.png)
Dyami Insights Analysis
The Chinese Communist Party under Xi Jinping seeks regime security above all else, with China’s security services accusing its own citizens and foreign businesses of espionage. On November 12, BusinessEurope, a representative of commercial lobby groups from around Europe, warned that Beijing’s anti-espionage laws threaten to push decoupling with China. The CCP counter-espionage law effective from July 1, broadened the definition of espionage, which could mean any organization perceived as unfriendly by the PRC. The definition of what constitutes a ‘threat’ is intentionally vague as well, and gives Chinese authorities a wide breadth to detain any foreign interests on suspicion of espionage. This drive for securitization poses risks to European businesses and governments need to recognize the significance of this shift in managing security threats.
Regime Security above Development
The Chinese leadership under Xi Jinping is moving away from economic development to a focus on national security. To this end, Chinese security officials investigated US management consultancy firms, Bain and Company and Mintz Group on charges of being “accomplices in overseas bribery, espionage, and extraction of national secrets and intelligence”. Chinese security officials confiscated mobile phones, laptops, and detained employees. These consultancy firms work in the field of business intelligence, providing information on Chinese companies for foreign business organizations, which grew along with China’s emerging, but notoriously opaque, economy.
The primary reason is that Chinese authorities are wary of information gathering for perceived intelligence purposes. Chinese authorities investigated US-owned Capvision for allegedly paying Chinese military and high technology experts to obtain state secrets and intelligence. Capvision works with Chinese financial institutions for foreign companies to provide insights into commercial sectors. The state secrets were allegedly stolen by the company, by violating the national security law for the pursuit of economic interests. China’s priority of state security makes this harder and riskier for European companies attempting to make financial decisions in the country.
China’s perceived threats to national security also extend to the financial sector. On November 3, China’s Ministry of State Security, the intelligence and secret police agency of the CCP, pledged to actively protect the country’s financial stability as a matter of national security. In a WeChat post, the Ministry of State Security suggested that some countries had been actively spreading bearish sentiment about China’s financial assets and undermining investor confidence in the country. This came as investments began leaving China due to stalling economic growth, low interest rates, and rising geopolitical tensions with the US. In light of China’s current government neglecting to improve job prospects for new graduates, or addressing the yawning inequality between coastal and inland regions, Xi’s political coalition has doubled down on regime security above all else.
Trade Deficits in EU-China relations
As Chinese authorities’ anti-espionage investigations into US companies come as US-China relations worsen, there are also concerns that European businesses could be targeted. EU policy on China is shaped by national priorities and does not speak with a single voice, yet there is a transition taking place. China’s close relations with Russia over its war in Ukraine, tensions over Taiwan, and Xinjiang human rights abuses are pushing EU member states and EU institutions to take a harder stance on China’s economic dependencies.
Another weakening point in the relationship is the ballooning trade deficit with China (see fig. 1 and 2). The EU trade deficit with China has widened from €200 billion in 2020 to €400 billion in 2022. This has led to the EU Commissioner for Trade, Valdis Dombrovskis, arguing that the trade deficit with China was too large and needed to be brought down. This has triggered complaints of unfair trade practices, and a lack of access to China’s market for European companies.
EU policy has reacted by creating a number of protectionist measures on China’s imports into the EU. The EU Commission’s launch of an investigation into state-subsidies into Chinese-made electric vehicles in Europe in September 2023, marked an aggressive turn in trade relations between the EU and China. There are also more EU commission plans down the road to investigate more anti-subsidy probes on wind turbine technologies made in China. Dider Reynders, the acting EU competition commissioner, said that cheap Chinese imports could threaten European businesses, and suggested a similar probe into state-aid funding for wind turbines.
Beijing quickly shot back that these were “protectionist” measures from Brussels, accusing the EU of weakening domestic productivity rather than China’s state-subsidies. President Xi Jinping has appealed to Germany’s president Olaf Scholtz directly to put brakes on the looming trade war with Beijing. However, the trade deficit and EU calls for protectionism is likely to become louder in the future. More confrontational protectionist voices in member states could find a good audience in the growing urgency over China’s dominance of supply chains, critical minerals, and a potential clash over Taiwan. In this case, European businesses could be seen as security risks to the Chinese state.
Dangers of Decoupling
The intelligence alliance, Five Eyes, warned that a total decoupling of western economic links to China is unrealistic. However, China's Communist Party's turn to regime security above economic ties under Xi Jinping poses acute security threats for European organizations in China. EU-China relations are still at a crossroads, but growing hawkishness of EU-China trade relations indicates that Chinese authorities may pose a threat to European interests in China in the future.
