How should Europe handle China?

Ben Bland

Good evening, everyone. For those of you who don’t know me, my name is Ben Bland. I’m the Director of the Asia-Pacific Programme here at Chatham House. It’s been a busy day for us, ‘cause earlier, we had the Korean Foreign Minister in for a roundtable under the Chatham House Rule. So, I can’t tell you what was discussed, but it was very interesting. And I’m delighted to be joined tonight by three eminent speakers to help us dissect how Europe is managing the China challenge, which is no small challenge.

So, to my left, really pleased that we have Petra Sigmund, who’s the Director General for Asia and the Pacific at Germany’s Federal Foreign Office. And I think it’s fair to say she’s been one of the driving forces behind the publication of Germany’s first ever China strategy, which was published in July. Next to Petra is Dan Chugg. He’s Director for North East Asia and China at the Foreign Commonwealth and Development Office here in London. And I think both of you have studied Chinese and served at the respective Embassies in Beijing, so great to have that on the ground, as well as headquarters experience. And last, but not least, we have my colleague, Olivia O’Sullivan, who’s Director of the UK and the World Programme here at Chatham House. And she spent more than a decade working on foreign and development policy for the UK Government, in various different arms.

This is just a reminder before we get going that this event is on the record. It’s being broadcast on Zoom and being recorded, and we will be posting it to our website later. I’m going to ask questions to our panellists for about 35 minutes/40 minutes or so, and then, we’ll open up to questions from the floor. For our online participants, if you have questions, please put them in the Q&A box on Zoom and I’ll try and get through to some of them, time dependent.

So, with all of that said, let’s get straight into it, and I’m going to come to you, Petra, just to explain why did Germany decide to publish a public China strategy, something that you’ve never done before? What prompted that?

Petra Sigmund

Well, first of all, it was in our coalition treaty that was concluded last year for the new German Government three-party coalition, and it’s in there, we should come up with a China strategy. Now, that has already been, in a public document, announced, so when you do that, you know, it’s very hard to then do a China strategy that is not answerable to that very public. So, that was, kind of – you know, the decision was taken away by announcing it in the coalition treaty.

But then, when we thought about, “Why are we actually doing this strategy?” we also felt there was a need to explain how Germany views its relationship with China and the future perspective of the relationship with China, and explain to whom? Explain it to the German public, to German stakeholders in the relationship with China. Explain it also to China itself, of course. Explain it to our partners in the European Union, explain it to our international partners. So, that was, you know, one of the reasons why we then thought it’s a good thing to have it public, although, of course, that the work on a public strategy on one country, like China, is much more difficult if you can, you know, if you can work behind the screen of, you know, not having to publish it all. But I think we managed okay in the end and came up with a document that answered the questions to our partners and our public.

Ben Bland

If you could summarise. I mean, I’ve read it, I would recommend that everyone here does. It’s available in English, as well, it’s pretty clear. What would you say are the key messages that you want to communicate through the strategy?

Petra Sigmund

I mean, one, the whole – you know, the working assumption that guided us through the strategy was China has changed and is changing. That was actually – I’ll stop here, because we have, in Germany, so many people, constituencies, that have been working with China for a long time. But it was important to say that this new era China is something else, and that, kind of, was acknowledging the experiences of people who had been working with a China, you know, of the first decade of this century, or in the past, you know, in the 20th Century. But it’s just simply not the same China that we’re seeing.

So that was number one, you know, China is cha – has changed, is changing. We also need to change our approach on China, and that is a little bit in the strategy, included in that, can we change China? There was a hope that through trade and openness, we would, you know, create more liberalism, more openness towards us. I think that hope was justified for a while, but it doesn’t look like China is opening to us in the way we would have wanted this to happen. So, we see we will probably not be able to change China, but what we can change is our attitudes and our approach to China.

So, you see in the strategy a more sober assessment of our relationship with China, and you see – and that partly stems from the fresh experiences with Russia-Ukraine, a much bigger security and risk-mindedness when it comes to China. I would sum it up like that.

Ben Bland

Okay, and Dan, I mean, I’m going to – we’re going to come to the substance of how the UK is handling the China relationship and some of the, sort of, similarities and differences, maybe from Germany. But first, just a, sort of, technical foreign policy question, why hasn’t the UK published its own public China strategy, which I know is something that various Parliamentarians have been calling for?

Dan Chugg

So, we haven’t published a strategy in the way that Germany has, but we have been very public about our strategy on China in the last year. And that started with the Integrated Review Refresh at the start of the year, where we were very clear in that that we had three pillars to our strategy, of “Protect, Align and Engage,” and we can talk about those things a little bit later.

But then, the Foreign Secretary went on in April and gave a very detailed speech at Mansion House, which – and the whole of the speech was about China, and – so, it was several thousand words long. And this is something that no Foreign Secretary, I think, has ever done before, to give an entire speech about China. And it was – he was very, very clear in that what we think about China, what our strategy is towards China, what our position, what our posture is, some of the things where we have major disagreements and some of the areas where we want to be talking to China in slightly less combative ways.

So, I think it actually – what we’ve set out, in the last nine months, is probably a clearer exposition of our China strategy than we have done, as a government, for a very long time.

Ben Bland

Okay, and Olivia, as you look at this, obviously, there’s a, kind of – there’s a push from European partners and the US to, sort of, align and co-operate more on China. But how do you see the UK’s, kind of, interests when it comes to the China relationship, as being perhaps different from those of Germany or the EU or other, you know, partners that we often call likeminded?

Olivia O’Sullivan

Thank you, and thanks to my fellow panel members, ‘cause it’s very interesting to hear people from inside of governments talk about how we see the strategies. I mean, looking at the German strategy and, as you say, the UK hasn’t published a strategy, but there has been the James Cleverly speech, the statements in the Integrated Review Refresh.

I think one of the remarkable things is that it’s quite a similar logic, it seems to me. It’s the idea that there are areas where we want to, kind of, work together to confront or challenge China’s behaviour. We want to be clear that we’re not – I think what you often hear from UK Government Officials is, “We don’t have a quarrel with what China is, but we have a quarrel with what China does, on occasion, but there are also areas where we want to engage.”

And you can see that there’s also a similar approach in, to use Ursula von der Leyen’s phrase, “We don’t want to fully economically decouple, but we want to de-risk.” And to your points, Petra, there’s been this, kind of, shared evolution, I think, particularly on seeing, you know, economic ties have gone from being seen as this opportunity of China entering the WTO will inevitably liberalise as it becomes more prosperous, to seeing those as exposures and risks.

But what I think – where I think we might see interesting differences is the room for manoeuvre that both countries have in terms of putting these strategies, or statements, or directions of travel into practice. So, China was Germany’s number one trading partner last year, has been for the last seven years. It’s only the UK’s fourth largest trading partner. It’s, you know, it’s still important, but Germany, of course, has deep, kind of, manufacturing – export-led manufacturing economic ties with China in a way that a services led economy like the UK don’t – has less of.

We have other, I think, exposures, but, you know, one of the things, I think, that is interesting about this conversation is, when we talk about de-risking and when we talk about economic dependencies, it’s difficult to get specific about what we mean. Do we mean that our economies are enmeshed, and particular sectors share supply chains with China, or do we mean that we’re very dependent on Chinese imports for particular things we think are important, so solar panels and electric vehicles?

Similarly, I think, for Germany, it’s becoming more of an issue as China’s manufacturing becomes more advanced, that they’re actually a competitor. And you can see with the European Commission launching its investigation into competitiveness and electric vehicles, that, like, that’s becoming more of a live issue. So, the two countries, their economies are different shapes, the risks are different in practice, and I think that means the room for manoeuvre, the different pressure groups in society, are different.

I mean, the other thing I would just mention is – and you were mentioning this just now, Ben, that there are different historical ties. So, Hong Kong was particularly resonant for the UK. Hence the, kind of, British Nationals (Overseas) scheme. We now have 125k Hongkongers in the UK and that changes the shape of our society, as well. So, there’s – they seem like similar rationales and approaches to me, when you read them and when you look at them. In practice, implementing them, each country faces different risks and different equities.

Ben Bland

Yeah, and it seems to me now, that, sort of, all the US allies and the US have agreed on this language about de-risking, but the next obvious question is, sort of, what is – what does de-risking mean in practice? Which I guess when you have different shaped economies, looks quite different. And I mean, on that point, I might come to you, Petra, and ask about your engagement with, sort of, business and industry in Germany, and obviously, given the deep links of the car industry, in particular, but many others. And I guess there would be other parts of German industry who will be much more concerned about competitive threats. And then, there will be people who are concerned about both the competitive threat in the long-term, but in the short-term, wanting to maintain their market access in China, and fearing, perhaps, that the, sort of, tougher stance that’s evident in the China policy – China strategy, might undermine their position. So, how have you managed those conversations with business? And I might come up to you, Dan, afterwards, as well, for a similar perspective on the UK.

Petra Sigmund

Well, we actually, we’ve done this strategy through many, many conversations, outreach with stakeholders, because we see not just that government is an actor in China policy. It’s also our sub-national government level, it’s the businesses, it’s the business federations, it’s the universities, scientific organisations, even the religious communities, NGOs. We did a lot of outreach to make sure that we get input from, you know, what are their concerns, what are their views? So, that was actually a pretty good conversation we had, also, with our business community.

I mean, in the strategy we described China and that’s in parallel with what the European Union uses as a description of China. It’s a partner to us, it’s a competitor and it’s a systemic rival. And the competitor, I mean, we’ve seen it for a long time. In former times we used to think, you know, economy-wise, we’ll always be a little bit ahead of them. Well, that’s no longer true. They are a formidable competitor, but our businesses, I dare say they have known this for a while, that they’ve – you know, it’s now a market that is not – that you need to be very good in that market to survive, and so, the competition with China is – we assume that.

What we were looking at was, you know, real one-sided dependencies and we analysed them and there is one – and there are three main areas. Two of them are very European, not just Germany concerned, and that is, where do our critical imports come from, especially when it comes to critical raw materials?

Now, if you have 98% of your critical raw materials coming from China, there is no other word than being dependent. Now, if that is the case, do you have an interest in decoupling? No. You have an interest in maintaining that relationship, but you have an interest in having additional alternatives. A little bit of diversification just to be sure that in the case of a pandemic, of policies restricting exports, of, you know, coercive measures, we’ve all seen that. And I don’t even need to mention other scenarios which, you know, might be possible, because we’ve seen policies that restrict our access to those exports. So, we see clearly that is needed, we need to diversify.

There is a second type of dependency that we want to address through de-risking. It’s a potential dependency on China’s technologies. But we’re also realising, you know, whether it’s 5G, telecommunications, whether it’s AI, artificial – and those, you know, cutting edge new technologies, semiconductors, semiconductor production machinery, we need to invest in our own strength in Europe in order to retain the knowledge and to have the companies to help us building the network. So, that has been analysed, realised, and we now have European policies that allow government subsidies and make sure that we do have the knowledge and the companies to provide for that.

And then, there is a whole debate about market dependencies, which goes along with China being our number one single trading partner since 2017. But I underline the word ‘single’, because if I look at our overall trade exposure, over half of Germany’s trade is with the European Union. So, that’s what makes us, you know – that’s what’s important, that we have this European Union internal market, and we shouldn’t forget about that and work on it to keep this trading base.

But then, we also, you know – given China’s policies, dual circulation, Made in China 2025 stated aim to become – to be less dependent on foreign economic contribution, you need to adapt to that. And we’ve been talking to our companies that they need to be aware of that and they need to factor in not just that, but also geopolitical risks. Again, I say it again, Russia-Ukraine, cannot be overestimated the impact and it’s a good conversation that we’re having with our companies about that. And, you know, diversification is that everybody agrees on we should spread our economic base more largely. That goes together with an active free trade policy. It just has to also happen and that’s what we’re working on.

Ben Bland

Yeah, and, obviously, one challenge when we talk to businesses, is they’ll say, “Well, whatever the problems in the China market,” you know, “it’s at a certain scale and it’s not as if you go to other emerging markets, they don’t have similar problems when it comes to corruption in inefficiency, but the size is a lot smaller.” So, how many Cambodias do you have to go to, to get one China?

Petra Sigmund

Yeah, yeah, yeah, scale is actually a big issue. China is the biggest internal market in the world and if you – you know, if you’re looking for a similar scale, you know, Europe comes to mind. But that’s why we’re also saying in the China strategy, which I’ll get to that later what the China strategy is, on top of being a mere, you know, how to deal with China strategy, but, you know, we’re saying, you know, scale is European Union. And we need to invest into – in the internal market, harmonise further and make sure that, you know, that we really have a unified capital market, unified rules on cutting edge new technologies, new economy. But also, scale can be achieved elsewhere, which we need to tap into that potential, whether it’s India, whether it’s ASEAN, 650 million people in South East Asia. You know, a lot can be, you know, sought and found in other regions and we governments need to help our companies.

Ben Bland

Yeah, and Dan, from a UK perspective, how has the conversation with business gone? I mean, it struck me that in the last, kind of, few months, business has started to become a bit more vocal, raising its concerns about, sort of, tougher China policy in the UK and in the West, more generally, after being quite quiet throughout the COVID period. But recently, we’ve seen some quite senior people saying they’re not really comfortable with our tougher China policies and they think it’s bad for business. But yeah, how have you found these sorts of conversations with corporations and UK business have gone about China?

Dan Chugg

So, I think British business, the attitudes vary depending on what kind of businesses, what sector it is, how much they understand China, how much they’ve been looking at their risk profiles. And I’m struck, really, when talking to British business, that some of them are very focused on what happened in Russia and Ukraine and recognise that if there were some black swan event, that they might have to just exit China immediately. And that is a major risk for them and so, they factor that into their business planning and, “What would it look like if we had to leave tomorrow?” and “What would that mean for the share price?” and “What would that mean for our profits?” and so on. And I think other people, it’s almost too difficult an issue to contemplate and so, they say, “Well, let’s just make hay while the sun shines.” But there’s no doubt that they want governments to be – and the British Government to be talking to China, because that political relationship is an important part of the business relationship when you’re with China.

But I think, as, sort of, a wider point, I mean, as Petra was saying, that China is changing, and this is one of the things. When we talk about risk, and we talk about risk a lot when it comes to China, it’s changing all the time and we’re trying to work out what China is and what it’s doing and where it’s going, and these questions are big questions. And when I talk to people about China, I often start by saying, “Collectively, we all, basically, got it wrong 20 odd years ago, when China joined the WTO.” We collectively thought that China would, if you like, become more like us as it got more integrated into the international economy, and that with greater economic liberalisation, you’d see greater political liberalisation.

And, of course, that simply hasn’t happened. What’s happened is the opposite, in many ways. You’ve got greater political restrictions in China than you’ve had before and you’ve got China getting bigger and stronger and more influential internationally, but not necessarily wanting to play exactly by the rules that we’ve been playing by. And some of those they will play by because they’ve benefitted from those, others they are wanting to change, or set up with their own parallel rules, with their own parallel systems. And so, this also leads to the issue of risking – risk and de-risking. And so, I mean, we also are having the same conversations that they’re having in Germany about vulnerabilities in the economy and about supply chains and about dependencies and about critical minerals and all of those sorts of things. And trying to work out what it means for us as a government, what it means for us as a country, what it means for our businesses.

But I think there’s also other aspects of risk, which is the bigger political risk, which is also important to think about. And I think one of the issues, and it’s a way that, actually, Western countries can talk to China, is by saying that, you know, a lot of the things that China’s doing that we don’t like very much, you know, you can bring it back to China simply not following the rules, and not following the rules that they, themselves, have signed up to. And so, you could look at what’s happening in the South China Sea and are they following UNCLOS rules? And look at what’s happening in Hong Kong. Are they following what they signed up to in the Joint Declaration? Look what’s happening in terms of the human rights abuses. Are they following their – what they’ve signed up to in the UN Convention Against Torture or other UN conventions that they are signatories to? And I think that the fact that they are not abiding by the rules that they have signed up to, means that the world is worried about China and worried about the implications of dealing with China, of trading with China, doing business with China, because there’s an element of risk that they might not follow the rules.

And I think that – I think it’s one of the points that we need to be making to China, is that actually, they need to be selling their things to other countries. They need to be doing business with other countries, and if they – if these countries and these businesses cannot trust China to follow the rules, then there will be increased risk and a greater need to de-risk for us and our businesses. And I think that, you know, this, sort of, more of a geopolitical aspect is also a really important part of the debate here.

Ben Bland

And I think when it comes to changing China and disappointment, that’s a phenomenon that goes back to, what, the 17th Century? Is that – if anyone wants to know about that, I’d urge you to read the book, “To Change China” by the late Jonathan Spence, which talks about the Jesuits and everyone since who went hoping that they could change China. And China said, “We’ll take that maths stuff and those maps, but you can keep your religion, thank you very much,” and I think maybe not that much has changed.

Olivia, I want to come to you to talk about something that I think Petra was hinting at, which is maybe the question of, to what extent is our China policy or China strategy – should it just be a UK strategy or a Germany strategy? Or to what extent is the US-China policy just a, sort of, Make America Great Again policy? I mean, we talk a lot about economic security and co-operation on economic security, and I know you’re doing some work on UK, sort of, foreign policy ahead of the next election, here. I mean, do you think that’s actually a better way to think about it, rather than fixating on China, is to think about, what do we need in our economy, sort of, to make us strong and resilient in our society, too, I guess?

Olivia O’Sullivan

Yeah, I think that’s a good – it’s a good question. I mean, to pick up on one thing that you said, I do think, maybe the elephant in the room is a bit strong, but an element that needs to be discussed in the US and what it does and what it chooses to do. I mean, you said, Ben, that we need to set out strategies in our own interests and what makes us strong. And both the statements from the UK and the strategy from Germany, I think, seek to chart, with a, kind of, a balanced pathway, where we are both engaging where we can and de-risking where we need to and, kind of, confronting with others where we think that’s necessary.

Charting an independent path, I think, is a worthwhile goal. It’s – might be difficult when you have quite an unpredictable US on the other side of the equation. We do have a UK election next year, but we also have a US election that’s going to be pretty decisive and we, potentially – you know, if Trump wins again, we might have a very unpredictable actor on China. And that could lead to all kinds of, sort of, different pressures on Europe and on the UK.

I mean, I think – we talked about the different aspects of de-risking, and mainly about, sort of, reducing our, kind of, import dependencies. But another side of this, which I’m bringing up ‘cause I think it’s an interesting example, is managing the risk of Chinese inbound investment. So, inevitably – I, sort of, can’t believe we’ve almost got to half past and we haven’t brought up Huawei, but you know, that is an emblematic example, I think, for the UK. Where the UK initially set out, or had planned to have a policy, where Huawei could be part of the UK’s 5G telecoms infrastructure, but not the core of it. And then, the Government shifted on that and there was significant pressure from the US about the UK-US intelligence sharing relationship.

And I think some of these, kind of, quite fine grained and difficult decisions about what kind of Chinese investment level of ownership do we allow in our infrastructure or in our critical industries, we have seen, kind of, noise and pressure from the US on. Similarly, the UK was trying to make a decision about Chinese ownership of the semiconductor factory, Newport Wafer Fab in South Wales. You had US Congressmen writing to Joe Biden about that. And that’s not to say that we don’t have the capacity to, sort of, chart our own strategies, but it is to say that we should acknowledge that there’s another really significant actor in this and we may be looking at a more unpredictable US leader. Which will – I think will make it more difficult to set out a clear European or UK pathway, and maybe sets out the case for UK-European alignment on some of these issues. You know, on, sort of, how we manage our, kind of, economic dependencies, how we diversify away from particularly vulnerable supply chains, given that we, maybe, are not that sure what the other actor in the equation – how they’re going to act or what kind of pressures are going to be on us.

I mean, the other thing that you’ve mentioned, as well, Ben, is it’s all very well us doing this, but China probably perceives both Germany and the UK as extremely close to the US in all of this. And shifting that perception in order to engage where we need to, I think is going to be a big challenge for the next government and for Europe, as well.

Ben Bland

Yeah. I mean, and in terms of managing those, sort of, differences with the US, they – both Germany and the EU, and the UK Government at various points have spoken out and raised concerns about some of the US industrial strategy and maybe being, sort of, not very helpful for our, sort of, competitive needs of our economies and companies. How do we manage that balance? ‘Cause, you know, having just been in Washington, we also know that, kind of, the US is very, sort of, concerned about when European leaders and governments are perceived to be, sort of, stepping out of line on China policy.

And I guess we also have some sort of interest in having a shared position, which we see through things like these G7 statements. So, how do we manage the tensions on – with the US, especially when it comes to, kind of, industrial and economic policy, where, to a great extent, not just US and Europe, but the UK and Germany and the UK and EU, we are competing, right, with each other?

Petra Sigmund

Yes, but, you know, I also want to say where we are very close and that is the overall assessment that the big challenge is preserving, upholding, defending, the rules-based international order, with its core elements. And that is, you know, peaceful resolution of conflicts, sovereignty of states, no matter how big or small, old or young, rich or poor they are. Territorially integrity and a set of individual universal and unalienable human rights that we think should be defended in each and every country, no matter which political forum, history, culture, it has, which we’ve all agreed to.

And we are aligned on this with not only the US, but other likeminded partners and that is actually the big mission, the big challenge, to uphold this order, not to alter it to something that looks entirely different and that gives, you know, more rights for bigger countries or – so – and I think we are working very closely on the issues that come from that. And that is not because we are following the US, how it is often portrayed. I dare say in Beijing it’s often portrayed we’re following the US, and that is such a misperception. We are – we have a – we share this interest of upholding this order because it’s the foundation to everything.

And then, comes a more granular analysis of, you know, how sovereign are we with regard to China? Which elements do we need to look at, especially economy-wise? And I also dare say, through our interactions, we do share a lot of views on, you know, what we need to do to retain, to preserve our sovereignty, be able to pursue our interests and values.

Now, the answers of how we do it, they might not be the same and they might often be, you know, “Hmmm, we don’t want to do this,” or “We’re taking a different path,” and it’s very, very important that you are then able to talk and sort it out. And we see, in the present US Government, a great willingness to go sit down and sort it out, and we really hope – and there I agree with what has been said, that after the election in the US, this is going to continue. If not, you know, then, we have now – we’re now such a powerful group to align on the basic – on the fundamentals of, you know, how we see the world and what is our joint mission, what we need to stand for. So, you know, that’s what needs to be preserved and what’s – what we need to work towards now.

Ben Bland

And Dan, do you feel that we have those channels for disagreement? I mean, I guess the next cab off the rank is outbound investment restrictions, which the US has already brought in. And generally, their stance has been, “If we’re not doing it and our companies aren’t making money, nor are yours,” and it’s clear that that’s the next thing. I don’t know if you want to talk about that specifically, but if you do, that’s great. But more generally, do you think we have the right channels with the US to have these sorts of disagreements about the how, even if we do share broad objectives?

Dan Chugg

I mean, the thing is working out how to deal with China is really difficult. If – in the government, if you look at the things in the British Government we talk about, there’s a China aspect to many, many bits of our domestic policy and not just our international policy. Whether it’s education or the NHS and pharmaceuticals, or, you know, agriculture or whatever you like, there’s a – often, a China angle.

And so, when we come to work out what our policies on China are, it’s – you have to work out what do we actually want to achieve for the UK? What is in the UK’s national interest here? You know, what are the tensions of the different parts of our domestic policy, and how do we surface those and how do we work out what’s a priority, is it this or is it this? And so – and we’re doing that all the time and Germany’s doing that all the time, America’s doing that all the time. Everybody’s having these conversations, because as we were saying at the start, China is changing rapidly and so, there’s – you can’t just work out what the answer is and say, “Okay, we’ve got the answer to China now. We’re going to just do this,” ‘cause it changes day-by-day-by-day.

And so, this is the reality of dealing with China and dealing with policy on China, and then, of course, you know, we all come to our own conclusions. And that’s why Petra’s here this week to talk to us in the UK about Germany’s policy, about UK policy, so we can understand where each other’s coming from and share ideas and share analysis and decide whether we are doing the same things or different things, and if different, why? We have the similar sorts of conversations with the Americans. I was in Brussels yesterday talking to the EU.

You know, we have these conversations all the time, ‘cause we’re all grappling with the same challenge, which is, how do we deal with China in this world that we find ourselves, where it’s the second largest economy, it’s immensely powerful, it’s militarising the region, it’s coercing different countries in different ways? And yet, it doesn’t share our values and it’s trying to undermine some of the aspects of the international system that are so important. And, you know, this is, sort of, a head scratching moment for everybody, really, and we’re trying to find our way through it and at the heart, we’re all in more or less the same position. It’s just, you know, some things we – some people are a bit further ahead than others and doing things slightly different than others.

Ben Bland

Yeah, and well, we certainly scratch our head about China a lot at Chatham House, as well, particularly with recent changes. I mean, one thing I want to come to both of you, Petra and Dan, on, given you’ve been in Beijing, and you deal a lot with the Chinese Council a lot, I’m sure in your current roles, I mean, we say we want to co-operate and compete with China at the same time. And I, kind of – I think Olivia, kind of, tipped her hat at this earlier, but what do the – our Chinese counterparts say, or Chinese counterparts when you meet them, and say, “Oh, we want to compete with you here and we think your values are terrible and destroying the world, but hey, let’s co-operate on all this stuff over here”? I mean, how do they respond to that kind of pitch?

Petra Sigmund

It’s – so, it’s always been that you way, if you wish. It wasn’t that their values, their – you know, that we have – we’ve not had problems on the values side with China. The domestic situation, human rights situation, has always been a problem with the Chinese Government. It’s just that, you know, in this decade, added to that comes a much more assertive, you know, foreign policy, security policy, that is becoming bigger, you know, the problematic side. But we have – we clearly say, and also, we described this in the strategy, “Okay, there is systemic rivalry,” and that, to us, means those areas of the rules-based international order where we’re not going to compromise. And those are the four areas that I just mentioned, that are – we need to defend those areas. That’s why we say ‘rivalry’. There is this sole area of competition where we also feel called upon. We might need to get better.

And then, there’s also the co-operation side, and the co-operation side is – you know, we have our political co-operation, with frequent dialogues. We, of course, when we call – when we say co-operation now, it’s absolutely necessary on global issues, to work with China, whether it’s climate change, whether it’s development, whether it’s others. We also – I’m not shy to say we have an important economic relationship that also needs to work with China, and we should not start, you know, making one thing dependent on, you know, the other thing. “If you on – we can only go sit down with you if you are not criticising us in area A, B and C.” I think that wouldn’t lead us, you know, in a good place.

So, we’re not weaponizing dialogue. We don’t think that would be wise, because it is important to be in a constant conversation with them, also, to be able to predict a little bit what is coming. So – and for – you know, no matter – we get the feeling it’s important to them, also. They want to sit down with us, they want to have those dialogues now, for us, and that’s a little bit, also, the result of the China strategy. How do we use those dialogues is changing a bit.

I mean, we make sure that our main interests and also, our – where we’re not satisfied with Chinese policies, where we’re disappointed, where we’re – you know, what we don’t accept, this goes into those dialogues in a, you know, in an open way, but not in a way that you won’t – that you don’t want to have those dialogues ever again. You need to, you know, safeguard a certain form, but that’s what Diplomats are normally trained to do.

So, we think we can do it and, you know, you need to, you know, stick to your principles on the one side, but then, also, make sure that you have the ability to co-operate. And we see that that’s an interest on the Chinese side and it’s our interest, also.

Ben Bland

And Dan, I mean, where do you see the realistic areas for co-operation? People often talk about climate change, but it strikes me, if you think about, you know, UVs, if you think about solar cells, if you think about critical materials, actually, that’s all, sort of, in the competitive box, in a way. So, yeah, where do you see potential for this co-operation that we all say we want?

Dan Chugg

So, I think it’s – I mean, comp – co-operation is perhaps a slightly misleading word. I think it’s about the fact that you’ve got big global problems that we’re facing on the planet and China is a enormous country and a powerful country, and solutions which are going to work for the planet have to work for China. And so, if you’re interested in climate change, if you’re interested in food security, if you’re interested in water, if you’re interested in pandemic prevention, if you’re interested in conflict prevention, if you’re interested in poverty alleviation, if you’re interested in clean air, you know, if – it doesn’t really matter what it is, if you’re interested in these things, which are global issues that we need as humanity, then you have to be sitting down at a table somewhere with China and looking at what the problem is and what the potential solutions are. Because if we’re not having that conversation, they will be having it with somebody else and then you have parallel conversations and that’s not going to be helpful to anybody. And so, this is the issue of dealing with China.

Now, alongside those conversations, you’re going to have some other very difficult conversations, ‘cause there are going to be some of the things that we’ve been talking about, where we have – where there are red lines for us, where we fundamentally disagree with Chinese behaviour on various things. And we will have to continue having those difficult conversations where we robustly express our views and they robustly express theirs, and we have to agree to disagree about those things, but then say, “Okay, but then, we need to have a conversation about X, Y and Z, which is something we have to be talking about.” And so, that’s – it’s a difficult kind of relationship to have with a country, but I think it’s a relationship that we’re all trying to find our way into, so that it’s not naïve and it’s not putting to one side the difficult issues, but it’s recognising that this is a planet that we all share and we need to be dealing with these issues together.

Ben Bland

I’m going to come to audience questions in a sec. I just have one more – talking of necessary dialogue about difficult issues, I want to talk about Taiwan, which, yeah, I think was mentioned, you know, quite substantially in the German-China strategy and did get a bit of a mention in the UK’s recent refresh of our Integrated Review. And I think both countries have said on the record that they want to, sort of, help maintain, sort of, stability in the Taiwan Strait and I think Germany went a bit further in actually saying you want to help Taiwan, sort of, maintain its international space. I mean, realistically, what can Germany do, what can the UK do, to help Taiwan to maintain peace without antagonising China?

Petra Sigmund

I mean, the – oh, on the international space first, I mean, we’ve – for a while already, we’ve been supporting Taiwan’s participation in international conferences and organisations which don’t require a statehood as a prerequisite for participation. We’ve actually done that. That is part of the status quo of our One China policy, and I underline the word ‘our’, because we don’t agree to a One China principle that defines what can be done with Taiwan or not. We might not have diplomatic relations with Taiwan, but we do have good relations with Taiwan, and we intend to pursue those relations in the framework of our careful One China policy, a predictable One China policy, that is reliable.

And we think this reliability is also part of preserving peace and stability over the Taiwan Strait, where we clearly say the status quo can only be changed peacefully and by consensus of both sides, and it shouldn’t be altered unilaterally. Now, when we say that, we mean everyone. We don’t only mean – you know, we mean ourselves, we mean others, we mean Beijing, we mean Taipei, because this whole Taiwan issue is about regional, maybe global, peace. So, it’s, you know, it’s handle with care issue and I think this kind of discussion, also, with Taiwan, is important for them to know, you know, where we stand on Taiwan issue. So, it’s important to have contacts with Taiwan.

Yes, but we also said in the China strategy, that, you know, everything that happens in the Taiwan Strait, if something really bad happens, this concerns European security. It’s not an issue that we would turn away from, but it concerns European, it concerns global security, so we will have a close look at that and try to, you know, have a voice in, you know, what’s going on over the Taiwan Strait.

Ben Bland

Dan?

Dan Chugg

I think Petra read my speaking notes.

Ben Bland

Okay, alright. Well, you don’t need to repeat them if they say the same. Yeah, if you’re going to say…

Dan Chugg

The only thing I would add is that Taiwan is not just an issue for China and Taiwan. Taiwan is an issue for the world, because if there is conflict in the Taiwan Strait, the impact on the global economy will be catastrophic and the impact on people all around the world would be that we would be pushing millions of people into poverty. And so, I – that’s all I would say, in addition to everything that Petra said. This is an international problem, and the world should be taking note.

Ben Bland

Thanks, and Olivia?

Olivia O’Sullivan

I mean, maybe just to add on that, ‘cause I know we’re about to come to questions, but I think, you know, both those statements demonstrate that there’s ways that European countries, the UK, can support Taiwan’s, kind of, functioning as a politi. But it’s interesting that, also, you refer to – we’re here to talk about China strategies or statements on China, but in some ways, the importance of, sort of, all the countries around China, this is, sort of, underwriting the idea of having an Indo-Pacific presence, both for the UK and for Europe. Aligning with allies, ensuring that, kind of, there are – there’s a, sort of, stable order in the Indo-Pacific. So, we’re focusing very much on our relationship with China, but to some degree, as Dan said, those relationships are dependent on our functioning relationships with all the countries around.

The other thing I just wanted to add onto the shopping list of things to engage with China on, as you say, Ben, like, everybody says climate change, two – you know, two things I think are useful to mention is Chinese lenders account for about 12% of Africa’s public and private debt. 60% of low-income countries are in debt distress. This is an area where, potentially, you know, getting China to co-operate on debt relief and restructuring. If we’re, sort of, seeking areas where specifically we want China to engage there, their holding of debt for low-income countries, I think, is going to become all the more meaningful, especially as the cost of that debt gets higher.

And I also noted with interest that the UK has invited China to participate in the upcoming AI Summit, right? So, these emerging areas of global governance where, as you say, it’s a difficult problem and maybe even China doesn’t know what to do, there are some interesting fields or areas where I agree that we should seek to engage.

Ben Bland

Great, thanks. Okay, so questions, if you just raise your hand and give us a question, rather than a statement. Yeah, the gentleman here, and tell us who you are, please, and any affiliation.

Yubin Du

Hi, thank you for sharing all the informations, it’s really wonderful. My name’s Yubin and I’m from China Global Television. So, I also would like to bring another perspective in.

Ben Bland

Not a perspective, ask your question.

Yubin Du

Oh, no, no, no, no, it’s a question, yes. It’s a question also from the Chinese public, because for the Chinese public, they said – they believe China didn’t change anything, but China was – China is what it is – it was like. And also, both of you mentioned about the international rule-based order. Last year, there was a video, very popular…

Ben Bland

What’s the question?

Yubin Du

Yeah, that’s the question coming. So, it’s a very popular video by Sir Vince Cable made on Oxford Union, is he said, “China didn’t want to break WTO or any international rule orders. It’s the Former US President, Donald Trump, quits the UNESCO, quits the Iran deal. It’s him to, oh, break the international rule-based order.” So, that’s my question is, like, from Chinese public, they think China wants to be friends with the West, but why, from all the reasons you mentioned, they didn’t feel this at all? They said – maybe is this because the US too much pressure to you guys, or, like, the US cheap act, actually it harms EU’s interest?” So, like, why didn’t you inter – react that much?

Ben Bland

Okay, alright.

Yubin Du

Thank you, that’s my question.

Petra Sigmund

Which one? What was the question? Oh.

Ben Bland

Well, I guess it’s…

Petra Sigmund

Yeah, answer that, hmmm.

Ben Bland

…yeah, are – is – are you just acting under US pressure and aren’t they as big a, kind of, un – or haven’t they been as big an underminer of the rules-based order as China?

Petra Sigmund

I think, you know, the fact that, you know, why we are coming up with a China strategy is that, you know, we see so many new challenges coming from China’s behaviour and part of them are political and security related. I think it’s, you know, it’s fundamentally, it’s a misconception and I don’t know why – you know, how it can be, with China having all these seasoned Diplomats around the world, that it’s not understood how much Chinese behaviour and action is contributing to the change of our attitudes and our policies vis-à-vis China. It’s really unsettling that that is so – that there is no understanding that there is this story that it’s – you know, that the – you know, we might get it wrong and that there is no realisation of to which degree it is really China’s actions.

And we described the action in the China strategy. We’re not, you know, making anything up. We put in facts to which degree it’s China’s action that is changing our policies. I think, you know, that it’s really, really necessary that the Chinese foreign policy is informed and takes this look at their own actions in Europe and elsewhere on the world, to be able to give the right answers. Because in our China strategy, and I think that’s true for many other countries, we would want to co-operate with China on a number of – on many more issues, and we would want to have a much different attitude and see less challenges than we see now. But it’s really for China to change in the way that we would need it to change into, to be able to co-operate better, it’s important that the analysis is right.

Ben Bland

Okay. The lady over there.

Dr Ruth Taplin

Yeah.

Ben Bland

If you wait for a microphone. Just tell us who you are, please.

Dr Ruth Taplin

Yes, I’m Dr Ruth Taplin, Director of the Centre for Japanese and East Asian Studies, and frequent at Chatham House, but I just want to ask a question. What do you think – I’d like to know what the panel thinks is the best approach to the flouting of international law in the South China Sea, as trade, which we all need, otherwise we perish, you know, is under threat? As, you know, 90% of trade is marine industry related trade and the South China Sea could so easily – around the Spratlys and all that, [inaudible – 49:54] be choked to death, and I just wondered if you had a policy vision. Sorry.

Ben Bland

Let’s just solve the South China Sea…

Dan Chugg

Yeah, and…

Ben Bland

…potential tensions.

Dr Ruth Taplin

Two minutes you have to solve that one.

Dan Chugg

Yeah, no, I mean, as I mentioned earlier, then, you know, there is the UN Convention of the Law of the Sea, UNCLOS, which is what governs the behaviour in the South China Sea. And so, what we, certainly, and lots of other countries, push for is for countries to uphold that law and to comply with their obligations under UNCLOS. Now, of course, there are – in the South China Sea it’s incredibly complicated and there’s all these competing claims between different countries about the different shoals and islands and so on. But I think, you know, if everybody at least complies with UNCLOS, in that you get a good starting point.

And I think one of the reasons that China’s behaviour in the South China Sea has raised so much concern is that they don’t recognise the 2016 tribunal judgement and are, you know, not prepared to comply with that, and so, that, creates problems and that creates uncertainty. And what’s more, their behaviour of their vessels, particularly, is actually quite dangerous and risks creating accidents and miscalculations, which could lead to escalations.

So, it doesn’t really answer your question in terms of what the – you know, what the strategy is to make it better, but, you know, what we are very much pushing for and in favour of, as many, many countries are, is for everybody to comply with the UN law there.

Ben Bland

Okay, we’ve got a question right at the front, here.

Brunello Rosa

Thank you. Brunello Rosa, CEO and Head of Research at Rosa & Rubini Associates. One question, what would be the fora for global governance in which to engage China, considering that the UN Security Council is, kind of, organised between the two sides? The G20 is also Balkanised, we saw in occasions of the difficulties in issuing the statement recently, and Russia was not mentioned on the Ukrainian aggression. And China wants to make BRICS, kind of, a geopolitical competitor of the G7, and we saw that with the enlargement. So, what will be the forum in which to engage China for global governance? Thank you.

Dan Chugg

Do you want to do that, or shall I go?

Petra Sigmund

Whoever.

Ben Bland

Whoever.

Dan Chugg

I mean, just…

Petra Sigmund

But I…

Dan Chugg

I mean, a quick response from me. I think you’re right, those very high-level political meetings get very political, but then, there are dozens of – hundreds of international organisations that actually get into the technical detail of how you deal with stuff. And one of the reasons that we are having an AI Summit in this country is because, you know, we don’t yet have that, sort of, process, that, sort of, regulation, that infrastructure, that organisation, to be able to deal with some of the issues around AI. And those things are necessary if you’re going to have global regulations, global standards, and global conversations.

And so, yes, the high-level fora get very politicised, but, you know, within many, many, many organisations, there are discussions that take place which are a little bit more workman-like.

Petra Sigmund

And my – also, I mean, for us, when it comes to the rules-based international order, there are some fundamentals that, you know, really shouldn’t be touched, as I said. And I think it’s a shared belief, peaceful resolution of conflict, sovereignty of states and – so, some fundamentals should really not be, you know, rethawed or – but – should stay the same. But then, also, us, we’re saying that, you know, for the United Nations’ systems, it needs a, you know, it needs an update to operate in a better way. We were seeking to work with the United Nations General Assembly as for – to have a broader body to discuss some of the issues there.

We’re not, you know, reticent to discuss the methods of how multilateralism work and some of the, you know, some of the participation issues. And, you know, there is no denial to, you know, update international organisations and multilateralism, unless, you know, touching on the very fundamentals that have preserved peace and stability, well, more or less well, in this world, but that are governing the way that states live together, and – or should live together.

Ben Bland

Yes, I think everyone agrees the multilateral system needs reform, but no-one can quite agree how.

Petra Sigmund

No, hmmm hmm.

Ben Bland

Do you have any questions at the back, ‘cause we’ve had a lot from the front? There’s, yeah, someone there with a notepad held up. Please keep the question brief. We might get a few more in.

Member

Yes, my name is [inaudible – 55:07], I’m from the Danish daily Kristeligt Dagblad. When you talk about interdependence, to what degree could you say that interdependence has been replaced by dependence and that is actually a catalysator for Chinese aggression, military, in the South China Sea and around Taiwan?

Ben Bland

So, has interdependence been replaced by dependence?

Member

Straight question.

Dan Chugg

I have to think this…

Petra Sigmund

I need to think about it.

Dan Chugg

Yeah, I need to think about it, too.

Petra Sigmund

And…

Dan Chugg

And it’s a good question. I’m not sure that those things really are linked to Chinese behaviour in the South China Sea or in Taiwan, really. I think…

Petra Sigmund

Hmmm hmm.

Dan Chugg

I mean, I think Taiwan is, you know, it’s a clear objective of the Communist Party of China to reunify with Taiwan and that’s been unchanged for – since the Civil War and since the KMT fled to Taiwan. And that’s just, sort of, an ongoing process of thinking that the Communist Party of China is doing in terms of how it goes about achieving that, and it tries different things at different times.

And South China Sea is a different issue. I mean, there, there’s a lot of – people think there’s a lot of wealth under the sea and there’s, you know, there’s advantages to having territorial claims there for those sorts of reasons. And that’s why there are so many competing claims in the South China Sea. But I’m not sure that those things would relate particularly to, you know, the issue about dependence or interdependence.

Petra Sigmund

Yes, and to add, I mean, you – I don’t think dependence describes the overall economic relation. You need a – you know, interdependence is good when it’s there, but we are realising that there are big asymmetries in some of the areas. And for our security mindedness, you know, supply security, future supply security, but also hard security, when it comes to critical infrastructures, we need to assess that. And that is how, you know, de-risking is a – is actually a rational concept. It’s something that governments should do, make sure that you have your supply security, your critical infrastructure security, that that is guaranteed.

It doesn’t mean this covers the whole economic relationship. The economic relationship, overall, in so many areas, is a good relationship and poses no problem and has a lot of opportunities to be pursued. But we’re looking at specific areas where we see a one-sided, yes, what we would call dependency, because we have no alternatives, and then, other areas where we say, “Okay, this is so critical for the functioning of our societies.” And that pertains to all aspects of critical infrastructure that we, in this new world, in these new geopolitics, we need to have a different look at how interdependent can we be, do we want to be? Hmmm.

Dan Chugg

Yeah.

Ben Bland

I think we have time for one more, at the front, here. Yeah, if you keep it quick.

Michael Mo

Yeah, sure. Hi, I’m Michael Mo, a Chatham House member, former Hong Kong District Councillor and Researcher at the University of Leeds. A question to Dan, do you think there is a problem of the compacity of the UK Government to understand China? For instance, we don’t see, like, the research budget for the high institutes going up and, like, diaspora groups in – from Hong Kong, it’s not being consulted. You know, I like the German’s approach. So, we are pretty much like pen pals with FCDO for many occasions, and also, there are only, like, 70 staff in FCDO that – which understands, like, oh, fluent Chinese, you know. And at the same time, we have got, like, 200,000 Hongkongers being left out from being eligible to apply for those jobs.

Ben Bland

Yeah, and it’s worth bearing in mind that, actually, the German strategy explicitly talks about funding, not just for government, but for China expertise in civil society think tanks. We always like more sources of funding, of course. But yeah, I think the UK often has spoken about funding for government, but not necessarily outside.

Dan Chugg

Yeah. No, it’s a great question and I think lots of countries around the world are coming to the conclusion they don’t know as much about China as they should do. And I think for – in years gone by, in our diplomatic service, it was a fairly niche, kind of, subject and there was a few Sinophiles, and I see one or two in the audience, from days gone by, who, you know, who were real, real experts on China, spoke good Chinese. But now, as I was saying earlier, it’s a – China occupies so much thinking across government, on domestic policy, as well as international policy, and we don’t have enough people who really understand China and who really know about China, who can speak Chinese.

And so – but we do, at least, recognise that. We are doing something about it. We do have what we’re calling a China capability programme, which is designed to train more people in understanding China, to train more people in speaking Chinese, to try and get more people into the FCDO at different parts of their career who have China knowledge and China skills and China expertise. To get people to keep going back on postings to China, which isn’t always easy to persuade people and particularly to persuade their partners and spouses to go back on repeat postings to Beijing. And also, to send more Diplomats around the world to other places, so that they can help our embassies talk to their host countries about China and help our embassies talk to Chinese Embassies abroad and build a much, much better understanding of China. But you’re right, that’s all about government, that’s in government.

We have thought about other things, and part of the China capability programme will, hopefully, explore some of these in due course, although we’re not at the moment. Very, very – you know, we don’t have a Chinese civilisation A-Level, for example, in the way that we have a classical civilisation A-Level, which would be, I think, tremendously useful and would be encouraging people to then go and study Chinese at university. We don’t have enough China Scholars. We don’t have enough China Academics. We don’t have enough China think tanks. And so, we are aware of all these things and are wanting to do something about it, but it’s going to take time and it’s going to take money.

Ben Bland

Yeah. Well, with that, we’re out of time. We’d also like more money, as well, if anyone wants to offer that, but before we wrap up, please join me in giving a round of applause to our great panellists tonight [applause].