Italy's Meloni and EU aligned on green cooperation with China. This is why

Ursula von der Leyen secured her second term in Strasbourg, while Beijing concluded the five-yearly plenary session of the Communist Party Central Committee. The future plans of both blocs converge on at least one key area: decarbonization.

Ecological transition as a critical driver of the EU economy

Both the European Commission president's speech and the Chinese plenary's final communiqué underscored that ecological transition is now the framework and driver of innovation, investment, and industrial and economic policy.

During the debate, European People's Party president Weber called the Green Deal "fundamental," while Valerie Hayer, leader of the Liberals, stated that her group's support hinged on the green agenda. The socialists aim for a fair transition.

Regulatory framework and green competitiveness

In the context of the accelerated global decarbonization reaffirmed by the Italian G7, the Green Deal is set to establish the regulatory system that will support and facilitate the development of large and small European enterprises, with a promise of simplification efforts as a trade-off. The theme of green competitiveness is at the heart of the new Commission's agenda.

Sino-Italian environmental cooperation

It is no coincidence that the visit of Italian Prime Minister Giorgia Meloni to Beijing led to the revitalization of a 2004 joint program for environmental and climate cooperation. This program is a flagship of international collaboration between the two countries and is often taken as a model by the Chinese government for relations with other states. The visit resulted in signing two memoranda focusing on industry, environment, and sustainable development, as well as agreements on different areas such as food security, which also depends mainly on climate security.

China's New Ecological Development Model

Meanwhile, Beijing is elevating climate policy to the highest level of political guidance. For the first time, the final communiqué from the plenary states that China's development now hinges on the construction of the "ecological civilization" enshrined in the constitution by Xi Jinping in 2018.

"In the face of a severe and complex international environment and challenging and arduous tasks of reform, development, and stability," the communiqué reads, China is pursuing the consolidation of a new ecological development model. This model becomes a vital feature of the country's modernization and aims to promote green growth and combat climate change through emission and pollution reduction. For the first time, the environmental agenda has such a prominent role, with resilience and climate explicitly becoming elements of national security

A more assertive China in climate diplomacy

Brussels is entering a new phase marked by more assertive Chinese climate diplomacy. Given the urgency of the climate crisis, this shift serves the interests of both parties. Beijing's acceleration, coupled with the role and scale of its economy, can drive a global race towards improving green industry and technical standards.

Scientific and technological leadership

Scientists and technologists will be in the driver’s seat. Politics has little room for manoeuvre when confronted with the immutable laws of physics, climate change, or market realities. None of these can be swayed by propaganda or political posturing. Thermodynamics, for instance, remains unaffected by the efforts of supporters of the Internal Combustion Engine, who operate under the guise of "technological neutrality." The same applies to hydrogen. According to the European Court of Auditors' report last week, the European Union's goals to produce and import green hydrogen fuel are unrealistic and unlikely to be met despite billions of euros in funding. From a technical perspective, direct electrification is the most efficient way forward. Ultimately, costs and technical limits will determine the course of action for the industry and investment decisions.

Reliance on Chinese manufacturing

Another reality we must come to terms with is that our industry heavily relies on Chinese manufacturing capabilities to achieve our climate goals and industrial transition. Collaboration is essential to bridge the gap resulting from years of delayed investment decisions and electrification in Europe, making the transition less costly for our citizens. Additionally, we are increasingly interdependent, with EU carmakers selling significantly more in China than their US counterparts.

While the EU certainly needs to strengthen its strategic autonomy, this can only be achieved through international alignment on standards and rules and enhanced cooperation.

Tariffs and cooperation

The tariff debate will likely initiate a serious discussion between the two parties to find common ground rather than erect trade barriers. This is also the signal sent by Meloni's visit to Beijing, where Chinese investments in EV production in Italy were discussed.

Balancing industrial policy and competitiveness

From Brussels' perspective, the burden of incumbents and soon-to-be-stranded assets certainly slows down the transition of the European industry, where policies may serve the interests of established sectors, sometimes at the expense of the broader economy's development and consumers. This is true for almost all sectors today. The reaction of the stock markets to the announcement of the tariffs was interesting. In an ironic twist, we witnessed a sudden increase in the stock prices of Chinese carmakers upon the announcement of Brussels' dreaded import tariffs, while the value of European manufacturers plummeted. China, on the other hand, needs a stable partnership with the EU.

Ensuring economic and industrial resilience

Let's be clear: Europe must defend and strengthen the foundations of its economic capacity and cannot condemn itself to a future of industrial desertification, as much as China has always done. Some levels of tariffs may be appropriate and should be discussed with the Chinese government. It is not new that common rules and a level playing field for trade and production are necessary. Ultimately, the best solution would be for Chinese companies to invest and produce in Europe while both blocs maintain reciprocal access to quality goods and services under a new form of the international division of labor and investment that incorporates the weight of environmental and social externalities compressed during the phase of the second globalization. Ultimately, a green economy will export less and involve reduced trade flows between parties, which is true for China, Europe, and the United States. Some degree of reshoring of production and supply chains is inevitable and inherent in the efficient and more sustainable management of natural and productive resources. However, the rules of this paradigm shift need to be written together. That's why the EU is open to Chinese proposals to address critical issues, beyond the introduction of tariffs, which are taking effect from the beginning of July.

Accelerating the redefinition of international trade rules

Alongside electrification, Beijing is likely set to accelerate the redefinition of international trade rules to integrate stringent technical and environmental standards, initiating a race to improve technologies, products, and consumption in global markets. By doing so, China positions itself to respond tit-for-tat to US and EU pressures on green technologies. A full-scale conflict benefits no one.

Financing the transition

The real contest will be over how the two blocs finance the massive package of necessary infrastructure and social investments. China's efforts towards transition are certain to intensify, potentially further strengthening the advantage of large Chinese state-owned enterprises in new sectors.

Shared challenges and solutions

Both face the same challenges: digital integration, service development, building modern infrastructure, and improving the resilience and security of industrial and supply chains. The answers lie in enhancing education, science, technology, talent, and innovation. For both, national security also involves strengthening military and defense capabilities.

Racing innovation in China

Innovation is indeed thriving at a faster pace in the Asian country, as demonstrated by Wuhan's new fleet of autonomous electric taxis, operating 24/7 at half the cost of traditional taxis. This model exemplifies the use of artificial intelligence to reduce emissions in transportation, but many will likely lose their jobs. 

Wise political leadership will be essential in managing the social impacts of change in both the EU and China.