Softer words, harder policy: EU recalibrates on China as it seeks rare earths breakthrough

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Under pressure from Beijing’s chokehold on rare earths and the simmering feud over chipmaker Nexperia, EU officials have been asked to tone down their public rhetoric on Beijing, even as the bloc moves forward aggressively with its de-risking plans.

Brussels is in “de-escalation mode”, several official sources confirmed, as it looks to convince China to issue more licences for the export of the critical minerals vital to hi-tech manufacturing and ensure the supply of chips from beleaguered Nexperia’s Chinese operation.

The European Union and China are close to agreeing on a general licensing procedure for rare earths, whereby a company could obtain a one-year licence to export the minerals, provided the end user and materials are the same and they do not have a military end-use, the Post has learned. Currently, only three-month licences are available.

This would be the result of months of delicate negotiations, dating back to shortly after April, when Beijing first announced the new export controls regime for rare earths, required for making everything from electric vehicles to wind turbines.

The controls roiled European industry. This was compounded by the Nexperia crisis in late September, when the Dutch government intervened to cut off the European operations of the Chinese-owned chipmaker from its parent company, citing governance issues.

China subsequently introduced further export controls on Nexperia products finished in the country, setting off a desperate diplomatic scramble to unlock the flow of chips, used by the billion in the automotive supply chain.

The two-track talks led to an effort to take the heat out of public statements about China in case they hit negotiations, which are being prioritised above everything else. One diplomatic source said that this was not a time for “megaphone diplomacy”, given the precarious position of European industry.

At the same time, however, the European Commission is moving forward aggressively with plans to unpick dependencies on China and to counter the impact of what they consider to be foul play on trade. These efforts have been turbo-boosted by the dual sagas, which have exposed Europe’s vulnerabilities once again.

There has been an uptick in trade investigations, while a probe under a powerful competition tool, the foreign subsidies regulation, was deployed against Chinese state-owned rolling stock manufacturer CRRC earlier this month.

A string of new legislation will be proposed by the end of the year aimed at bolstering de-risking efforts, which have thus far been slow, but which have been galvanised by recent events.

Commission President Ursula von der Leyen is likely to meet Chinese Premier Li Qiang again at the G20 summit in South Africa later this week. Insiders said the dual strategy was designed to “ratchet up pressure” on Beijing before that meeting, while at the same time avoiding further spiralling on rare earths and semiconductors.

The softer rhetoric was on display at the Europe-China Forum in Brussels on Thursday, where EU officials and diplomats shared a stage with Chinese diplomats and think tank representatives.

For several years, the annual event – sponsored by the Chinese mission to the EU – has been a rare arena for public sparring on issues such as Beijing’s ties with Moscow and industrial overcapacities.

Last week, however, things were less rancorous, with grievances couched in careful language – at least from European Commission speakers. Moderators steered the debate towards areas of cooperation, such as climate, downplaying the many problems in the relationship.

One EU diplomat present summed up the event, in which a Chinese academic declined to answer a question on Russia’s invasion of Ukraine, as: “Don’t mention the war” – a reference to the British sitcom Fawlty Towers.

While Bernd Biervert, the head of EU trade chief Maros Sefcovic’s cabinet, made clear that things were not good in the trading relationship, his comments were cautious.

“I don’t want to shy away, even if I have to be diplomatic here in this format. But of course, there are worrying tendencies. So probably the situation currently is rather downwards than upwards, and we want to turn it around together,” Biervert said.

“What’s important … it’s about the need to engage and to have a dialogue. We have the dialogue because the moment you stop speaking to each other … I think we would be in a much, much worse situation,” he continued.

But not everyone is convinced that softening the tone is a wise move. One official called it a “fundamental misread” of how China works. Another said Beijing “only respects power, not nice words”.

Speakers who do not work for EU institutions, meanwhile, were less constrained in their remarks.

In the opening speech of Thursday’s event, Belgium’s ambassador to China Bruno Angelet urged Beijing to take Europe’s “existential” fears on Russia seriously, saying EU countries took “red lines” on Taiwan credibly but that Europe’s concerns were dismissed.

“We respect the core interest of China by respecting and abiding to the one-China policy. I think there is an asymmetry of concerns when we talk about the existential interests and threats on Europe,” Angelet said.

“Russia’s war draws all our energy and efforts, and I think China should recognise and address Russia’s war as an existential threat for the EU.”

Wang Yiwei, a professor specialising in Europe at Renmin University, told the event that the EU should stop criticising China for its position on Russia.

“Leaders shouldn’t blame China for Ukraine. China never recognised territory occupied by Russia. You should support China … if China sells more weapons to Russia, war will be ending in Russia’s favour – you saw the military parade.”

But Brussels officials were more taciturn. Signe Ratso, the EU’s deputy director general of research and innovation, said coming efforts to further cut China from EU research funding were nothing unusual.

“Despite countering narratives, I would like to clarify that what the EU is currently doing is solely aimed at promoting and safeguarding its own competitiveness and security, for instance, by reducing critical dependencies,” she said.

Behind efforts to tone down the debate, however, a dizzying array of rules and orders are set to compound the flagging EU-China relationship over the coming weeks.

On Thursday, the EU accelerated plans to scrap a tax-free benefit for low-value parcels from outside the bloc by two years to 2026, as they look to clamp down on a wave of packages from Chinese e-tailers Shein, Temu and AliExpress, which are overwhelming postal services.

The commission is looking to force capitals to remove Huawei Technologies from 5G networks and is considering conditioning funds from its Global Gateway infrastructure initiative, unless recipient countries commit to not using the Chinese tech giant in projects using EU money.

German Chancellor Friedrich Merz on Thursday said he would exclude companies such as Huawei from the country’s telecoms networks going forward and that he planned to consult the French government on it this week.

“We’ll discuss with industry what we can do, not only to make ourselves independent from China, but also for example independent from the USA, independent from the big tech companies,” he said.

Back in Brussels, an Industrial Accelerator Act will be proposed in early December, with a view to asking Chinese companies investing in certain EU sectors – such as the EV supply chain – to transfer their technology to European firms.

An economic security doctrine will provide officials with a dashboard of all the levers they could pull in this new era of economic warfare, as it looks to equip itself to punch back asymmetrically against threats from Beijing and Washington.

A new plan to escape from China’s iron grip on rare earths – ReSourceEU – is also in the works, and will be modelled on the bloc’s decoupling from Russian energy supplies after it invaded Ukraine.