There is little doubt that the European Union (EU)-China business environment has become increasingly politicised in recent years. With nationalistic boycotts, mutually exchanged sanctions and the freezing of the Comprehensive Agreement on Investment, relations have taken a sharp turn for the worse. Negative public sentiment towards China is now at historic highs in many western economies.[1]

Among European companies in China, concerns are rife that tensions will increase. The United States (US)-China trade war continues to spill over and impact EU-China relations; China has expanded its legislative arsenal, with the Anti-Foreign Sanctions Law highlighted as a key tool at this year’s ‘Two Sessions’;[2] and differing perspectives on atrocities taking place in Ukraine risk becoming another point of contention.

Foreign companies operating in China remain caught between a rock and a hard place. If they comply with home government measures (such as export controls) or engage in activities perceived to be ‘anti-China’, they run the risk of being subjected to Chinese extraterritorial measures. If they fail to comply with measures introduced back home, then they risk coming under huge political and consumer scrutiny from the European governments or public. European companies increasingly fear being used as sacrificial pawns in a game of political chess.

For their part, Chinese companies also risk coming under fire, and not just from overseas elements. Should the geopolitical situation take a turn for the worse, Chinese buyers may be further pressured to cease using European suppliers or forgo entering into partnerships with European companies altogether. This despite the fact that there are clear opportunities for synergies and further cooperation to the benefit of both sides.

European and Chinese companies have complementary expertise and competencies. In the area of research and development for example, while European companies excel in industrial innovation, China’s innovation is chiefly at the consumer-end of value chains. This provides clear scope for both sides to learn from one another and add value.

There are also areas where there is a clear overlap of interests. Take fighting climate change for instance. Not only is this a top priority for the EU, European businesses and the Chinese Government alike, but European businesses have much expertise in decarbonisation to share. They have cutting-edge technology and experience working with industry and governmental stakeholders in their home markets on similar challenges, putting them in prime position to work with China to achieve its 2030/2060 decarbonisation goals.

To make progress in the many areas that are ripe for cooperation, a de-escalation of tensions is needed. One can only hope that April’s EU-China Summit will present the opportunity for both sides to have a frank conversation on the current challenges they face, and to explore ways of addressing them in a pragmatic way. To help make this happen, the European Chamber and its member companies remain ready to engage in constructive dialogue with stakeholders from both sides to help deepen the EU-China relationship.

[1] Owen Churchill, Negative views of China continue to dominate its international image, survey finds, South China Morning Post, 30^th June 2021, viewed 11^th March 2022, <https://www.scmp.com/news/china/diplomacy/article/3139241/negative-views-china-continue-dominate-its-international-image>

[2] First adopted in 2021, the Anti-Foreign Sanctions Law, together with the Ministry of Commerce’s Provisions on the Unreliable Entity List and its Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, aim to improve China’s legal system for opposing foreign sanctions, interference and long-arm jurisdiction.