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By STUART LAU
with PHELIM KINE
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WELCOME TO CHINA WATCHER! This is Stuart Lau reporting from Europe. Our Tuesday dispatch has an overview of the EU’s Indo-Pacific summit this past weekend — and a preview of the G7 summit just a few days away. My U.S. colleague Phelim Kine will be with you from Washington on Thursday.
BUT FIRST — TOMORROW! A year ago this month Secretary of State Antony Blinken unveiled the Biden administration’s China strategy. Don’t miss a special POLITICO Twitter Spaces event on Wednesday May 17 at 10AM ET/4PM CET in which Phelim will convene Rep. Haley Stevens (D-Mich.) and Ali Wyne, senior analyst with Eurasia Group’s Global Macro-Geopolitics practice, to discuss the strategy’s hits, misses and how it can or should be improved. This link will take you straight to the event and we invite questions for our panelists!
HIROSHIMA MEETING: The G7 summit will take place in Hiroshima, Japan beginning on Friday. The host country has made it clear that China should be high on the agenda — and the EU concurs. Before their departure, the EU’s two chiefs on Monday presented the bloc’s much-hardened rhetoric on China, talking tough on economic security and de-risking while doubling down on concerns over Taiwan.
Compete and control: European Commission President Ursula von der Leyen previewed a tough G7 focus on China. “Of course, we are competing with China. This means we have to strengthen our own economic vibrancy. We have to do our homework in our economies,” she said. Doubling down on the EU’s plan to step up export control under the framework of economic security, she added: “We will protect a narrow set of advanced technologies, of which we know that they will determine the next-generation military advantage.”
Anti-coercion focus: “We’ve seen attempts of economic coercion, for example China towards Lithuania; we’ve seen similar practices vis-a-vis Japan and Australia,” von der Leyen said. “We are most vulnerable to coercion in general where dependencies built up.” She also emphasized the EU’s “unwavering commitment to peace and stability” in the Taiwan Strait.
Countering Belt and Road: According to von der Leyen, she will partner with U.S. President Joe Biden and Japanese Prime Minister Fumio Kishida in co-chairing a side event on Partnership for Global Infrastructure and Investment, the G7’s answer to China’s Belt and Road initiative that develops infrastructure in the Global South.
Taking a dig at Xi? When asked by a Chinese state media journalist what the EU thought about China sending a special envoy to Kyiv, von der Leyen couldn’t help taking a dig at Beijing. “I think it is very good that — finally, after 14 months — President Xi called President Zelenskyy,” she said, resulting in giggling from some other journalists.
News on sanctions: Von der Leyen confirmed reports that the EU was looking into targeting third-country companies for assisting Russia’s war, when asked about the presence of Chinese firms in a draft of the next package of sanctions. “Regarding third countries that buy directly in the EU and then potentially deliver sanctioned goods to Russia,” she said, “we could ban these goods from going to that third country if there’s clear evidence that this is a circumvention of sanctions,” she said. (Note: she said “country” singular.)
TRANSATLANTIC CONVERGENCE: European Council President Charles Michel said he observed that the U.S. approach to China is now similar to the EU one, in that decoupling has given way to de-risking. Also, he said the EU’s 27 countries are largely on board with the China policy. “I feel that … the member states are more and more convergent,” Michel said.
After Japan … South Korea: The duo will also travel to Seoul for an EU-South Korea summit. South Korean President Yoon Suk Yeol has also sounded increasingly hawkish on China recently, with his officials engaged in a war of words with China over the stance on Taiwan.
What could go wrong this week? Former British PM Liz Truss will visit Taiwan today, and she was unapologetic about the trip when interviewed by POLITICO Editor-in-Chief Jamil Anderlini at the Copenhagen Democracy Summit. Here’s the write-up by Andrew McDonald.
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BUSY SWEDEN: The Swedish government, currently leading the EU Council presidency, hosted an EU foreign ministers’ informal meeting on Russia and China on Friday, followed a day later by an Indo-Pacific forum. Call it Scandinavian efficiency.
The meetings come at a time when the EU is, again, “recalibrating” its position on China. In short, economic security and de-risking take center stage in the EU’s push to reduce dependency on China, especially when it comes to critical raw materials.
Here are your four key takeaways:
— SECURITY EVERYWHERE: When the EU rolled out the Indo-Pacific strategy in 2021, security was ranked as one of the last priorities. This time, security permeated every single discussion panel, including on the economy. “It’s striking that concern for U.S.-China rivalry or conflict is present in most discussions. Many expressed concern for China’s assertiveness,” an EU diplomat with knowledge of the planning of the forum told China Watcher. A senior EU diplomat said the bloc would step up security initiatives especially with Japan “within weeks,” while the Indo-Pacific guests — some of them taking an ambivalent stance on Russia’s war against Ukraine — attended a lunch with Ukrainian Foreign Minister Dmytro Kuleba “cordially,” according to the first EU diplomat.
— INDIA STEPS UP ITS PRESENCE: One of the speakers invited to Stockholm was India’s Foreign Minister Subrahmanyam Jaishankar who made a pitch about his country being the EU’s natural partner in Asia. (Read: instead of India’s big neighbor). And today, Jaishankar will be in Brussels inaugurating the EU’s first trade and technology council with India. (The only other partner invited by Brussels to have this format is the United States.)
— DON’T FORGET WASHINGTON: Despite what several diplomats described as France’s strong disapproval of the EU’s decision to invite senior U.S. diplomat Derek Chollet, several European ministers came out publicly in support of U.S. participation. “It is very important … to coordinate with the United States,” Romania’s Foreign Minister Bogdan Aurescu told the media. The sentiment was shared by the host, Swedish FM Tobias Billström, who said: “China’s assertiveness, its military posturing in the Taiwan Strait, is something we have to take very seriously … The transatlantic link is something that should be deepened.”
— ECONOMIC UNCERTAINTY: Concerns over China’s accelerating competition with the West, and the resulting shape of the world trade system, also featured in the discussions. “Countries all over the world are prioritizing their domestic political concerns, their national security concerns, the resurgence of industrial policy, and quite frankly, this leads into a race to the bottom for subsidies, tax breaks, and frank protectionism,” Singapore’s Foreign Minister Vivian Balakrishnan told the forum. “The organizing principle for our region is to keep it open, inclusive and rules-based — particularly to keep our region open to China, the U.S., EU and indeed any other power that wishes to invest, trade and connect with us.”
SPECIAL ENVOY ARRIVED: A top Chinese envoy began a tour of Ukraine, Russia and European countries yesterday in a trip Beijing says is aimed at discussing a “political settlement” to the Ukraine crisis. Li Hui, a former ambassador to Russia and current special representative for Eurasian affairs, will also visit Poland, France and Germany, the foreign ministry announced. Reuters has more.
TOP US, CHINA OFFICIALS MET IN AUSTRIA: National security advisor Jake Sullivan sat down for two days in Vienna with China’s top diplomat Wang Yi last week in an effort to resume high-level bilateral diplomatic engagement, frozen after the Chinese spy balloon incident in February. Readouts from both sides described their discussions on issues including Ukraine and Taiwan as “candid, substantive, and constructive.” The eight hours of talks between Sullivan and Wang produced a recognition of “the importance of leader-level communication as a means of stabilizing the relationship and managing competition,” a senior administration official speaking on condition of anonymity told reporters Thursday.
FOREIGN MINISTER’S DEBUT: Qin Gang completed his first visit to Europe since he was appointed foreign minister late last year. His last stop was Norway, where he was confronted with critical remarks on Hong Kong and Xinjiang. Earlier, Qin visited France and Germany.
VICE PRESIDENT TALKS CHIPS: Meanwhile Vice President Han Zheng completed his three-nation European tour last week. After stops in London for King Charles III‘s coronation and Portugal, he was in the Netherlands meeting representatives from ASML, the Dutch microchip maker that was recently forbidden by the government from selling its most advanced machines to China.
HUNGARY’S FOREIGN MINISTER: Péter Szijjártó visited China on Monday and boasted about the possibility of the two countries working together towards bringing peace to Ukraine. “We consider China not as a country posing a risk, but one with which cooperation can offer us enormous opportunities,” he said. Budapest is also continuing to invite Huawei, considered as a cybersecurity risk by a lengthening list of EU countries, to invest in its digital development, according to the Hungarian government.
MACRON LOVES CHINESE INVESTMENT: French President Emmanuel Macron said on Friday that Chinese group XTC New Energy Materials plans to set up a joint venture with France’s Orano to build batteries in the northern port city of Dunkirk. Here’s Reuters‘ report.
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DEBT FIGHT RESISTS CHINA THREAT RHETORIC: The Biden administration has been quietly elevating China and its efforts to dislodge the U.S. from its dominance of the global financial system as reason to avoid a deadline-busting debt-limit fight. But despite the bipartisan China threat narrative on Capitol Hill, it’s an argument unlikely to convince most GOP lawmakers, reports POLITICO’s Adam Behsudi.
“The Republican side has already been thinking about the long-term competition with China and we need our growth rate to be faster,” said Michael Pillsbury, a senior fellow at the conservative Heritage Foundation think tank who advised former President Donald Trump on his China policy. Republicans view their current proposal assembled by House Speaker Kevin McCarthy as a way to get there and further distance China from eclipsing the U.S.’ global economic supremacy. For all the worry about China on both sides of the aisle, in the debt standoff, “I don’t think it will have any tangible effect on the voting of the House or Senate,” Pillsbury said.
Long-term fallout: The Biden administration’s top intelligence and budget officials have sounded the alarm over the potential consequences of a default or even a close brush that could lead to a U.S. credit downgrade. As China seeks to diminish the dominance of the U.S. and the dollar over global finance, failure to reach a deal could shake the world’s confidence in America’s standing, they warn. The broader power struggle between the U.S. and China has been focused on preventing Beijing from obtaining U.S. technologies with military applications and diversifying supply chains away from the Asian economic superpower for critical materials.
Longer-term, however, is a rising concern that China aims to bifurcate the global financial system and untether the world from its reliance on the U.S. dollar as the primary global reserve currency. “Dollar primacy is nothing more than a network rooted in trust and habit and all networks have tipping points, often psychological ones,” said Daleep Singh, the chief global economist at PGIM Fixed Income and Joe Biden’s former deputy national security adviser for international economics. He argues that a default or even a near miss would hand China “its dream argument, which is to say the U.S. is no longer acting as a faithful steward of the U.S. or global financial system and that other countries would be wise to accelerate their diversification away from dollars.”
A different world: Singh and most other economists recognize that the world is still a long way from the U.S. dollar losing its dominant standing, but Beijing is better positioned now to take advantage of the ensuing chaos. That’s a shift from 2011 when the U.S. last suffered a credit downgrade because of debt limit brinkmanship. More countries now seem to be willing to invoice their trade with Beijing in China’s currency, the yuan, rather than the long-standing practice of doing so in U.S. dollars. And while the yuan is unlikely to ever ascend to the global status of the U.S. dollar, public and private sector actors could look increasingly to move toward the euro and other G7 currencies or even digital assets if they are less convinced by the safety of the U.S. dollar. But even if it’s getting easier to connect the dots between the U.S. debt limit and the new U.S.-China geopolitics, Republicans seem dug in. “We need productivity growth, we need lower taxes, deregulation — the standard Republican formula for faster growth,” Pillsbury said. “The McCarthy package will actually help us win the new Cold War with China.”
BANKS BLASTS DISNEY’S XINJIANG FILM SHOOT: Rep. Jim Banks (R-Ind.) ripped the Walt Disney Company for canceling an off-the-record meeting with advocates of Uyghur Muslims to discuss their concerns about the filming of Disney’s 2020 live-action film “Mulan” in Xinjiang. Disney executives should reschedule that meeting “as a simple first step in clarifying to millions of Americans that Disney does, in fact, care about the Chinese Communist Party’s systematic extermination of minority ethnic groups,” Banks said in a letter to the company made public on Thursday.
CHINA COMMITTEE WANT ANSWERS FROM TIKTOK: Members of the House Select Committee on Strategic Competition with the Chinese Communist Party are demanding details about TikTok’s censorship practices and alleged tracking of LGBTQ-related content. The firm must clarify “the extent to which TikTok’s decisions … are subject to the control, or direction” of the ruling Chinese Communist Party, committee chair Mike Gallagher (R-Wis.) and 10 committee members said in a letter released on Thursday.
NEW STATESMAN got this interview with the British Foreign Office’s former top civil servant explaining why the country shouldn’t make China an enemy.
WALL STREET JOURNAL: China finally has a rival as the world’s factory floor. (Spoiler alert: It’s India.)
NIKKEI ASIA: “Asians can think for themselves on Taiwan,” by Singapore’s former ambassador to the UN Kishore Mahbubani.
MANY THANKS TO: Editor Paul Dallison, Jamil Anderlini, reporters Andrew McDonald and Adam Behsudi, and producer Grace Stranger.
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