns and economic cooperation, and to rebuild mutual trust for the benefit of all.