France treads fine line on future economic ties with China

With France set to host on Monday (6 May) China’s President Xi Jinping on his first state visit to Europe in five years, Paris and Brussels are trying to find the right balance between taking an offensive stance against Beijing and attracting new investments.

With Beijing’s financial backing of Russia’s war in Ukraine and the European Commission’s investigation into Chinese subsidies for producing electric vehicles underway, Sino-EU relations are strained.

The visit will be “very political”, the Elysée said.

France will seek to balance attracting more Chinese investment in cutting-edge sectors, notably the automotive industry, with advocating for a greater level playing field and more reciprocity in trade relations.

“Ever since his first discussions with Xi, [Emmanuel Macron] has defended a very clear position, looking to improve access for French companies to the Chinese market and level the playing field,” the Elysée said.

The visit will allow leaders to promote cross-border opportunities, but Macron is also expected to discuss the “strengthening of [France’s and Europe’s] trade defence instruments to have greater credibility in [the] discussions with the Chinese authorities,” the Elysée added.

The Chinese president will also visit Serbia and Hungary, both considered China-friendly and also close to Russia and President Vladimir Putin.

Well-established trade deficit

According to the Economy Ministry, Chinese imports to France in 2022 were up 20% from 2021 – as household consumption returned to pre-pandemic levels.

France’s trade deficit with China topped €53.6 billion in 2022, the biggest it has with any trading partner. This was a steep jump from €40 billion in 2021.

Elvire Fabry, senior research fellow at the Jacques Delors Institute, told Euractiv that this trade deficit is a long-standing feature of the bilateral relationship.

With China, France’s main imports are industrial machinery, textiles, metals, and chemicals, while its key exports are aeronautics, luxury goods, gas turbines, and spirits.

Meanwhile, Chinese foreign direct investments (FDI) in the European Union and the UK, have steadily declined over the past eight years, according to 2022 data from the Mercator Institute for China Studies (METRICS). Some 88% of FDI flows were to Germany, France, the UK and Hungary.

Of the €7.9 billion invested, France received €1.3 billion – mostly for its automotive sector.

Keeping it friendly 

Paris has adopted the ‘derisking’ approach as its official line.

“The aim of a derisking agenda is to reduce [Europe’s] excessive dependencies on China”, Fabry said, but that needs to come with realism, too.

“We are dependent, in the short term, on China’s innovation capacities—in green technologies, artificial intelligence, and supercomputers, for example,” the analyst said, adding that Chinese direct investment is crucial to enabling skill transfers and strengthening France’s innovation capacities.

This explains Economy and Finance Minister Bruno Le Maire’s stance towards China. Derisking “does not mean that China is a threat”, he said during an official state visit last summer.

“We must break away from critical dependencies,” he said, adding, “We want China to invest in French electric vehicles” and there is a place for Chinese investments in France.

Stepping up economic security

France has been working closely with EU counterparts to strengthen the bloc’s economic defence tools and more effectively deal with China’s aggressive economic measures.

“We must do everything we can to engage China on major global issues and discuss economic relations based on reciprocity,” French President Emmanuel Macron said in an interview with The Economist on Thursday. He added that this must be rooted in pragmatism and considered “in the light of our strategic interests.”

The EU today refers to China as “a partner for cooperation, an economic competitor and a systemic rival” – as the European Commission ramps up its economic tools, including foreign investment screenings and investigation capabilities.

But in September 2023, the EU executive triggered its first-ever anti-subsidy investigation into Chinese electric vehicles. A second investigation into China’s photovoltaic industry has also just started, while a probe into the country’s procurement of medical devices was initiated under a parallel Commission programme.

In August last year, Le Maire also announced he would extend foreign investment screening to critical raw materials – a China-dominated market. Beijing responded by opening an investigation into French Cognac production in January.

“On all economic defensive issues, France has played a leading role”, Mathieu Duchâtel, director of International Studies at the Institut Montaigne, told Euractiv.

Making the country attractive to Chinese investments while maintaining an offensive stance is at the heart of “France’s assertive vision over international security matters” – unlike German counterparts, whose global strategy towards China is “soft” at best, Duchâtel said.

Ultimately, Xi’s visit will give Macron and Commission President Ursula von der Leyen – who will be in Paris for official meetings on Monday – the opportunity to set the tone towards Beijing for years to come – especially considering the prospects of a second Donald Trump presidency in the US, and renewed risks of a trade war.

“Europe, and therefore France, will be faced with a strategic choice: favouring the transatlantic relationship, or instead keeping China’s access to the single market,” Duchâtel said.

“Either way, we are entering a whole new world”, he added.

[Edited by Alexandra Brzozowski/Anna Brunetti/Alice Taylor]

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