In Europe, China faces headwinds but can India gain?

European companies have for long voiced concerns over China's unfair trade practices, while their governments have become increasingly worried about Beijing's ‘wolf warrior’ diplomacy, influence operations, espionage activities, and support for non-democratic regimes worldwide, including within Europe.

Read More: China’s Xi shouldn’t expect an easy ride in Europe this time

However, the convergence of these concerns hasn't translated into a unified China policy among European capitals. For Germany, as evidenced by Scholz's second visit since assuming office, economic interests remain paramount, whereas French President Emmanuel Macron aims to strike a balance between the US and China.

Matters clearly reached a head with the implementation of the European Union's Foreign Subsidies Regulation (FSR) in mid-2023, leading to targeted actions against Chinese companies. In the latest instance, in April, authorities conducted simultaneous raids on the offices of a Chinese company manufacturing airport scanning machines in Warsaw and Rotterdam.

These actions, considered drastic for a bureaucracy often criticized for its sluggishness, caught Chinese companies and their political masters in Beijing off guard.

Despite China's rhetoric, its companies operating abroad prioritize adherence to Chinese law. Indeed, for China, trade is a mercantilist enterprise that involves undercutting competition, establishing dominance in foreign markets through fair means and foul. It should not be surprising, therefore, that Chinese enterprises abroad are supported by subsidies that the European Union (EU) has finally decided to target.

And, of course, China's support for Russia in the Ukraine conflict has further strained relations with most of Europe.

This then brings us to the zero-sum approach China employs in its international political affairs – once again, in sharp contrast to its rhetoric of ‘win-win’.

Xi's upcoming visit to Belgrade coincides with the anniversary of NATO's 1999 bombing of China's embassy there. Even though the Americans apologised for what they said was a mistake, Beijing has continued to view the incident as a deliberate US action. China is, therefore, clearly signalling its continuing rivalry with the US. 

Meanwhile, Xi’s third and final visit to Budapest should be seen as a sign of approval for the authoritarian politics at home of Hungarian Prime Minister Viktor Orban as well as for the latter’s foreign policy choices that have frequently undermined European unity. Once again, Beijing is clearly signalling its anathema for liberal democratic models of politics.

There are two implications for India from the current EU-China dynamic.

One is in the economic realm. The EU’s actions vis-à-vis Chinese companies also raise the bar in terms of compliances and related costs for Indian companies. But Indian companies are also not usually running second to the Chinese in many sectors, especially in cutting-edge technology domains. The pressures on or exit of Chinese companies under Europe’s new laws, thus, might not necessarily create openings for Indian companies to take advantage of.

What is, therefore, likely to happen, is similar to what has happened with Indian expectations of friend-shoring. Foreign multinationals did not actually leave China in such large numbers following the beginning of the US-China trade war or supply chain disruptions in the wake of the Covid pandemic. And when they did leave, they did not necessarily move to India.

The second implication lies within the political and diplomatic spheres. India stands out from China due to its democratic system and reputation for upholding international law and treaty obligations. However, amid a growing rightward shift in domestic politics across various parts of Europe and the shockwaves from the conflict in its neighbouring region, there might be limited acceptance for India if European capitals and the public fail to positively identify with it.

So far, there has been grudging respect in Europe for India’s tough negotiating positions in multilateral forums and for its stance on the Russia-Ukraine conflict. However, as concerns grow about India’s democratic backsliding and if Indian foreign policy is going to be used for domestic signalling in India – external affairs minister S. Jaishankar’s brand of ‘wolf warrior’ diplomacy is a case in point – European goodwill for India is likely to dissipate and New Delhi is likely to be seen in the same category with Beijing as a potential challenger to European interests.

India will have made the mistake of overestimating its strengths and seeing itself as an indispensable alternative to China when it has neither the market capacities nor the political weight just yet to be one.

Also Read: Elon Musk shows why India can’t take China-plus-one narrative for granted