News analysis

Xi arrives in Italy as China's EU relations become increasingly strained

LONDON - Chinese President Xi Jinping arrives in Italy on Friday (March 22) for a state visit at a time when China's relations with the European Union are increasingly strained.

For Italy is coming under pressure not to endorse Chinese major encroachments into Europe's infrastructure market. And, for the first time ever, the EU's own diplomatic service has publicly referred to China as an "economic competitor" and a "systemic rival".

Although they have largely maintained a tactful silence in the ongoing trade spats between the United States and China, most European capitals privately share America's current concerns about China, and especially about the alleged involvement of Chinese companies with Beijing government links acquiring Western high-end technologies.

Unlike the US, however, the EU has preferred to express its dissatisfaction with China in a far more subdued manner. That is changing, however, and rapidly.

China's public courtship of 16 poorer largely formerly communist countries in central and eastern Europe has attracted the ire of EU officials, who view this so-called "16+1 Group" as Beijing's attempt to by-pass EU trade regulations and split the Union politically.

Another source of tension is Beijing's repeated attempts to get major EU countries to sign up to China's Belt and Road initiative (BRI), which promotes Chinese trade via infrastructure projects running across Asia into Europe.

Although BRI memorandums of understanding are non-binding and usually couched in broad terms, they typically include diplomatic praise for China's BRI strategy, and are often used by Beijing as a prelude to offering large Chinese investments and loans.

 
 

Until now, key European leaders have refused to sign them; British Prime Minister Theresa May resisted heavy political pressure during a tour of China last year from Beijing top officials who insisted that the adoption of a BRI support document was "essential" to her trip's success.

But it appears that the Italians, who are hosting President Xi today, are ready to break ranks by signing a BRI document.

Italian officials claim that this is merely about boosting their trading position with China, particularly the sale of Italian luxury goods.

"We want to make sure that 'Made in Italy' products can have more success in terms of export volume to China," Michele Geraci, undersecretary in Italy's economic development, told the Financial Times.

But Italy's European partners are not so sure, suspecting that Italy's far-right populist government, already embroiled in a variety of disputes over EU economic and financial policies, cherishes an opportunity to challenge the EU's approach to China.

Either way, the potential recruitment of Italy to the estimated 150 nations around the world which have already concluded BRI memorandums, will be a diplomatic achievement for Beijing, mainly because Italy is a founding member of the EU and also member of the G7 most-industrialised nations group.

For this reason alone, Italy is under intense diplomatic pressure not only from Europe but also from the United States to refrain from concluding the BRI memorandum during President Xi's visit.

Meanwhile, a consensus is emerging within the European Commission, the EU's executive body, that the continent's relations with China are due for a major overhaul. In a recent policy paper, the Commission praised bilateral trade, which amounts to an average of Euro 1 billion (S$ 1.52 billion) each day. Meanwhile China is now the EU's second-biggest trading partner behind the United States and the EU is China's biggest trading partner.

 
 

"Yet, there is a growing appreciation in Europe that the balance of challenges and opportunities China presents has shifted", said the Commission paper, calling on EU member states to "start a discussion to refine Europe's approach to be more realistic, assertive and multi-faceted" - diplomatic codewords for future showdowns.

China, the Commission concluded, "is simultaneously a cooperation partner" and "an economic competitor in pursuit of technological leadership, and a systemic rival promoting alternative models of governance".

The implications are clear: Europe must be ready to confront, as well as embrace, the Chinese.

Meeting in Brussels yesterday, EU heads of states and governments examined proposals which may restrict the access of Chinese enterprises to EU infrastructure projects as long as EU companies do not have similarly unfettered access to Chinese markets. European governments are also changing their domestic legislation to allow them to block the acquisition of sensitive technologies by Chinese firms.

So although Mr Xi Jinping is sure to hail today's visit to Italy as a success for Chinese diplomacy, the reality is that China's relations with Europe are under unprecedented strain, and look set to get even tenser still in the months to come.