What started as a diplomatic spat between China and Lithuania over the status of Taiwan is now creating economic tension across the European Union, providing a test for the region’s leaders of their ability to stand up to the world’s second-largest economy.
Lithuania, a northern European country with a population under 3 million, sparked a row with China last March when it announced plans to establish a Taiwanese Representative Office — a de facto embassy — in its capital, Vilnius. The office opened in November using the island’s name, rather than the term “Taipei,” which many other countries, including the U.S., have adopted for similar offices.
In response, China — which claims Taiwan as part of its territory — recalled its ambassador from Vilnius in August and expelled his Lithuanian counterpart. Lithuania has, in turn, shut down its embassy in Beijing and recalled its diplomats.
The showdown escalated further in December when China imposed informal sanctions on Lithuania, blocking all imports from the country. As Beijing attempts to coerce businesses to cut ties with the Baltic state, cargo from multinational European companies with manufacturing facilities in Lithuania or containing products with Lithuanian components has also got stuck at Chinese customs.
“This is not just about Lithuania. China is trying to impose its political will over the logic of the single market [which is] the holy grail of the European project,” says Reinhard Bütikofer,1Butikofer was interviewed here in the Q&A section of The Wire last year. chair of the European Parliament’s Delegation for Relations with China.
The feud is the latest case of China using its commercial influence to punish countries for perceived transgressions. Australia, Canada and Norway have all also experienced economic fallout in recent years as China has flexed its diplomatic muscle.
“It’s a striking example that China is willing to risk economic damage [to itself] in order to pursue political goals,” says Bütikofer.
Lithuania’s stance stems in part from its self-perception as a country that stands up to authoritarian governments, having endured the Soviet Union occupation. Its declaration of support for Taiwan was also an act of aligning itself with the U.S. in taking a harder line on China, says Vaidotas Beniušis, editor in chief of 15min, one of Lithuania’s largest news websites.
“Lithuanians have clearly picked sides,” says Beniušis. “It’s a consensus among the political elite that the strategic line must be not deepening relations with China, preventing China from investing in strategic sectors like Baltic Sea ports, or railways.”
It’s a consensus among the political elite that the strategic line must be not deepening relations with China, preventing China from investing in strategic sectors like Baltic Sea ports, or railways.
Vaidotas Beniušis, editor in chief of 15min, one of Lithuania’s largest news websites
On paper, Lithuania can afford to stand up to China. Its exports to China totaled $358 million in 2020, only just over 1 percent of its total shipments overseas. The country has already withdrawn from the so-called ‘17+1’ group, a decade-old initiative by China to engage economically with central and Eastern European nations.
The Lithuanian government had anticipated the possibility of economic sanctions before aligning with Taiwan, says Matas Maldeikis, a member of the Lithuanian Parliament. But, he says, China’s willingness to involve other European countries in the conflict has caught it off guard. Germany, for example, is Lithuania’s fourth largest trading partner, meaning pressure on its automakers and other European businesses from China could prove more disruptive.
“Business will suffer. [Foreign] business will go out of Lithuania because it can’t do anything in the Chinese market,” Maldeikis says. “[China] is pressing our partners in Europe. So, it is not about Lithuania versus China – it’s about China versus the European Union.”
The growing economic pressure is already causing division within Lithuania. A recent poll showed only 13 percent of the country’s public support the government’s hardline stance on China, while the country’s president, Gitanas Nauseda, has recently referred to the decision on the Taiwanese office as “a mistake.”
That, though, has not led yet to a shift in Lithuania’s policy: In an interview round this week Lithuanian foreign minister Gabrielius Landsbergis called on the EU to stand up to Beijing’s pressure.
Such calls are in turn providing a fresh test of whether the EU is prepared to harden its approach towards China, and move more in line with the U.S’s confrontational attitude.
Under the guidance of former German leader Angela Merkel, the EU long sought to deepen economic ties with China while minimizing political conflicts. A year ago, it inked a major investment deal with Beijing, although that has not yet been ratified by the European Parliament.
Yet analysts have been closely watching the new German government under Merkel’s successor Olaf Scholz for any signs of a tougher approach from the EU, which already refers to China as a ‘systemic rival’. Tensions rose last year as both sides imposed tit-for-tat sanctions on each other over China’s oppression of the Uighurs in Xinjiang.
In a demonstration of Europe’s often conflicted approach towards China, Germany’s most powerful business lobby this month criticized Beijing for its trade restrictions on Lithuania; but also implicitly warned the Baltic state against stepping out of line with broader European policy.
To date, fellow EU nations’s support for Lithuania has mostly come in words of solidarity.
“We’ve heard a lot of rhetoric, but we haven’t seen much in the way of action,” says Noah Barkin, an expert on Europe-China relations at Rhodium Group.
EU Commission President Ursula von der Leyen and Council President Charles Michel released a joint letter of support for Lithuania in October, affirming that its naming of the Taiwan representative office did not contravene the bloc’s ‘One China’ policy. France, which is taking over the rotating presidency of the EU Council, has expressed its solidarity, as have both Germany and the U.S..
The EU’s ability to push back on China appears limited. The European Commission has said it would bring a case to the World Trade Organization if it finds evidence of international trade rule violations. That process, however, could take months. A move underway to introduce an ‘anti-coercion’ instrument that would allow the EU to respond more aggressively in trade disputes could also take years to finalize.
There is some frustration with Lithuania in European capitals for not consulting with fellow EU members prior to allowing Taiwan to open its office, says Rhodium’s Barkin. Some wonder if Lithuania entered the conflict without fully realizing the potential implications and even suspect the U.S. of having a role.
Nonetheless it’s important for the EU to stand in line with Lithuania, says Barkin.
“China is testing the waters here and seeing whether Europe is willing to stand up and act together to push back. Today, Lithuania is dealing with this; tomorrow, it could very well be countries like Germany, or France,” he says.
Taiwan itself has stepped in to support Lithuania, announcing a $200 million strategic fund to invest in the country this month. That was soon followed by a $1 billion credit programme to help fund joint business projects in areas such as semiconductors and biotech.
For its part, the U.S. inked a $600 million export credit agreement with Lithuania in November. Since Lithuania’s row with China began, U.S. and Lithuanian officials have been talking and meeting often, with at least two meetings between U.S. Secretary of State Antony Blinken and his Lithuanian counterpart, Landsbergis.
However, both the EU and the U.S. should be doing more, says Dov Zakheim, senior adviser at the Center for Strategic and International Studies in Washington. He says other countries could condemn China’s actions and potentially allow Taiwan to rename its representative offices elsewhere, while also committing to buy more Lithuanian goods.
“China will not stop. That’s not how the Chinese operate. The real question is if Lithuania caves to China? And if it doesn’t, that’s a win for Lithuania,” says Zakheim.
Anastasiia Carrier is a New York-based journalist. Her work has been published in POLITICO Magazine, Harvard’s Radcliffe Magazine and The Brooklyn Eagle. She earned her Master’s degree in Journalism at the Columbia University Graduate School of Journalism. @carrierana22