China Moving Away from Eurasian Hegemon... "Lost Europe?" [Ukraine Shockwave⑧]

China Faces Conflict with Europe over Ukraine War
Rapid Cooling of a Decade-Long Cooperative Relationship
From Lithuania's Economic Retaliation to Support for Russia

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] "Will China lose Europe?" China's efforts to cultivate relations with Europe and to establish 'special influence' on the Eurasian continent have hit a crisis. Since Russia's invasion of Ukraine, China has maintained silence without clear condemnation or support, drawing increasing criticism within Europe. When China responded negatively to calls for a proactive role during a virtual summit with the European Union in April, Josep Borrell, the EU High Representative for Foreign Affairs and Security Policy, sharply criticized it as a "dialogue of the deaf." Dialogue between the two sides remains at a standstill.

Over the past decade, China has especially focused on Central and Eastern European countries as the core of its diplomacy. Compared to the United States, Europe presented less geopolitical tension and offered an area to pursue economic interests. From Europe's perspective, China was a strong partner with significant investment potential. However, more than four months after the war began, Europe seems to be gradually distancing itself from China.

[Image source=Yonhap News]

◆Rapid Cooling of a Decade-Long Cooperative Relationship= China's extensive European strategy began to take shape with the signing of a partnership in April 2012. At that time, China launched the '16+1' cooperation framework in Warsaw, Poland, joining hands with 11 Central and Eastern European countries and 5 Balkan countries. In 2019, Greece joined, expanding the group to 17 countries, but in 2021 Lithuania withdrew from the agreement, resulting in its current form. Many experts have evaluated this cooperation framework, which started in Warsaw, as a shrewd Chinese strategy. Since most partner countries were EU members, China could establish a foothold in the largest trading zone without directly competing with Western Europe's advanced economies. Indeed, in the following year, 2015, China launched the Belt and Road Initiative, a 'New Silk Road Strategy' aimed at expanding westward, preparing large-scale infrastructure projects across Asia, Europe, the Middle East, and Africa.

However, cracks soon appeared. Compared to its grand ambitions, the implementation plans and directions of the Belt and Road Initiative were somewhat lax. Within Europe, expectations grew that China's investment would revive old factories and projects abandoned after the 2008 financial crisis due to lack of Western investors, but little was realized. For example, at a 2013 cooperation meeting held in Bucharest, Romania, China, Hungary, and Serbia discussed a $3 billion project to build a high-speed rail line between Belgrade and Budapest, but nearly ten years later, no results have materialized.

According to official Chinese statistics, trade between China and Europe grew by 8% annually from 2012 to 2020 and accelerated during the COVID-19 pandemic. However, the starting point was low, so the absolute scale remains small. China's share accounts for less than 2% of exports and about 9% of imports in the Central and Eastern European region.

[Image source=AP Yonhap News]

◆From Lithuania's Economic Retaliation to Support for Russia= Amid this, China's complete ban on imports and exports to Lithuania in February, after Vilnius opened a Taiwanese representative office and showed an anti-China stance, became a symbolic event. At that time, however, European countries including Germany maintained a pro-China stance, even pressuring Lithuania to retract its pro-Taiwan position.

But as the problems of the Belt and Road Initiative surfaced and China took a hardline stance on the Taiwan issue, European leaders began to change their attitudes. In January this year, the EU filed a lawsuit with the World Trade Organization (WTO), condemning Lithuania's import-export ban as discriminatory. The Ukraine war further cooled relations between China and Europe, and in April, the Czech Republic, one of Europe's wealthiest countries, publicly supported Lithuania's pro-Taiwan position.

Now, the '16+1' cooperation framework is losing momentum. Last year, six member countries already refrained from sending heads of state to meetings, and this year, the meeting was not held due to the Ukraine war. China's goal of dominating the Eurasian continent is increasingly distant as it loses the support of European public opinion, which was to be its foundation.

On the other hand, by increasing trade with resource-rich Russia, China appears to be accelerating the transition to a multipolar system resisting the U.S. unipolar order. According to Bloomberg, monthly currency transaction volume between China and Russia reached $4 billion (about 4.9612 trillion KRW) in May this year, a 1067% increase compared to the previous year. The moves by China and Russia are also gaining traction in some emerging markets. Saudi Arabia plans to price some oil contracts in yuan, and India is exploring a rupee-ruble payment system. If this trend continues and countries like Turkey, Iran, and India support the China-Russia bloc, a new alliance and power dispersion could emerge.

Some analysts argue that China's 'neutral stance' on the Ukraine war is a carefully calculated 'balancing strategy' to minimize diplomatic losses. Yan Xuetong, a professor at Tsinghua University, said, "Even if China joins in condemning Russia, the U.S. will never ease pressure on China," emphasizing, "China is the world's second-largest economy but has a large military gap with the U.S., so it has no ambition to play a leading role in global security issues, especially war." He added, "Creating a peaceful environment favorable to China's economic development remains an important diplomatic goal," and explained, "As long as the U.S. does not provide military support for Taiwan's legal declaration of independence, China will not deviate from this path of peaceful development."