The Current Sino-EU Cooperation Options in the Context of the Current Geopolitical Environment

This chapter describes potential policy area opportunities and threats for Sino-EU cooperation and competition with an emphasis on the global value chains (GVCs). It is presented against the backdrop of contemporary geopolitical conflicts that are increasing the EU’s dependence on crucial raw materials mainly from China. The chapter is deeply embedded in the geopolitical-economic context and also takes into account the new situation resulting from the upcoming US elections. Over several decades, globalization, initially driven mainly by multinational corporations, has facilitated the formation of GVCs, strengthening market liberalization and economic interdependence. However, recent disruptions such as the Covid-19 pandemic, the Sino-US trade and tech war, and other geopolitical conflicts have exposed vulnerabilities in these GVCs, which has led to greater awareness of the interdependence between countries. The increasing fragmentation of the global trade landscape due to the deglobalization or regionalization trend in recent years has dramatically changed the trade patterns of the world’s major economies, resulting in greater supply shortages worldwide. For the EU, this new international trend meant a strategic adjustment towards ensuring the resilience of supply chains, especially with regard to Critical Raw Materials (CRMs). In the EU’s pursuit of a more low-carbon economy without protectionism, several policy measures are available to promote security of supply of CRMs such as gradual market-driven supply diversification, innovative substitution, incentivized and mandatory recycling, and stockpiling. As part of the EU’s “de-risking” strategy, a range of economic instruments have also been developed in recent years to both reduce dependence on China and defend against its divide-and-rule strategy in various EU member states. In response to China’s more dominant role in global trade, the EU has recently introduced several primarily defensive measures aimed at limiting foreign companies’ access to crucial aspects of the European economy and neutralizing their competitive advantages derived from market distortions partly caused by Chinese trade policies. The EU’s defensive call to reduce risks must also be accompanied by a more offensive EU-wide industrial policy that focuses on both Europe’s industrial core and a long value chain strategy including EU’s neighbours and selected partners in the Global South, which are closely linked to EU initiatives such as the Global GatewayGlobal Gateway and the Green DealGreen Deal to achieve a smooth transition to climate neutrality. While it is extremely difficult to design a comprehensive and consistent long-term common EU China strategy with limited consensus between and even within EU member states together with numerous business decision-makers and stakeholders, it’s obvious that the EU needs an overall strategic framework for dealing with China in the coming decades.