In trade crisis, China courts the EU as a hedge against Trump

By Laurie Chen

BEIJING (Reuters) - China is looking to mend a strained trading relationship with the European Union, the last open major market for its products, to weather a trade war with the United States. But diplomats and analysts say breaking a prolonged stalemate won't be easy.

The EU and other major trading partners argue that Chinese overinvestment in manufacturing is flooding the world with goods, while Beijing accuses the EU of being protectionist.

But since U.S. President Donald Trump's return to the White House, a procession of European officials and lawmakers have made their way to Beijing, capped off with Spanish Prime Minister Pedro Sanchez meeting Chinese leaders including President Xi Jinping on Friday.

Xi, in his first public comments since Trump launched his tariff offensive, appealed directly to the EU by telling Sanchez that China and his bloc should join forces to defend globalisation and oppose "unilateral acts of bullying".

Both sides have quietly intensified coordination, with EU officials agreeing to monitor trade diversions from U.S. tariffs, a potential strain on the relationship, in two separate calls with Chinese counterparts on Tuesday.

China and the EU also established several economic working groups after EU trade chief Maros Sefcovic's visit late March, including on EV supply chain investment and agri-food market access issues.

Both sides on Thursday revived minimum pricing negotiations on Chinese-made electric vehicles, a solution to the bloc's tariffs imposed last year that Beijing has long advocated.

China's EV exports to Europe were down 15% in January-February from the same months last year, according to China Passenger Car Association data. This extends a 10% decline in 2024, as tariffs of up to 35.3% took effect in October.

EU Commission President Ursula von der Leyen even shifted her language on Ukraine in Tuesday's call, inviting Beijing to "intensify its efforts to contribute meaningfully to the peace process" instead of admonishing it for its economic support for Russia.

All this comes as Trump backtracked Wednesday on the hefty duties he had just imposed on dozens of countries while immediately hiking tariffs on China to 145% from 104%. 

European diplomats, having seen years of discussions that resulted in no progress on key issues including the trade imbalance, market access and reciprocity, are not holding high hopes for a reset.

"It's up to the Chinese to show they're serious about engaging. All existing problems in the trade relationship are within their power to resolve," said one based in Beijing, on condition of anonymity.

Analysts believe China views Europe as politically divided and weak after Trump's re-election, and hopes that tariff pressure from Washington will make member states more open to deepening investment ties with China.

"I don't see any reason why China would be interested in a change other than political and symbolic gains - which is not what the EU wants," said Mathieu Duchatel, Asia Program director at Institut Montaigne, a Paris-based think tank. 

CHARM OFFENSIVE

Beijing has mounted a charm offensive in recent months, sending senior diplomats to Brussels in February to raise lifting sanctions on EU lawmakers in exchange for reviving a long-dormant investment deal. 

French foreign minister Jean-Noel Barrot won a short-term delay on definitive Chinese tariffs on cognac imports after his visit late March. However, Beijing unusually ignored a European demarche request on cognac-related issues for several months prior, two European diplomats told Reuters. 

Top EU leaders will visit Beijing in July for a face-to-face summit with President Xi, an EU Commission spokesperson said on Friday.

This comes after China indicated Xi would not attend the EU-China summit originally planned for Brussels, said one European diplomat, despite travelling to Moscow in May for World War Two commemorations.

"They sense an opportunity for getting concessions, but are not interested in really improving ties since Xi cannot be bothered to travel to Europe," the diplomat said.

However, there are hopes incremental progress can be made if either side is forced to make compromises while facing U.S. tariff pressure.

"In the longer term, if relations with Washington continue to deteriorate, the EU and China may decide that it is in their interests to reduce these tensions," said Noah Barkin, senior advisor at Rhodium Group.

Spain's Sanchez seeks to position Spain as an interlocutor between China and the European Union and attract Chinese investment, despite U.S. warnings that a pivot to China would be "cutting your own throat". 

"The U.S.' current approach has presented China with the opportunity to demonstrate to Europe, and others, that it can be a reliable trade and investment partner," said Jens Eskelund, President of the European Chamber of Commerce in China.

"The ball is very much in China's court, and it will be interesting to see how they choose to play."

(Reporting by Laurie Chen; Additional reporting by Qiaoyi Li; Editing by Hugh Lawson)