The European Union and China: Between strategic partnership and systemic competition

As China’s significance and influence expand for the European Union (EU), maintaining a balanced and coherent approach to its China policy is becoming increasingly challenging. On one hand, China is an essential commercial and economic partner for the EU; on the other, it presents a significant challenge regarding human rights, liberal norms, and democratic values. Over the past two decades, we have seen China transform from a developing country reliant on cheap labour to industrialize and meet the needs of its vast population—drawing inspiration from capitalist entrepreneurship models and adopting elements of a market economy under state leadership, initially focused on producing affordable consumer products by imitating technology—to a global player capable of creating advanced technologies that challenge the US-centred international system.

The EU’s pursuit of explicit strategic autonomy in its trade policy, along with the sustainable development chapters in its Free Trade Agreements and new regulations like the Directive on Corporate Sustainability Due Diligence, enhances the normative expectations for its trading partners on issues such as climate, sustainability, labour standards, and labour rights. Countries and companies trading with the EU are increasingly required to align with these norms and standards in their operations. 

Additionally, the Carbon Border Adjustment Mechanism (CBAM), introduced under the European Green Deal and effective as of October 2023, will set new standards and impose costs on exports of certain products from major suppliers to the EU, including China. From a geostrategic perspective, beyond the liberal view, the EU’s dependence on China for manufactured goods and certain crucial minerals is now seen as a vulnerability rather than an opportunity.

During the COVID-19 pandemic, disruptions in global supply chains, particularly for products from China, placed the EU in a challenging position. Josep Borrell, the EU High Representative for Foreign Affairs and Security Policy at the time, highlighted this risky dependency: “We are extremely dependent on China in terms of imports of a number of products, particularly masks and protective clothing (50 percent). In addition, 40 percent of the antibiotics imported by Germany, France, and Italy come from China, which produces 90 percent of the penicillin consumed in the world. Not one gram of paracetamol is produced in Europe at the moment.”[1]

This reliance on China, even for critical areas like pharmaceuticals and essential raw materials, has rendered the EU highly vulnerable in times of crisis and geo-economic competition. The increasing trade gap with China and the unfair competition EU companies face in the Chinese market have further complicated this relationship. On one hand, China is the second-largest trading partner of the EU after the US, ranking first for imports and third for exports. In 2023, the EU’s trade deficit with China reached €292 billion.[2] While completely ending dependence on China in the short term is not feasible, the importance of finding alternative partners has grown, reflected in concepts like “near-shoring”, “reshoring” and “friend-shoring”. The European Commission highlighted this in its review of EU trade policy: "Building a fairer and rules-based economic relationship with China is a priority. The Communication sets out ways to address the complexities of dealing with China and to ensure that the EU has effective policy tools to enforce its rights.”[3]

The European External Action Service summarizes the EU’s perspective on China as follows: 

“The EU sees China as a partner for cooperation, an economic competitor and a systemic rival. However, EU-China relations have become increasingly complex due to a growing number of irritants. China has become less open to the world and more repressive at home, while taking a more assertive posture abroad, resorting to economic coercion, boycotts of European goods, and export controls on critical raw materials.”[4]

On one hand, the EU’s trade gap with China in goods continues to grow; on the other, China’s rising competitiveness in technological sectors where the EU aims to lead, such as electric vehicles and solar panels, presents a serious challenge to the ambitions of the EU.

In 2023, China was the EU’s largest source of imports from outside the EU, accounting for 20.5% of the total, while ranking third as a destination for EU exports, at 8.8%. In 2022, the EU’s trade deficit with China stood at €397 billion, decreasing by 27% to €291 billion in 2023. Among the top imports from China are telecommunications equipment, electrical machinery and appliances, and automatic data processing machines. 

Notably, motor vehicles showed the highest growth in imports, rising by 36.7%.

Is a mutually beneficial relationship possible?

The liberal world order, of which the EU was a key player, sought to integrate China through free trade and investment. A crucial milestone in this integration was China’s membership in global organizations such as the World Trade Organization and the International Monetary Fund, along with its adoption of market economy principles. However, China’s state-capitalist model, which includes substantial industrial support, subsidies and dumping practices, sparked backlash, particularly from the West and the US. 

Combining its labor advantage with growing technological skills and know-how, China has steadily strengthened its position in world trade, intensifying competition; at the same time, the escalating confrontation between the US and China, together with trade protection measures aimed at curbing China’s unfair competitive practices, has created a geopolitical fault line, further strained by issues like Taiwan and the Ukraine war. 

The EU, on the other hand, has taken a more moderate stance amid growing tensions between China and the US. Wary of jeopardizing significant trade and economic ties with China, EU leaders from key countries like Germany and France visited China last year, expressing a commitment to maintaining this relationship. During his visit with a large business delegation, German Chancellor Olaf Scholz underscored not only the value of trade and economic relations with China but also the need for a level playing field for German companies. China’s extensive subsidies and dumping practices –such as in the electric vehicle sector– frequently prompt countermeasures from the EU. 

European leaders have focused their diplomatic efforts on urging China to abandon these practices, which could be seen as breaching WTO rules, and to foster a fairer investment environment for European investors. Another prominent issue during French President Macron’s visit to China –and later during Xi Jinping’s visit to France– was China’s support for Russia in the Ukraine war. Through continued trade and close cooperation with Russia, China is effectively supporting Russia against the EU and the US, helping sustain Russia’s ability to continue the conflict in Ukraine.

While the EU has traditionally prioritized trade as its strongest bond –a core tenet of the increasingly fragile liberal order– geopolitical considerations have become increasingly dominant, reflecting broader global shifts. China’s use of economic power to expand its influence and impose its will on other nations, its reach into Europe through projects like the Belt and Road Initiative, and its influence not only economically but also politically and culturally through strategic investments have increasingly been seen as potential threats. 

To address this, the EU has introduced new laws requiring strategic investments to undergo monitoring and screening, effectively curtailing Chinese investments in critical sectors. Investigations into Chinese electric vehicles, sanctions against Chinese-owned solar energy firms and concerns over China’s disinformation campaigns have further complicated EU-China relations. Once regarded as a rising economic power focused solely on production and sales, China is now viewed as a global power aligned with Russia in an anti-Western axis and is increasingly criticized for its repressive actions against dissidents, Uyghur Turks and Hong Kong.

But is it possible for the EU to maintain a mutually beneficial relationship with China while prioritizing economic interests? Peng Gang, Minister for Economic and Trade Affairs at the Chinese Mission to the EU, argues that EU-China trade is mutually beneficial: 

“China's imports from the EU have improved the health and living standards of Chinese citizens and boosted China’s economic development. At the same time, China’s exports of new energy products, electronics and other commodities to the EU have accelerated Europe’s green and digital transitions and helped reduce the EU’s inflation level. Trade between China and the EU is mutually beneficial.”[5]

Peng also questions the EU’s risk-reduction strategy of relocating supply chains to aligned countries in closer proximity, suggesting that reducing risk also means reducing opportunities. Emphasizing the complementary nature of the Chinese and EU economies, he argues that China opposes the politicization, ideological framing and securitization of economic issues, adding: “It is the lack of cooperation that poses the greatest risk, and the lack of development that poses the greatest insecurity.”

The EU-China investment relationship forms a critical foundation for their trade ties. As of 2023, mutual investment has surpassed $250 billion. EU investment in China rose by 5.5% year-on-year to $10.6 billion, while Chinese investment in the EU grew by 17.4% to $8.2 billion. Since 2022, major companies like BMW, VW, Stellantis and BASF have expanded their investments in the Chinese market, and 80 percent of Chinese companies have expressed intentions to grow their business in Europe. In other words, despite geopolitical risks, mutual trade and investment relations remain beneficial. 

However, the increasingly uncertain global environment –marked by the COVID-19 pandemic and subsequent conflicts in Ukraine and Gaza– complicates efforts to manage these relations based solely on economic interests.

The importance of China-EU eelationship for the global system

The continuation of strong trade and economic relations between China and the EU is essential for sustaining a global system that is becoming increasingly polarized. China’s authoritarian governance model, which prioritizes the concept of community over human rights and fundamental freedoms, highlights a significant divergence from the EU’s core principles and values. 

In this context, China’s role as one of the EU’s largest trade and investment partners underscores a major contradiction between the EU’s normative values and its economic interests in terms of international relations and foreign policy. This contradiction, encapsulated in the concept of “principled pragmatism”[6] introduced in the EU’s 2016 Security Strategy, makes it increasingly challenging for the EU to reconcile its values with the complex realities of a world where the liberal order is gradually eroding. 

Although the EU has imposed certain sanctions on China, such as those targeting electric vehicles, the scale of ongoing mutual investment and trade reveals a contradiction for the EU, which positions itself as a normative power with a foreign policy grounded in human rights and respect for international law. 

At the same time, China remains a critical partner that the EU cannot easily replace in many sectors. Furthermore, the stance of the US defining China as an adversary –a shift that became prominent during the Trump presidency– has limited the EU’s room for maneuver and heightened its focus on economic security.

China plays a central role in the anti-Western axis, supporting Russia’s occupation of Ukraine and expanding its economic and political influence through the BRICS format. The continuation of close EU-China relations –which have enabled China to advance its innovation capacity in new technologies, space, and the military, moving it toward a leadership role rather than simply challenging the US– relies on certain conditions. Foremost among these is mutual respect’s priorities and a shared focus on economic interests. However, in an environment of escalating geopolitical tensions, it becomes increasingly difficult to isolate politics from actions that could significantly disrupt the EU. If conflicts in the Middle East or Eurasia intensify and strain China-West relations further, or if issues like Taiwan lead to a US-China crisis, EU-China relations would inevitably shift in a markedly different direction. 

In such a scenario, strategies like imposing sanctions or scaling back trade and economic relations –as seen in the case of Russia– would be very challenging for the EU due to the vital role of trade ties. Amid intensifying US-China tensions, the EU’s attempt to maintain a balanced stance, rather than aligning fully with one side, would likely become unsustainable in the face of a geopolitical crisis. Although the EU is working to reduce its dependence on China, particularly for manufactured goods, it is unlikely to find a short-term alternative that fully replaces China. If a crisis causes another disruption in EU-China relations, similar to the impact of COVID-19, it could pose serious risks to the European economy.

Turkey between the EU and China

While the Western bloc and the EU remain central to Turkey’s foreign relations, Turkey appears to be increasingly shifting toward an inter-bloc role, aligning with changes in the global system. The deterioration of EU-Turkey relations, particularly since 2018, and the effective suspension of the accession process have gradually sidelined Turkey’s EU membership goal, bringing alternative aspirations, such as potential BRICS membership, to the fore. 

Nonetheless, the EU market remains crucial for Turkey, especially for exports, with approximately 41 percent of Turkish exports going to the EU—primarily to Germany. European capital also plays a significant role in direct investment in Turkey, highlighting that an immediate shift to alternative markets for this trade and economic relationship is not feasible.

Turkey is a significant partner for China, which is expanding its global economic role through initiatives like the Belt and Road and enhancing its influence across Asia, Africa and Europe with investments, especially in infrastructure, ports, and manufacturing. However, Turkey’s strategic importance to China largely stems from its access to Europe. In terms of trade, while the overall trade volume between these two countries has grown, it has consistently resulted in a trade surplus favoring China. In 2023, Turkey’s exports to China reached $3.31 billion, making up 1.3 percent of its total exports, whereas exports to Germany stood at $21.83 billion, or 8.2 percent of the total. 

On the import side, China ranked first, with imports totaling $45.48 billion, representing 12.4 percent of Turkey’s total imports. While China is Turkey’s largest source of imports, it ranks 19th among Turkey's top export destinations,[7] highlighting a trade imbalance that Turkey is striving to address. However, increasing exports to China in the short term is unlikely, given China’s production of highly competitive goods for global markets. Thus, cooperation with China in infrastructure, transportation, high technology, energy and finance will be increasingly critical, particularly as Turkey seeks more foreign investment.

For Turkey, the Uyghur issue remains a significant aspect of the normative dimension in its relations with China. While the government refrains from openly criticizing the repression and human rights violations faced by Uyghur Turks, the Ministry of Foreign Affairs states that “Our expectations and sensitivities for the Uyghur Turks to live in welfare and peace and the protection of their fundamental rights and freedoms are emphasized both in our bilateral contacts with the PRC authorities and at the international platforms, especially the United Nations,”[8] thus indicating that the issue is not completely disregarded. 

During his recent visit to China, Foreign Minister Hakan Fidan visited the Yanghang Mosque and the International Grand Bazaar in Urumqi, the capital of Xinjiang Uyghur Autonomous Region, underscoring this attention. However, China’s authoritarian nature does not appear to pose a significant normative conflict for the Turkish government, which has itself shifted away from a liberal democratic model. China can also be seen as a source of inspiration, particularly as a model in areas like the protection of individual rights in the digital sphere, respect for fundamental freedoms, and labor standards. Although the EU regards China as “an economic competitor and a systemic rival”, it remains an attractive economic partner, investment source, and development model for Turkey. However, China’s distinct cultural, political, geographical and economic conditions, along with its sheer size, prevent it from being a complete model. While China’s pragmatic outlook aligns with Turkey’s development and growth priorities, the asymmetry in their relationship also highlights strategic risks for Turkey.