Xi Jinping heads to Europe to avoid trade war

Xi Jinping arrives in Europe on Sunday with a mission to ease growing tensions that threaten to spark a trade war between China and the EU.

On his first trip to the region since 2019, Xi will face tough negotiations in France over trade and Ukraine before enjoying a warmer welcome in Serbia and Hungary, where Chinese investment is soaring highlights both the benefits of close ties with Beijing and the EU's divisions on international issues. policy.

“China is determined not to let its relations with Europe move further in the direction of its relations with the United States,” said Yu Jie, an analyst at the British think tank Chatham House. “There will be a new charm offensive from Beijing, but it will also give the EU stark warnings about trade protectionism.”

Xi's top priority for his six-day visit will be damage control, Chinese officials said. The president intends to counter a litany of EU trade investigations into Chinese companies, including a successful anti-subsidy investigation into electric vehicles should end in a few weeks.

EU officials told the Financial Times that preliminary duties on electric vehicles could be imposed in May, while permanent tariffs requiring support from a majority of member states could follow in November. Rhodium Group researchers said tariffs on Chinese imports of electric vehicles to the EU could range from 15% to 30%.

“China cannot afford to close the European market to Chinese companies,” said Abigaël Vasselier of Merics, a Berlin-based think tank. “The main question is. . . to what extent President Xi can succeed in changing the current trajectory of Europe-China relations.

Emmanuel Macron, the French president, invited Ursula von der Leyen, president of the European Commission, to Paris to meet Xi on Monday.

Von der Leyen called for “de-risking” Europe's trade relations with China and blamed the EU's huge bilateral trade deficit – 291 billion euros in 2023 – in part on limits imposed by Beijing for market access for European companies. In recent years, the EU has fallen behind Southeast Asia and become China's second-largest regional trading partner.

Xi intended to play hardball, Chinese officials and analysts said. Behind expected displays of public bonhomie and promises of Chinese investment, he would warn European leaders that taxes on Chinese exports would elicit an uncompromising response, they added.

“China could impose restrictions on the export of materials needed to make electronic chips and on French exports to China and on several other products,” said a Chinese analyst who asked not to be named.

Beijing has also indicated it is increasingly willing to impose its own retaliatory tariffs. Macron should defend with Xi the cause of French cognac producers, after China launched an anti-dumping investigation into imports of French brandy in January.

French brandy is the most imported alcohol in China and the tariffs would hurt the profits of famous brands such as Rémy Cointreau, Pernod Ricard and Hennessy, owned by LVMH.

The French cognac industry association, BNIC, said Xi's visit was “a unique opportunity for a deal” to resolve an “unjustified” Chinese investigation that threatened a sector that directly and indirectly employs some 70,000 people.

Although negotiations in Paris are expected to be difficult, Xi's visits to Serbia and Hungary are expected to strike a much more positive tone, Chinese officials said. China considers Hungary a truly loyal friend within the EU and showers the country with investment promises.

According to official Chinese estimates, foreign direct investment accumulated by Chinese companies in Hungary could reach 30 billion euros by the end of this year, suggesting that several billion more euros of investments are in the pipeline.

One of the projects under discussion is a potential investment by Chinese company Great Wall Motor to build an electric vehicle factory, Chinese officials said.

“Hungary is significantly over-represented in Chinese FDI in the region, amassing more volume in the last two to three years than in previous decades,” said Daniel Hegedüs of the German Marshall Fund in Berlin.

“It’s politics. Hungary has been loyal and is reaping the rewards,” said Hegedüs.

But Xi's visit to Hungary is sure to upset many Western European leaders. “Hungary is considered a pariah,” said a senior Western European diplomat.

Although the EU increasingly views China as a “systemic rival,” Hungary has become the main defender of Beijing’s interests. Between 2016 and 2022, it repeatedly used its veto power to block European Council decisions condemning Chinese actions.

Moreover, Xi's visit to Serbia on Tuesday, on the 25th anniversary of NATO's accidental bombing of the Chinese embassy in Belgrade in 1999, could also alienate opinion in Western Europe, diplomats said .

After Russia's large-scale invasion of Ukraine in 2020, China's mission to the EU cited the 1999 bombing to explain Chinese sympathy for Russia's argument that the Western military alliance was responsible for the most recent conflict.

“The Chinese people can fully understand the pain and suffering of other countries because we will never forget who bombed our embassy in the Federal Republic of Yugoslavia,” a mission spokesperson said.

Indeed, the war in Ukraine is expected to weigh heavily on Xi's trip to Europe.

Chinese academics have said Beijing views the United States as using the war to expand its hegemony over Europe, while pressuring China over its alleged role in supporting Russia.

They said Chinese leaders believed Macron wanted Europe to exercise greater strategic autonomy from the United States, an aspiration shared by Beijing. However, Xi's friendship with Russian President Vladimir Putin means that anything he says about Ukraine will be viewed with deep suspicion in much of Europe.

Macron is nevertheless expected to try to convince the Chinese leader to use his influence with Putin to change the course of the war, although similar efforts have been made. during a visit to China last year did not bear fruit.

“Our objective is to encourage China to use the levers it has with Moscow to influence Russian calculations and try to contribute to a resolution of this conflict,” declared an Elysée official.