Politico: EU Turns the Guns on China in Subsidy War Beijing threatens to strike back

Europe’s fake war with China is over. After years of improving its arsenal to wage a true trade war, Europe is now showing it is willing to get tough with China, writes Politico.

EU authorities have raided the Dutch and Polish offices of Nuctech, a maker of airport security scanners, in a case linked to one of the oldest disputes between Europe and China – the generous state subsidies offered by Beijing to help Chinese firms sell products at much lower prices than European competitors.

Nuctech was once headed by Hu Haifeng, the son of Xi Jinping’s predecessor, Hu Jintao. China’s reaction was as expected: The raid “underlines the continued deterioration of the EU’s business environment and sends an extremely negative signal to all foreign companies,” China’s mission to the EU said.

The move by Brussels comes shortly before Chinese leader Xi’s trip to Europe – his first in 5 years – which will take him to France, Serbia and Hungary, and marks a sea change in how Europe is prepared to tackle trade issues with China.

For several years, Brussels has adopted a very lenient attitude towards Beijing, trying to reach an agreement, usually without success, on state subsidies and overcapacity in some industrial sectors, such as steel, aluminum and green technology rather than choosing the path of direct confrontation and an eye-for-an-eye trade war.

Now, the cards have been turned on their face, after the Europeans have come to the conclusion that they must protect the most important technologies. After the EU’s investigation launched in October into Beijing’s state aid to Chinese electric car manufacturers, Brussels has now come up with new probes into wind turbines and medical equipment to “rebalance the EU-China partnership”.

“We like fair competition. What we don’t like is when China floods the market with massively subsidized electric cars. This is what we struggle with. Competition – yes, dumping – no. This must be our motto”, said Ursula von der Leyen, the president of the European Commission, on Wednesday.

Europe’s more aggressive stance has both advantages and dangers. On the one hand, the EU’s more robust stance towards China is a hand out to anti-China allies in the US, who have always been disappointed by Europe’s soft-spoken approach to the issue.

On the other hand, it also means that Europe must prepare for a counterattack from Beijing and a tumultuous period of economic conflict.

Investigations into Beijing’s subsidies are not the only sign that Brussels’ attitude towards Beijing has changed. Inside the EU, there is growing pressure to counter China’s massive infrastructure investment projects, known as the New Silk Road (Belt and Road), with which Beijing strategically expands its influence by building ports and roads connecting Asia to European markets.

“Divide and conquer” – China’s strategy in the trade war with the EU

Europe’s first attempts to respond to China’s initiative were largely ineffective, but now internal European Commission documents obtained by Politico show that the EU has a much clearer strategy regarding the need to make serious inroads into key areas in Africa and Central Asia for the mining and energy industry.

In the apparel sector, Brussels is preparing to tackle Chinese e-commerce apps such as Shein, which is close to being designated in the EU as a “very large online platform”, which will expose it to much stricter rules and oversight in compliance with content moderation laws.

The question now is where – and how – Beijing will react.

Every time Europe raises the stakes, China seems to have an answer ready. China has proven very adept in the past at applying a “divide and conquer” strategy, threatening, for example, to buy Boeing planes instead of Airbus or to stop importing wines from France and Spain.

Using these tactics, China forced then-EU trade commissioner Karel De Gucht to abandon an offensive he had launched in 2013 against Beijing’s telecommunications and solar power industries.

More recently, China played the “rare earth” card by restricting supplies of gallium and germanium, two materials used in chip production, after the US persuaded the Netherlands to block some exports of high-performance chips made by ASML to China.

Despite threats from Beijing, von der Leyen has little choice, especially now that she is fighting to win a second term as Commission president – a move that requires the support of France, the main backer of measures to protect European industry from China .

“If von der Leyen didn’t pull the trigger now, then when?” said an EU diplomat, referring to the European elections that will take place in early June.

“In the past, we made the mistake of becoming dependent on Russian oil and gas. We must not repeat that mistake with China, depending on its money, raw materials and technologies,” NATO Secretary General Jens Stoltenberg also said.

Germany, however, is somewhat more reluctant to join a showdown with China because it makes cars there and has become dependent on China’s huge consumer market.

Editor: Raul Nețoiu

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