Beyond China’s Economic Coercion: Time for a Resilient EU

On February 24, the world watched in trepidation as Russia launched a full-scale military invasion into sovereign Ukraine, just days after President Putin recognized the independence of Ukraine’s breakaway regions controlled by Russia. The attack amounts to the largest ground war in Europe since World War II and is poised to rewrite the post-Cold War security order.

On the day of the assault, nine Chinese military aircraft flew into Taiwan’s Air Defense Identification Zone (ADIZ). As with all previous incursions, more than 900 in 2021, more than double the previous year, Taiwan has responded with transparency, releasing reports showing the number and type of aircraft and flight paths, highlighting light the increase in the escalating behavior of the Chinese military.

For years in the face of near-daily aerial incursions into its southwest ADIZ, Taiwan has kept its cool. In her National Day speech in 2021, President Tsai Ing-wen said Taiwan was determined to protect its freedom, ready to contribute to the region’s peaceful development, and willing to cooperate with partners to respond to authoritarian threats. The President of Taiwan also sentenced Russia’s invasion of Ukraine which “violates Ukrainian sovereignty and has eroded peace and stability in the region and the world”.

the the existential threat of the People’s Republic of China is growing for Taiwan. COVID-19 has made it the central drama of the US-China strategic rivalry. But it has also brought democracies closer together to coordinate their response, including to Beijing’s lack of transparency regarding the pandemic and its growing drive to weaponize trade to advance its geostrategic agenda.

The European Union has supported efforts to protect democracy from authoritarianism, including agreeing a common agenda with the Biden administration. Yet as the pandemic has chilled EU-China relations, Brussels has remained cautious not to let Beijing think its attitude is “anti-China”.

The EU’s approach to China’s assertiveness has so far been tentative, shaped by its own deep-seated fragmentation among member states. A common agenda to counter Beijing’s economic coercion and improve the EU’s position in geo-economic and technological competition is underway. Although their trade relations with China vary, member states continue to uphold their interest in cooperation.

With one exception: Lithuania.

Lithuania and beyond

By opposing China’s authoritarian leadership by embracing democratic Taiwan, Lithuania is paving the way for other EU countries to follow. The diplomatic row over the treatment of Taiwan stems from an increasingly strained relationship between China and some Central and Eastern European (CEE) EU member states that has seen a small but resourceful Lithuania play the role of David against Goliath.

The first signs of changes underway came when the Lithuanian government announced a “values-based foreign policy” last May. This was followed by the news that he would be leaving 17+1′, a Beijing-led “cooperation framework” between China and Central and Eastern European countries for investment, transport, science, etc.

“The EU is stronger when the 27 member states act together with EU institutions,” said Lithuanian Foreign Minister Gabrielius Landsbergis. In the same month, the Lithuanian government announced its intention to open an economic representation office in Taiwan, joining the 15 EU member states already on the ground.

What triggered China, however, was Lithuania’s decision to let Taiwan open an office in Vilnius under its own name – the “Taiwanese Representative Office in Lithuania”, rather than “Chinese Taipei”. This drew a sharp rebuke from Beijing, which recalled its ambassador to the Baltic country and expelled Vilnius’ top diplomat to China.

Additional retaliatory measures – halt of freight trains to Lithuania, issues with processing some export permits, the removal of Lithuania from its customs register and then its reinstatement — followed.

But Beijing has upped the ante and, in an unprecedented move, pressured European companies to ditch Lithuanian suppliers or risk being shut out of the Chinese market. As these secondary sanctions against European companies had an effect on supply chains across the EU, Brussels was not equipped to react quickly. Economic interdependence with China created power, but also made Europe vulnerable, as was clear during the pandemic.

“The single market itself is being put to the test,” said German Parliamentary State Secretary for Economic Affairs Franziska Brantner. France, which now holds the rotating presidency of the Council, has pledged to retaliate quickly against coercion from Beijing.

Democracy against disinformation

Beijing’s decision to “punish” Lithuania could easily be dismissed as a diplomatic quirk – but the EU would be remiss to ignore it. The new phase of Sino-Lithuanian relations impacts more than the Baltic. With the integrity of the European single market compromised, Lithuania’s problem is a European problem.

Since the start of the pandemic, a shared sense of unease has taken hold across the EU over China’s disinformation and influence operations. As a frontline Member State, Lithuania has not been spared from these efforts.

Beijing has used disinformation to amplify its economic coercion. He claimed that the opening of a Taiwanese representative office was an act to “win independence”, dismissing the fact that it is the sovereign right of Lithuania and Taiwan to cooperate. Chinese leaders have actually built their entire Taiwanese narrative on disinformation, claiming that Taiwan is their territory, when they have never ruled it. For the communist leadership, Taiwan remains “non-negotiable”.

China’s tactic is familiar: Lithuania has faced a hostile Russia since it broke free from the Soviet Union 30 years ago. Moscow and Beijing also engaged in mutually reinforcing disinformation narratives when COVID-19 hit, claiming theirs was an effective response to the health crisis. And, for months before invading Ukraine, Moscow followed a similar tactic, claiming that NATO was an existential threat to Russia, and that Russia was its victim.

Thus, China’s inflammatory rhetoric and economic coercion towards Lithuania has touched an already sensitive nerve in Vilnius and across the EU.

It should be noted that Lithuania has not gained much from cooperation with China. Along with the other Baltic countries, it was among the EU’s smallest recipients of Chinese investment, each receiving less than €0.1 billion in FDI between 2000 and 2019.

This does not mean that there were few stakes for Vilnius.

Beyond solidarity

Vilnius made that clear. Its turn towards Taiwan is not anti-China, but pro-democracy. It is now vital that the government communicates to the Lithuanian people in unambiguous terms what kind of relationship it wants to build with Taiwan and how it wants to get there. This is essential to leave no room for disinformation from China. As Beijing uses economic coercion and disinformation in mutually reinforcing ways, Vilnius must take a comprehensive approach.

To offset the financial cost that accompanies China’s anger and to ensure economically viable cooperation with Taiwan requires effort in both Vilnius and Taipei; presenting Taiwan as an economic alternative to China is a joint responsibility.

Taipei’s pledge to establish a $200 million fund to invest in the country’s technology industries, including semiconductors, and its additional $1 billion credit for joint projects are big steps in the right direction, especially following Lithuanian President Gitanas Nausda’s call for the decision to allow Taiwan to open a representative office with its own name a “mistake”.

The Foreign Office has dismissed claims that it did not consult the president on the decision. As internal disagreements can persist, Vilnius must protect its values-based foreign policy through internal coherence.

Lithuania has received international praise and support. But words are not enough.

More resilience

How the EU responds to China’s economic coercion against one of its own will shape the future of EU-China relations. European Trade Commissioner Valdis Dombrovskis underlined that the EU was “ready to oppose all types of political pressure and coercive measures applied against any member state”. Announcing Brussels’ decision to bring China into the WTO, he said Brussels was “moving forward to defend EU rights”.

The measures Brussels has proposed so far – an EU toolkit to mitigate cybersecurity risks for 5G, an EU framework for screening foreign investment and the anti-coercion instrument in the works – are based on convergence between Member States.

But Brussels cannot only play defense. It needs a comprehensive approach to tackle all threats and use the economic power of member states more strategically while working closely with like-minded partners. By focusing on the bloc’s domestic strengths and strengthening its external power projection, Brussels can build resilience and not only defend its interests, but also leverage its economic power for strategic purposes.

Brussels should therefore prioritize investment in critical technologies at home to address its strategic interdependencies with the rest of the world and increase its global engagement through an effective Indo-Pacific strategy. European leaders already collectively view China as a “systemic rival”. They must now act accordingly.

It is imperative to show a united front inside the EU and across the Atlantic vis-à-vis Russia, which has invaded Ukraine, and China. Concrete actions – closer cooperation on technological standards based on democratic values, cooperation on the use of human rights sanctions, efforts to increase resilience to disinformation – are needed.

The courage of Vilnius has set a precedent to which the enlarged EU can adhere. In January, Slovenian Prime Minister Janez Jana called Taiwan a “democratic country” and announced plans to swap trade offices with Taipei.

Ljubljana found inspiration in Lithuania’s position and shares their disappointment at 16+1. But the path it takes will be shaped both by the Chinese factor in its own domestic and foreign policy considerations, and by the EU’s response to Beijing’s economic coercion.

Taiwan and Lithuania are frontline democracies against the authoritarianism that benefits both the US and the EU. Making Taiwan a reliable partner in the Indo-Pacific must be an integral part of coordinated action to counter Chinese aggression. As the Sufi poet Rumi once wrote, halftone does not lead to majesty.

(Dr. Zsuzsa Anna Ferenczy is a Taiwan-based postdoctoral researcher, former political adviser to the European Parliament.)

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