RED THREAD: The Trojan Horse dilemma

Welcome to Red Thread, Euractiv’s weekly newsletter on the EU’s relationship with China and the wider Asia-Pacific.

I’m Christina Zhao in Oceania, joined by Anupriya Datta in Europe.

This week, we look at Beijing’s growing influence in the Western Balkans…

Chinese President Xi Jinping and Serbian President Aleksandar Vučić (Photo by Tingshu Wang via Getty Images)

Montenegro and Serbia have spent more than a decade waiting at the EU’s gates. China used the time to move in.

Beijing financed Montenegro’s first motorway and backed roads, bridges and energy projects across the Western Balkans. In Serbia, it helped build the Belgrade-Budapest railway, signed a free trade agreement and embedded itself in the country’s economy.

Chinese firms bought Serbia’s sole steel mill, took control of its largest copper complex and expanded into manufacturing, mining and exports. Across the region, Huawei became embedded in telecommunications infrastructure while Chinese ties deepened through banks, universities, media partnerships and business links.

This week, as Montenegro closed two more negotiating chapters, enlargement returned to the top of Europe’s agenda. At the G7 summit in Evian, leaders discussed economic security and strategic dependencies. Today, EU leaders will debate how and when the bloc should grow before turning to China over dinner.

Since Russia’s invasion of Ukraine, bringing new countries into the bloc has become a matter of security as much as values. Enlargement is now a geopolitical necessity.

But China has exposed an uncomfortable truth. Every year candidate countries remain outside the bloc is another year in which others shape their future.

In a world increasingly defined by economic competition, speed matters. The safeguards designed to prevent illiberal backsliding can also slow enlargement as outside powers compete for influence.

Beijing does not ask partners to reform courts, tackle corruption or align competition rules before financing a bridge or opening a factory. Brussels does. Its conditionality reflects a system built on rules and fairness.

The longer accession drags on, the more candidate countries hedge. They borrow, industrialise and integrate with whoever engages. Supply chains harden, and political relationships deepen. Dependencies become harder to unwind.

Serbia is still some way from joining the bloc, but officials in Brussels privately fear it could become another Hungary. A state reluctant to support tougher China measures, resistant to de-risking and willing to use the leverage membership provides to defend its own economic interests.

As Vladimir Shopov of the European Council on Foreign Relations has argued, Beijing’s approach in the Western Balkans evolved from infrastructure projects and elite relationships into an “all-of-society” strategy, spanning business, finance, academia, media and telecommunications.

That may explain the fresh ideas surfacing in Europe’s enlargement debate. German Chancellor Friedrich Merz recently floated the idea of “associate” membership for Ukraine, while others favour opening parts of the Single Market before full accession.

If candidate countries undertaking reforms can enjoy some of the benefits of integration sooner, that may reduce the incentive to hedge elsewhere.

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From Asia

China’s consumers are still MIA

China’s factories continued to outperform in May, with industrial output rising even as consumers pulled back, according to data from the National Bureau of Statistics.

Industrial output rose 4.5% year on year, beating expectations, while retail sales fell 0.6% – the first monthly contraction since December 2022. Fixed-asset investment declined 4.1% in the first five months of the year and property investment fell 16.2%, highlighting weak domestic demand despite Beijing’s efforts to revive growth.

For Europe, the imbalance is becoming unbearable. China’s exports surged 19.4% in May year on year. Weak consumer demand is deepening Beijing’s reliance on exports, fuelling EU concerns about industrial overcapacity.

The savings divide: Chinese households save roughly twice as much of their income as American households.

Beijing denies Russia training claims

Beijing on Tuesday dismissed as a “pure smear” allegations by EU foreign policy chief Kaja Kallas that Chinese personnel may have trained Russian troops fighting in Ukraine.

The dispute adds another source of friction ahead of next month’s EU-China summit, as Brussels becomes increasingly vocal about what it sees as Beijing’s support for Moscow’s war effort.

The exercise partner: China and Russia have participated in at least 119 joint military exercises since 2003.

China joins pre-G7 talks

Chinese Vice Premier Zhang Guoqing called for greater economic co-operation and a freer trading environment during a video conference on global imbalances hosted by French President Emmanuel Macron, as EU governments debate whether to toughen their trade stance towards Beijing.

The participation of a senior Chinese official came ahead of the G7 summit and this week’s European Council meeting, where China is expected to feature prominently. Zhang said Beijing would continue opening its economy and urged countries to take an “objective view” of comparative advantages.

An old connection: France was the first major Western power to establish diplomatic relations with Communist China in 1964, 15 years before the US.

Beijing pitches ‘equitable’ global governance

Beijing on Wednesday published its white paper on global governance, setting out its vision for reshaping the international system and elevating President Xi Jinping’s Global Governance Initiative into a broader blueprint for reforming global institutions.

The strategy document argues that global institutions still reflect the postwar balance of power and calls for greater representation of developing countries, particularly in Africa, in the IMF, World Bank and UN Security Council to build a more “equitable” international order.

The absent continent: Africa has 54 countries and 1.5 billion people, yet no permanent seat on the UN Security Council.

From Europe

Beijing looms over EU leaders’ summit

China will hang over Thursday’s European Council summit, where leaders are expected to discuss trade imbalances, industrial overcapacity and Beijing’s ties with Moscow during a dinner debate, Euractiv‘s Thomas Moller-Nielsen reports.

Few expect concrete measures. Officials insist the discussion will focus on “global macroeconomic imbalances,” while draft summit conclusions make no mention of China. European capitals remain wary of retaliation.

On the eve of the leaders’ debate, EU Trade Commissioner Maroš Šefčovič described the bloc’s trade deficit with China as “unsustainable” and pledged to push for “more reciprocity” in remarks to MEPs in Strasbourg.

Follow Euractiv‘s live coverage from inside the summit venue in Brussels throughout the day.

Lithuania signals thaw in China ties

Lithuania has agreed to allow China to reopen a temporary chargé d’affaires office in Vilnius, marking the first diplomatic thaw since a 2021 dispute over Taiwan.

Remigijus Motuzas, chair of parliament’s foreign affairs committee, described the move as a “small concession” after Chinese diplomats left Lithuania last year following a row over the opening of a Taiwanese representative office in Vilnius.

The arrangement would restore consular services and facilitate visas for Chinese nationals. Motuzas said Lithuania had made its offer and was awaiting Beijing’s response.

EU Parliament clears way for Huawei probe

European lawmakers voted on Tuesday to lift the parliamentary immunity of Italian conservative Fulvio Martusciello, more than a year after Belgian police raided Huawei’s Brussels offices over alleged corruption, Euractiv‘s Nicoletta Ionta reports.

The move allows Belgian prosecutors to pursue their investigation into Huawei-linked lobbying. Three other MEPs named in the case – EPP lawmaker Salvatore De Meo, liberal Nikola Minchev and Socialist Daniel Attard – retained their immunity.

Prosecutors allege Huawei offered football tickets, gifts and trips to China in exchange for political support, including efforts to influence lawmakers over Europe’s 5G market. Read Euractiv’s profile of Martusciello.

Beijing expands footprint in Spanish ports

China is expanding its presence in Spanish logistics hubs and preparing major investments in port infrastructure, including plans by automaker SAIC Motor to build its first European factory near the Ferrol naval base in Galicia, Euractiv’s Inés Fernández-Pontes and Charles Cohen report.

The project has raised security concerns because of its proximity to strategic naval facilities.

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