Europe intensifies diplomacy to limit Beijing's ability to buy foreign firms

The European Union is seeking to forge a more defensive strategy towards China and is intensifying diplomacy to limit Beijing's ability to buy foreign firms in the bloc, its top trading partner, diplomats and officials say. Despite an agenda dominated by Britain's imminent departure from the EU, leaders will use a March 21 summit to discuss China policy, a first for many years. It is part of a flurry of high-level meetings before President Xi Jinping travels to Italy and France and the bloc holds a summit with China on April 9.

The acceleration of diplomacy, including special councils of EU envoys, experts, and foreign ministers, marks a collective re-evaluation of Sino-EU ties after decades of rising trade and a feel-good factor towards Beijing that contrasted with the United States' more aggressive stance. European optimism has turned to frustration over China's slowness to open up its economy, a surge of Chinese takeovers in critical sectors, U.S. pressure to shun China over espionage fears and an impression in Brussels that Beijing has not kept its promise to stand up for free trade and globalization.

Four senior EU diplomats and officials in close contact with the Chinese said they were losing hope on business issues that have been limping on for years, including almost a decade of talks on a special treaty to increase investment flows. "The Chinese say all the right things, but when it comes to taking a decision, they delay and delay," one senior EU official said, citing a missed October deadline for China to finalize a deal to recognize the EU's system of protecting food names.

China has also backed out of an agreement to invest in a multi-billion euro EU infrastructure fund. Chinese Foreign Ministry spokesman Lu Kang told reporters on Friday that China hopes Europe can continue to provide a "fair, just, non-discriminatory environment" for Chinese companies.

With over a billion euros a day in bilateral trade, the EU is China's top trading partner, while China is second only to the United States as a market for European goods and services. However, Chinese trade restrictions are more severe than EU barriers in almost every economic sector, according to the New York research firm Rhodium Group and Germany's Mercator Institute for China Studies. Chinese investments into the EU far outweigh those of EU companies in China in most industries, they said.

STRATEGIC RIVAL? In 2017, U.S. President Donald Trump's "America First" policies appeared to push China and Europe together after Xi's defense of open trade at the World Economic Forum in Davos.

But Europeans say the change of style has not translated into less protectionism from Beijing. The EU says a high-tech industrial development push, dubbed "Made in China 2025", relies on illegal state support and subsidies that threaten European industries including telecoms and aerospace. China has repeatedly denied such allegations.

At this month's summit, EU leaders are likely to discuss whether it might be feasible to effectively ban Huawei Technologies Co. equipment for next-generation mobile networks, although the wider debate in EU capitals is at an early stage. Europe has become the main battleground in a U.S. campaign to rid Western networks of Chinese telecoms equipment, with Washington accusing Huawei of spying for Beijing, allegations the company has repeatedly denied.

"Nobody in the EU wants to isolate China, but we need to equip ourselves better against a country that in some areas is becoming a strategic rival," a senior EU diplomat said. "We have no clear policy, we are brainstorming on a massive scale." Chinese officials reject U.S.-led allegations that its technology could be used by Beijing for spying.

Chinese Premier Li Keqiang is set to attend the April EU summit in Brussels to press his case for fair treatment in trade and investment. Li will also hold a summit in Croatia later that month with 16 central and eastern EU and non-EU states. SCREENING DEALS

EU leaders will not agree with a new strategy on March 21, but the European Commission, the EU executive, is expected to put forward ideas for a European industrial policy on March 6, echoing Franco-German demands to compete with foreign rivals and better protect technologies from overseas takeovers. One idea is to revive a stalled 2012 proposal known as the International Procurement Instrument that would require foreign countries to open up their public procurement markets in return for access to Europe and restrict access in certain areas.

After a surge of Chinese investments across Europe, from Greece's biggest port to a German robotics maker, the European Parliament in February agreed to a system to coordinate scrutiny of foreign takeovers and investments. But officials say the so-called investment screening is not enough. European Commissioner Julian King said last month that it was "time to discuss whether we want to continue, as now, to see our own cutting-edge technologies sold off one after another."

He also warned of the risks of "allowing one dominant (5G) supplier to emerge across the continent" while the chief of Britain's foreign intelligence service Alex Younger said that Europe needed to be "at least as strategic" as China when it comes to developing future technologies. "That's a bit of a wake-up call and I think we should heed it," he told reporters at the Munich Security Conference.

(With inputs from agencies.)