Europe seeks a refreshed alliance while exercising caution against potential reprisals

Europe is currently devising a fresh approach to its relationship with China, but officials in the region are concerned about potential retaliation if they mishandle the situation.

There has been increasing momentum behind the idea of reducing risk associated with China. During a G7 meeting in late May, both the United States and Europe agreed to lessen their dependence on Beijing rather than severing ties completely.

The United States has been vocal about China’s threat to national security in recent years. European policymakers, on the other hand, have taken a more cautious stance, mindful of the significance of the Chinese market for their domestic companies.

A senior EU diplomat, participating in negotiations among the 27 EU capitals on this matter, acknowledged the risk of retaliation from China. However, the diplomat emphasized the importance of discussing this issue despite the potential consequences.

Another anonymous official from a major European economy expressed the view that fear should not hinder action.

The entire European bloc is in the process of determining what de-risking from China entails. Ursula von der Leyen, the President of the European Commission, described it as addressing specific concerns the EU has with Beijing, including human rights, fair competition, and market access.

On Tuesday, the European Commission proposed reviewing the EU’s foreign investment screening policy and strengthening export control regulations. The institution did not explicitly pinpoint China as the reason but emphasized the need to minimize risks in the face of increased geopolitical tensions and rapid technological changes.

The 27 heads of state from the EU will discuss this topic at an upcoming summit.

The Chinese embassy in Brussels was not available for comment when approached by CNBC.

Lithuania, a Baltic nation in northeastern Europe, serves as an example of a country aware of potential retaliation from China. In 2021, Lithuania established a representative office in Taiwan, becoming the first European country to take such a step. Most countries in the region use the name Taipei instead.

China criticized the move as it considers Taiwan a part of its territory and objects to its independent diplomatic relations. In response, China recalled its ambassador from Lithuania and imposed a customs blockade on Lithuanian imports.

Gabrielius Landsbergis, Lithuania’s Minister of Foreign Affairs, expressed concern over the West’s past reliance on economic cooperation to influence dictators and advocate for a rules-based international order. He emphasized the need for a different approach and the avoidance of repeated mistakes.

Earlier this month, the European Commission urged more EU countries to ban Chinese telecoms companies Huawei and ZTE.

Currently, ten European countries have either banned or restricted these two firms from their 5G networks due to concerns about security risks. China criticized Europe’s stance and argued that the commission lacks a legal basis to prohibit these telecom giants.

An anonymous EU official acknowledged that there has been less retaliation following the commission’s announcement compared to individual countries. However, the official stressed the importance of acting collectively to strengthen their position against possible retaliation.

European leaders are still grappling with reshaping their relationship with a more assertive China, while their staff acknowledges the delicate balance between reducing dependencies on China and avoiding upsetting it.