China's Influence Grows: Nexperia Row Highlights Tensions with EU

The Dutch government's intervention at the end of September to take control of Nexperia, a Chinese-owned chip factory, nearly halted the entire European car industry. The situation escalated tensions between Europe and China, prompting concerns that Europe is not merely collateral damage in the Sino-American political war but a direct target.

Following the intervention, Beijing eased restrictions on automotive chip supplies to the EU for a 12-month period, specifically for civilian use, signaling a precarious balance of power. Andrew Small from the German Marshall Fund highlighted that China is now adept at choking supplies without completely halting industrial functions, creating a constant state of uncertainty for European industries.

The EU faces a substantial trade deficit of approximately 300 billion euros in China's favor, complicating its position further. Chinese export controls on vital materials have previously caused slowdowns in car manufacturing, leading to significant backlogs.

For instance, reports emerged of one German manufacturer having 100,000 cars waiting for essential components. Jens Eskelund, chair of the European Chamber of Commerce in China, emphasized the growing dependency on China in strategic sectors like clean tech, including automotive and renewable energy industries.

The EU is officially pursuing a de-risking strategy from China rather than complete decoupling, but the challenges are mounting. Noah Barkin of the Rhodium Group has criticized European inertia in balancing the relationship with China.

As the EU negotiates on rare earths, experts foresee a scenario where China might favor US firms while tightly controlling access for European companies. Despite frustration within the EU regarding the lack of a unified response to China's economic tactics, leaders like Ursula von der Leyen are prepared to implement measures to safeguard European interests.

The recently established anti-coercion instrument could enable the EU to impose restrictions on Chinese imports if necessary. However, achieving consensus among member states remains difficult, particularly with Germany's significant economic ties to China.

Experts warn that a complete decoupling from China could be disastrous for the EU economy, given the reliance on Chinese components. The EU currently has no operational rare-earth mines, and experts estimate it could take a decade for Europe to establish a competitive supply chain in this critical sector.

Overall, the Nexperia controversy highlights the intricate and increasingly fraught relationship between China and the EU amidst broader global trade tensions.