Opinion: Europe takes a skeptical view of China, trade and investment flows could be the casualties – The Globe and Mail

China’s honeymoon with the European Union was coming to an end even before anyone had heard of the novel coronavirus. The COVID-19 crisis is making it worse. The question is whether the disease will open a fault line between the two economic powerhouses that will curtail trade and investment flows – and damage goodwill – for a long time. It could.

By mid-April, it seemed apparent that the diplomatic contest was turning against China, even though the country had signalled that it had beaten the disease by opening up its quarantined cities and was shipping planeloads of medical gear (some of it faulty) to hard-hit countries around the world, Italy among them.

But China’s efforts to deflect blame for mishandling the onset of the crisis, in Wuhan in December and January, triggered accusations from Western leaders that Chinese health authorities and their government masters patently failed the transparency tests.

The charges were not coming solely from Donald Trump. In an extraordinary interview Thursday with the Financial Times, French President Emmanuel Macron said, “Let’s not be so naive as to say [China’s] been better at handling this. There are clearly things that have happened that we don’t know about.”

The effective accusation of a cover-up came two days after the French Foreign Ministry summoned the Chinese ambassador, Lu Shaye, following his embassy’s publication of a report that criticized the Western response to COVID-19. The author, an unnamed Chinese diplomat, accused nursing home workers in France of “abandoning their posts overnight … and leaving their residents to die of hunger and disease.”

(In Nigeria, a similar, evidently unprecedented diplomatic scuffle played out when the speaker of the House of Representatives posted a video of himself expressing his displeasure to the Chinese ambassador over a Nigerian man who was evicted from his home in China.)

China’s relations with some, but not all, European countries had already been under pressure. The Huawei affair had divided the continent, with some countries falling into line with Mr. Trump’s demands that they stop buying the Chinese tech giant’s 5G equipment and others, notably Britain, keeping the Huawei pipeline open.

Chinese investments in Europe were also coming under scrutiny, even though many European countries had courted Chinese buyers for high-profile businesses, such as Italian tire maker Pirelli, or strategic ones, such as utilities. The British government cheered when, in 2012, a state-controlled Chinese company bought 9 per cent of Britain’s largest water company, Thames Water.

The change in sentiment since the COVID-19 crisis broke out has been remarkable. The EU’s competition chief, Margrethe Vestager, used a Financial Times interview this week to encourage EU governments to buy stakes to counter the threat of Chinese takeovers. A few days later, Dominic Raab, the British Foreign Secretary who is standing in for Prime Minister Boris Johnson while Mr. Johnson recovers from COVID-19, warned that “business as usual” might not be possible with China after the pandemic. “We’ll have to ask the hard questions about how it came about and how it could have been stopped earlier,” he said at a news conference.

Even if China were able to repair some of the diplomatic damage inflicted by the now-widespread belief that it could have prevented a local epidemic from transforming into a pandemic had it moved faster to alert the world about the virus, it could still emerge as the big loser in all of this.

The lockdowns in China inflicted a big blow on the economy, with a GDP drop of 6.8 per cent in the first quarter, year over year – the first contraction in more than four decades. Global supply chains that start in Chinese factories and extend around the world will inevitably be thinned out to ensure more local production – at China’s expense.

The pandemic instantly exposed the reckless side of globalization, which placed too much emphasis on just-in-time deliveries from countries on the other side of the planet, creating supply risks for crucial products. The United States had outsourced the supply of 80 per cent of its generic medicines to China. Canada had no capacity to make pulmonary ventilators. Those mistakes will have to be fixed.

The big question for Beijing when the pandemic ends is whether it can renew and strengthen diplomatic and trade ties with countries that are now reassessing their relationships with China.

Italy, along with Greece, rolled out the red carpet for Chinese investments years ago. Greece handed control of the Port of Piraeus, near Athens, to China, which transformed it into one of the biggest and most efficient logistics centres in Europe. Last year, Italy became the first G7 country to sign up to China’s Belt and Road Initiative. China is – or was – considering investments in Italian ports, such as Trieste, near Venice. Whether they go ahead is an open question.

Maintaining Italy’s affections would be crucial for China’s image rehabilitation campaign in Europe. Italy is combining a medical crisis with a financial and economic crisis and will need every euro of investment it can find to prevent collapse. Were Italy to sour on China, that would be a big signal that the Chinese honeymoon with Europe really is over.

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