China This Week | Focus on China-EU summit and Taiwan’s ‘biggest-ever’ military exercises

Here is a closer look at these developments:

1. The EU-China relationship

A summit will be held in Beijing to mark 50 years of China-EU diplomatic relations. Foreign Affairs Minister Wang Yi, who visited Europe last week, spoke about developing the relationship.

“Some people are now attempting to talk down China-EU relations, exaggerate specific issues, turn economic and trade matters into security issues, or cling to biases against China and confine themselves in a cocoon of false information,” Wang said, according to an official press release.

However, not all of this alleged hostility may be externally inflicted. A report in the Financial Times stated that Beijing had recently made multiple requests of EU officials for “a declaration on their mutual climate commitment”, which drew scepticism in Europe for not going far enough.

UPSHOT: There are clear factors that could drive a closer China-EU relationship — the unpredictability of the Trump administration, the year-on-year increase in bilateral trade, and common areas of interest, such as increasing investments in green energy and mitigating the impact of climate change. The latter is front and centre, with devastating floods in China in recent weeks and the record-breaking heat in Europe.

At the same time, there are reasons to temper expectations. The EU has flagged problems with China’s industrial growth, viewing its subsidies to domestic industry — particularly Electric Vehicles — as an unfair trade practice that hurts European manufacturers.

The ongoing war in Ukraine also presents complications, given the European condemnation of Russia and China’s deepening relationship with Moscow. Wang recently told a senior EU diplomat that “Beijing did not want to see a Russian loss in Ukraine because it feared the United States would then shift its whole focus to Beijing”, The South China Morning Post reported. Such a line would appear to go against China’s official position about ending the conflict through dialogue and negotiation.

2. Taiwan’s ‘biggest-ever’ military exercises

The Han Guang drills “began with exercises to counter the actions of Chinese Coast Guard and maritime militia ships that have been harassing Taiwanese ships around offshore island groups close to the Chinese coast”, the Taiwanese Defence Ministry said.

Regular forces will be backed up by 22,000 reservists and “realistic conditions” will be simulated. According to the Associated Press, this could be “a possible attempt to counter criticisms that past exercises have veered on the performative”.

The Chinese government criticised Taiwan’s ruling Democratic Progressive Party (DPP), saying the drills could not stand in the way of the “historical trend of national reunification”.

UPSHOT: The larger scale of these exercises is driven by both Chinese actions and the broader global situation.

In the last five years, Taiwan has complained of stepped-up Chinese military posturing, such as military planes flying close to the island. These manoeuvres are known as “grey-zone” warfare or tactics — insignificant enough to not be seen as an invitation to conflict, but sending a message nonetheless.

Globally, it reflects Taiwan’s perceptions of how countries may react if China does launch an attack. The US has long supported Taiwan through aid and weapons systems under its policy of “strategic ambiguity”. The US “acknowledges” the Chinese assertion that Taiwan is a part of it (to maintain diplomatic ties with China), but does not recognise it.

While former President Joe Biden had said he would despatch US troops to defend the island in case of an unprecedented attack by China, Taiwan’s view of its situation has also been shaped by the Ukraine-Russia conflict. Despite its decades-old rivalry with Russia and the perception of a strategic threat to the West, the US did not send troops to Ukraine, and Taiwan has interpreted this as concerning for its own security.

Also, President Donald Trump’s political plank is firmly against US involvement in overseas wars. During his presidential campaign last year, Trump had said that “Taiwan should pay us for defence”, and that the US was “no different than an insurance company”.

However, some analysts have noted that the US decision to bomb Iranian nuclear facilities last month demonstrates a shift in Trump’s position. Even so, the President’s trademark unpredictability creates confusion around US support, leaving Taiwan to increasingly spend on defence and preparedness against a vastly superior potential threat.

3. At half-year mark, Xi’s focus on domestic market

At a meeting of the Central Commission for Financial and Economic Affairs earlier this month, Chinese President Xi Jinping spoke about regulating “enterprises’ disorderly price competition” — or excessive production despite low demand — according to state-run Chinese media websites.

The South China Morning Post reported that Xi discussed the need to “guide companies to improve product quality, and promote the orderly exit of outdated production capacity”. This situation has been described as neijuan or “involution”, where companies are forced to offer massive discounts just to stay afloat and prevent the piling up of inventory.

UPSHOT: Calls to rectify problems in China’s economic growth model aren’t new. However, they are now coming as several countries echo the criticism of China’s manufacturing overcapacity for hurting their industries.

Chinese officials have long been defensive about such accusations. Just this week, the Foreign Ministry said the EU should realise that what needs rebalancing is “the EU’s mentality, not China-EU economic and trade relations”.

According to the Financial Times, “The mounting chorus of official concern has stoked speculation that Beijing is preparing to unveil a bout of “supply side reform”, or government intervention into industries to control prices and reduce capacity.” This is also significant ahead of the release of official data on the GDP, investment, consumption and employment on Tuesday.