Xi's trip to Europe may lay bare West's divisions over China strategy

By Laurie Chen and Michel Rose

BEIJING/PARIS (Reuters) -Chinese President Xi Jinping heads to Europe for the first time in five years next week in a visit that may lay bare European divisions over trade with Beijing and how the continent positions itself as a pole between the United States and China.

Xi travels to France, Serbia and Hungary at a time when the European Union is threatening to hammer China's electric vehicle and green energy industries with tariffs over huge subsidies the bloc says gives manufacturers in China an unfair edge.

With China's economy facing headwinds and the U.S. closing itself off to Chinese firms, the European Union could have some leverage over Beijing. But the bloc's 27 members are not neatly aligned, undermining their ability to shape Chinese thinking, analysts say.

Overshadowing the visit are European concerns over Chinese support for Russia's wartime economy two years into its military campaign in Ukraine.

Lin Jian, a spokesman for China's foreign ministry, said Xi's visit would "inject stability into the development of China-Europe relations and make new contributions to peace and stability in the world".

Xi's goal would be neutralising the EU's economic security agenda, including its tariff threats, by exploiting internal differences, said Mathieu Duchatel, senior fellow at the Institut Montaigne.

"There's a very strong divide and rule element," Duchatel said of China's strategy towards Europe. "That's not hidden but in plain sight."

European companies and governments have long complained of restricted access to the Chinese market and unfair competition. A Kiel Institute study estimated China's subsidies for its firms range between three to nine times other major economies.

The European Commission has the exclusive right to run trade policy for the whole collective EU, but within the bloc member states have struggled to agree how to fix the trade imbalance.

Macron seeks a more aggressive EU stance on subsidies and warned that the bloc risked falling behind if it did not permit exemptions to its own competition rules in the face of 'oversubsidies' by China and the U.S.

'WE DON'T PROTECT ENOUGH'

"We regulate too much, we don't invest enough, we don't protect enough," Macron told The Economist in an interview published on Thursday.

German Chancellor Olaf Scholz in April pressed Xi for better market access for German firms. But on the EU anti-subsidy investigations, apparently anxious to avoid antagonising Beijing, he said the bloc should not act out of protectionist self-interest although competition should be fair.

Some French government officials say privately that they are concerned Berlin will try to undermine the electric vehicle probe, which has zeroed in on Chinese carmakers BYD, Geely and SAIC. China is a key market for Germany's export-led economy and its carmakers such as BMW and Mercedez-Benz.

Scholz is due to dine with Macron and the two leaders' wives in Paris on Thursday, two sources involved in the planning said.

Noah Barkin, a senior adviser at the Rhodium Group and close follower of EU-China relations, said Macron would encourage Scholz to join him and European Commission President Ursula von der Leyen, for four-way talks with Xi in the French capital, as Paris seeks to present a united front. The Elysee Palace declined to comment.

"A worrying gap has opened up between the German position on China, on the one hand, and the position of the French and the European Commission, on the other. There is simply a greater readiness in Paris and Brussels to push back against Beijing on the trade front than there is in Berlin," Barkin said.

RUSSIA CONCERNS

"Europe has quite a bit of leverage, but that leverage flies out the window if European lenders are sending different messages to Xi," Barkin added.

Xi will be in Europe from May 5-10.

A Macron aide said the French leader would add his voice to calls from Washington, Brussels, Berlin and elsewhere for China to stop exports to Russia of "dual-use" and other technologies propping up Russia's war effort.

In Serbia and Hungary, any public comments by Xi on Russia will face close scrutiny. Xi is due to host Russian President Vladimir Putin in China later in May.

Observers said Xi's choice of Serbia and Hungary was designed to pull closer two European countries that are pro-Russia and large recipients of Chinese investment, including financial aid for a delayed rail project linking their capitals.

Serbian President Aleksandar Vucic said he was honoured by Xi’s visit, and he expected a free trade agreement between the two countries signed last October to come into force on July 1.

Chinese analysts said Xi could use his stopover in Belgrade, which coincides with the 20th anniversary of NATO's bombing of the Chinese embassy there, to play up China's anti-NATO agenda.

China has amplified Russian efforts to blame the U.S. and NATO for escalating the Ukraine war by supplying arms to Kyiv.

Hungary has also in the past blocked EU statements criticising China on human rights.

Shen Dingli, a Shanghai-based international relations scholar, described the outreach to Serbia and Hungary as part of China's efforts to deepen divisions within the West.

(Reporting by Laurie Chen in Beijing and Michel Rose in Paris; Additional reporting by John Irish in Paris, Andreas Rinke in Berlin and Daria Sito-Sucic in Belgrade; Editing by Richard Lough, William Maclean)