China could soon have to choose between fueling the Ukraine war and its access to Europe's economy

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  • China is facing the prospect of further G7 sanctions.

  • The G7 has accused it of helping arm Russia against Ukraine.

  • Balancing its support for Russia with its European trading ties is becoming tricky for China.

NATO Secretary General Jens Stoltenberg this week warned China it faces a stark choice if it continues backing Russia's Ukraine invasion.

"Publicly, President Xi has tried to create the impression that he's taking a back seat in this conflict to avoid sanctions and keep trade flowing," Stoltenberg said.

"But the reality is that China's fueling the largest armed conflict in Europe since World War II.

"At the same time, it wants to maintain good relations with the West.

"Well, Beijing cannot have it both ways. At some point, and unless China changes course, allies need to impose a cost."

A tough stance

The remarks are part of a tough new stance from the US and its allies over China's alleged provision of crucial dual-use goods to Russia to fuel the Kremlin's war machine.

The US believes China has supplied Russia with equipment such as chips and integrated circuits, which can be used to produce weapons. In response, China has said it is not a party to the Ukraine war and that there should be no interference with trade between China and Russia.

At the G7 summit last weekend, the leaders unambiguously signaled their growing frustration with China in a joint statement.

"China's
ongoing support for Russia's defense industrial base is enabling Russia to maintain its illegal war in Ukraine and has significant and broad-based security implications," said the leaders of some of the world's biggest advanced economies.

It came days after the European Commission told Chinese carmakers that it would provisionally apply duties of up to 38% on imported Chinese electric vehicles from next month.

And in April and May, the US imposed new sanctions on Chinese banks and companies it accused of supplying goods and services for the Russian military.

Xi's balancing act

Analysts say that China is performing a balancing act. It is backing the Russian invasion to dent US global power while also seeking to maintain the trading ties with Europe its economy depends on.

The US has long been pushing its European allies to adopt a tougher stance toward Beijing similar to its own.

But they have hesitated until now. Many retain close economic ties with China, with the European economic giant Germany long dependent on China's manufacturing might for products such as cars and electronic devices.

But at the G7 there were signs that might be about to change, and Europe's leaders are becoming increasingly exasperated with China.

In the statement, members said they were willing to punish Beijing further for its support of Russia.

"We will continue taking measures against actors in China and third countries that materially support Russia's war machine, including financial institutions, consistent with our legal systems," they said.

China-Europe tensions increase

It's not just China's support for Russia that appears to be focusing European minds on the potential threat it poses.

In recent months, authorities in Germany and the UK have arrested people accused of spying for China, and the European Union has accused Beijing of flooding markets with cheap electronic cars.

China has sought to exploit divisions in Europe, with Xi visiting Hungary and Serbia in May, just after visiting France's President Emanuel Macron. Both have taken a critical stance towards Ukraine and appear keen to do more business with China, in defiance of EU policy. And China also seems keen to drive a wedge between European countries and the US.

But China's attempts to sustain its balancing act appear to be getting more difficult to sustain.

A person familiar with G7 talks told the Financial Times: "The era of naivety towards Beijing is definitely gone now and China is to blame for that, honestly."

Read the original article on Business Insider