The G7 conundrum: How hard should you push China in a crisis?

When leaders from the G7 group of leading developed economies gather in the Bavarian Alps on Sunday, they will have very different visions of how hard to confront China just as the world seems to be tipping into a major economic crisis.

Amid fears of impending recessions and crises over energy and food supply, it’s a big headache that China now appears to be a direct ideological foe rather than potential partner that can help steer the world economy back from the brink.

Things were different in the aftermath of the global debt crisis of 2007-2008. Back then, China was an active and often highly cooperative global player in the G20 format, playing along with big diplomatic initiatives centered on massive stimulus measures and the avoidance of trade wars. Many even predicted a new era in which global economic policy would be steered by the interaction of a G2 of Washington and Beijing.

That seems a lifetime ago now, as President Xi Jinping has embarked on a severe authoritarian swerve away from the West, ramping up repression at home and allying himself closely with Russian President Vladimir Putin in the war in Ukraine. Economically, China is now openly tugging in a different direction from the G7. It is throwing a lifeline to sanction-hit Russia, is fighting a trade war with EU member country Lithuania in a dispute over Taiwan and is brushing off international criticism of a zero-COVID strategy that is rupturing global supply chains.

Far from being advocates of any kind of G2, it is the Americans who will arrive for the G7 summit at Schloss Elmau in Bavaria with the toughest playbook on how to tackle China. Chief on their list of ambitions is that big democracies should work together on big projects that can displace Beijing’s Belt and Road Initiative — a massive scheme of roads, railways and ports via which China exerts political and commercial influence by connecting its factories to the West.

Speaking ahead of the summit, a senior U.S. administration official said that the leaders aim to “advance a vision of the world grounded in freedom and openness, not coercion, not aggression, not spheres of influence.” G7 countries, the official said, would need to step up cooperation on “economic issues, cyberspace and quantum” and “in particular, the challenges posed by China.”

Noting that last year’s G7 was the first time the group addressed China’s “unfair” and “coercive economic practices,” the official said: “We expect that that is going to be, if anything, a bigger topic of conversation this time around, recognizing the extent to which those practices have become even more aggressive.”

Top American officials are clear the push against China means offering an alternative to Belt and Road. U.S. President Joe Biden will likely rebrand the U.S. led counterstrike — the Build Back Better World program, launched at last year’s G7 — giving it a snappier name and focusing on some concrete projects in target areas such as Latin America, Africa and Asia.

“He will be launching a partnership for global infrastructure, physical health and digital infrastructure that we think can provide an alternative to what the Chinese are offering — to the tune of tens and ultimately hundreds of billions of dollars when you add in what our G7 partners are going to do as well,” Jake Sullivan, national security adviser to Biden, said last week. “We intend for this to be one of the hallmarks of the Biden administration foreign policy over the remainder of his tenure.”

Caution in Europe

While the Americans are coming out swinging, the Europeans are likely to be far more cautious about the merits of riling China as the world heads into a rolling economic storm.

The EU has fallen relatively quiet about its own Global Gateway initiative unveiled last year, which was also branded as an alternative to the Belt and Road. While European politicians talk a big game about establishing “strategic autonomy” and breaking dependence on China, they often row back as soon as there is any suggestion of a retaliatory threat against Europe’s large industrial investments in China — like the German car industry.

“Any concerted transatlantic effort on China will continue to run up against the same obstacles that it did before, including significant European economic interests in China and a European willingness to also decrease its own reliance on the U.S.,” said Pepijn Bergsen, a research fellow on Europe at Chatham House, a think tank.

If anything could finally stiffen European resolve on China, Bergsen said it was Xi’s close alliance with Russia that has become a core strategic priority to Europeans in light of the invasion of Ukraine.

“The U.S. continues to be more focused on China than the Europeans, who are mainly interested in China at the moment in the context of its support for Russia. This has led to further doubts about China in parts of Europe, particularly in Central and Eastern Europe, which should at least ensure that the EU and the U.S. don’t drift further apart over the China issue,” he said.

The U.S. is also likely to find Japan ever more willing to take a tougher line on China, as Beijing steps up military threats on Taiwan. “In the East China Sea, where Japan is located, unilateral attempts to change the status quo by force in violation of international law are continuing. Japan is taking a firm stand against such attempts,” Japanese Prime Minister Fumio Kishida said at a recent security forum.

All eyes on NATO

For China, the main concerns about western countries’ pronouncements in the days ahead focus on what’s brewing at next week’s NATO summit, rather than any tough talk at the G7.

For the first time ever, NATO will consider China to be a challenge in its upcoming 10-year blueprint, the Strategic Concept, to be adopted next week. According to NATO Secretary General Jens Stoltenberg, the 30 leaders in the military bloc will “address China and the consequences for our security” at the Madrid summit. “I expect that allies will state that China poses some challenges to our values, to our interests or to our security. And this, of course, has an impact also on how NATO should react in a more competitive world,” Stoltenberg told POLITICO this week.

In a last-minute appeal to head off that kind of designation, Wang Lutong, head of European affairs at China’s Foreign Ministry, wrote that China “is not an adversary to NATO and should not be regarded as one. China poses no challenge, and its rise is for delivering better lives to the Chinese people, and has brought economic opportunities to the world, including NATO members.”

China’s close alliance with Russia during the Ukraine war is, however, already posing big questions about how rich Western nations should deal with the broader G20 format, in which high-income nations engage with a broader group representing the wider global economy, including China, Russia, Mexico and Indonesia. Russia’s presence has raised the prospect that some Western nations could boycott to avoid being in the same room as Putin.

But a senior EU official said that the a widening divide between the G7 nations and developing economies made the G20 all the more important.

“The G20 takes on all the more relevance as a bridge to constituents who may not have an identical world view,” the senior official said. “The worst thing we could do is break that format. … Diplomacy is not about having just cozy chats with your like-minded friends.”