BRUSSELS—A powerful European business lobby group called on European Union politicians to push back harder against China’s state capitalism but not to lock out Chinese businesses, as advocated by some leaders who are following the U.S.’s lead on limiting commercial ties to China.

Members of the European Round Table for Industry, or ERT, a trade group of almost 60 chief executives and chairpersons of major Europe-based multinationals, on Monday called on EU leaders to push for better business terms with China and not to turn away, despite some leaders’ growing misgivings about Beijing and amid improving ties with Washington.

Many governments and EU officials have over recent months tilted more toward Washington in opposing Beijing’s increasingly assertive stance on the world stage. The business leaders fear calls for decoupling from China, similar to ones in the U.S.

“We have to make this work,” ERT member Jacob Wallenberg said of commercial relations between China and the West. Mr. Wallenberg, who is chairman of Swedish holding company Investor AB and deputy chairman of telecommunications giant Ericsson AB, said China has begun opening its banking, insurance and other sectors under EU and U.S. pressure, and such pressure could improve the West’s business position with China.

“Is it perfect? No—far from it,” Mr. Wallenberg said. But he said improvements are “a consequence of continuous pushing, and I think we have reason to continue to push.”

Other members of the ERT include leaders of German car makers BMW AG and Daimler AG , energy giants Royal Dutch Shell PLC, TotalEnergies SE of France and Italy’s Eni SpA, and British pharmaceutical firms AstraZeneca PLC and GlaxoSmithKline PLC. ERT members’ companies have significant operations and investments in both the U.S. and China.

Ericsson has faced a particularly acute squeeze after Sweden banned Chinese rivals Huawei and ZTE from its 5G networks on national-security grounds.

Ericsson has faced a particularly acute squeeze after Sweden banned Chinese rivals Huawei and ZTE from its 5G networks on national-security grounds.

Photo: Mark Schiefelbein/Associated Press

Mr. Wallenerg, who is chairman of the ERT’s trade committee, has extensive experience with China because many companies in which Sweden’s Investor is a big shareholder have deep links to the market. Several of them, including Swiss industrial giant ABB, Swedish home-appliance maker Electrolux AB and AstraZeneca, were targets of threats in Chinese media last year due to Beijing’s anger at Sweden for blocking Chinese telecom giants Huawei Technologies Co. and ZTE Corp. on national-security grounds, under U.S. pressure, and favoring Ericsson and Finland’s Nokia Corp.

Mr. Wallenberg said he believes strongly that every country should be able to defend its national security, but that “you also have to deal with it in a diplomatic sense, so that you maintain relationships.”

The ERT also urged Brussels not to use the coronavirus pandemic’s economic shock to augment Europe’s manufacturing and political autonomy in ways that become protectionist. The group on Monday issued a position paper pushing back against calls from some European leaders for the bloc to develop greater “strategic autonomy” from both the U.S. and China by enhancing its own production capabilities and geopolitical stature.

The ERT, which advocates free trade, said Europe should be able to take its own stand when needed, but warned that asserting economic autonomy could backfire.

“We have a clear concern that the concept of strategic autonomy could very easily lead into protectionism,” Mr. Wallenberg said.

The group supported deepening economic ties with the U.S., as politicians signaled during President Biden’s visit last month to Europe, but not at the expense of commercial ties elsewhere. China last year overtook the U.S. as the EU’s largest trading partner and the Chinese market is a primary source of profits for many big European companies, particularly German car makers, which are central to the EU economy.

The U.S. under former President Donald Trump pushed to decouple its economy from China’s due to concerns that Beijing has shifted from being a geopolitical and economic partner to a rival. The Biden administration has largely maintained that stance, which has broad bipartisan support in Washington, and Mr. Biden is pressing European governments to side with the U.S. against China.

Many American policy makers and a growing number of European officials say that since Chinese President Xi Jinping has tightened government and Chinese Communist Party control over the country’s economy, it is impossible to separate economic and national-security concerns around China.

Mr. Xi, celebrating the party’s centennial on Thursday, said China “will never allow any foreign force to bully, oppress, or enslave us.”

Mr. Wallenberg, who earned degrees from University of Pennsylvania’s Wharton School four decades ago and now controls large stakes in U.S. companies including Nasdaq Inc., said business relations can remain separate from national-security concerns.

“I know the political environment in the United States,” Mr. Wallenberg said. “I don’t think we’re at odds with the United States just because we, business, say it would be good to have a relationship with China.” He said U.S. business people in private have voiced similar views.

U.S. companies including Qualcomm Inc. and Microsoft Corp. criticized Trump administration restrictions on partnering with Chinese companies.

Ericsson has faced a particularly acute squeeze after Sweden banned Chinese rivals Huawei and ZTE from its 5G networks on national-security grounds. Ericsson CEO Börje Ekholm, supported by Mr. Wallenberg, over recent months criticized the decision, saying that in a world linked by free-trade the move would backfire.

Mr. Wallenberg said that Sweden could live with Huawei components in specific parts of its 5G network without compromising security. National security can be protected without damaging broader relations, he said.

“Some people don’t like me saying that, but I have no problem standing up for that,” Mr. Wallenberg said.

Published June 3

Rising tensions between the U.S. and an increasingly powerful China have led to some concerns they could potentially escalate into armed conflict. But as WSJ’s Gerald F. Seib explains, there are more forces working against conflict rather than toward it. Photo illustration: Todd Johnson The Wall Street Journal Interactive Edition

Write to Daniel Michaels at daniel.michaels@wsj.com