Category Archives: China-E.U.

Pragmatic Scholz Visit Offers Beijing Some Hopes

German Chancellor Olaf Scholz seen with China's President Xi Jinping in Beijing on November 4, 2022

GERMAN CHANCELLOR OLAF SCHOLZ’S meeting with Xi Jinping elicited a statement that the two countries should have ‘economic ties as equals, with reciprocity’.

Beijing will be pleased by that, and it will take some of the sting out of the soon-to-be-published China Strategy paper that is expected to align Germany with the US view of China as the primary geopolitical threat to the West.

It will also give Beijing some hope in its efforts to reverse the gradual convergence of the EU’s view of China with that of the United States and undermine Brussels’ efforts to adopt a more values-based approach to relations with Beijing by promising that German industry’s supply chains and economic interests in China are secure. China is Germany’s largest trading partner.

Scholz has been criticised domestically and internationally for his visit to Beijing, the first by a G7 leader since the coronavirus pandemic.

In an opinion piece published by the US political website Politico, Scholz criticised China’s Marxist-Leninist trajectory and said that German industry needed to reduce dependence on China, especially in cutting-edge technologies.

However, before his visit, Scholz had pushed through approval of Cosco taking an ownership stake in the port of Hamburg, Europe’s third-largest, although, under pressure, he reduced it to a 24.9% stake from the 35% sought.

Scholz also defended his visit to China by suggesting that talks with Xi were necessary to understand better China’s position towards the West and Russia’s invasion of Ukraine and what cooperation was possible.

The readouts from the two leaders’ meeting contained an intriguing reference to the situation in Ukraine.

We should jointly oppose the use or threat of use of nuclear weapons, refrain from using nuclear weapons or fighting a nuclear war, and prevent a nuclear crisis on the Eurasian continent.

If that was intended as a message for Xi’s friend, Russian President Vladimir Putin, it has, presumably, also been transmitted privately.

Scholz, who was accompanied by a delegation of German industrialists, also secured approval for the Covid-19 vaccine made by Germany’s BioNTech for use by foreigners living in China and said that should be the first step to broader approval, a hint of how zero-Covid might be eased.

The next question in Beijing will be how much, if any, of the cooperative talk with Sholz can be carried forward into whatever meeting takes place between Xi and US President Joe Biden at the forthcoming G7 meeting.

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The Longer The Ukraine Crisis, The More Of A Non-Player China Becomes

PRESIDENT XI JINPING can be taken at face value when he told his US counterpart Joe Biden in Friday’s two-hour video call that China does not want war in Ukraine.

His friend, Russia’s President Vladimir Putin, giving the West a quick and bloody nose in Ukraine would have been one thing. Xi could have cheered on from the side but be otherwise uninvolved. His view of the West’s secular decline and democracies’ failings would have been further confirmed.

However, events have turned out badly for China, and become worse the longer they drag on. The West’s response to Russia’s invasion has been forceful and unified. An anticipated lightening military victory has become a siege war of attrition. Soaring energy, metals and food prices and renewed disruption to supply chains have stiffened the economic headwinds buffeting China.

Most of all, China is caught uncomfortably in the middle diplomatically. Xi cannot (and will not) abandon his friend, yet, nor can he side with the West over the conflict.

China has had to perform diplomatic gymnastics to preserve its principles of indivisible sovereignty and non-interference in the internal affairs of others, both violated by Russia’s invasion. Calls for resolving the conflict by diplomatic means sound rote, and Beijing’s lack of experience and possibly capacity to broker peace have been exposed.

Economically, future trade with Europe and the United States, already more than five times larger than that with Russia, is in the balance. Maintaining economic relations with the West while opposing US ‘hegemony’ has been a tightrope Beijing has chosen to walk. Yet, as Biden made clear to Xi in their call, getting knocked off by the imposition of yet more Western economic sanctions for aiding Moscow is a growing risk. China will be particularly reticent to help Moscow circumvent financial sanctions, as those are where it and Chinese firms will be most vulnerable.

Beijing also needs Russia’s implicit security guarantees in Central Asia for the Belt and Road. These will be coloured by the outcome of Ukraine, which limits China’s opportunities now to exploit Russian weakness to secure cheap energy and commodities.

China has never joined Russia in any military intervention abroad and is unlikely to start now, even if it supplies materials for the Russian army’s use. War in Ukraine is not a core interest, and its leadership displays caution on matters not related to its core interests. In such circumstances, it prioritises creating a stable international environment conducive to China’s economic development.

It does not look as if Beijing knows how to do that, beyond repeating calls for a negotiated settlement. A telltale sign was the readouts of the Xi-Biden call: whereas the United States portrayed Ukraine as the focus of the call, China’s portrayed US-China relations as the main topic.

Yet taking a formal lead in mediating a peace in Ukraine would underline how Beijing’s relationship with Moscow was more one of convenience and a shared adversary rather than the ‘no limits’ alliance portrayed. It could also be taken domestically as yielding to Western pressure.

Further, failure of such talks would be a diplomatic embarrassment that could rebound internally with uncertain effects, given the imminence of the Party Congress in the autumn.

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Xinjiang Gets A New Party Boss, And Subtle Shift In Emphasis On Stability

THE NEW PARTY secretary in Xinjing, Ma Xingrui, promises no change in the region’s ‘stability’ policy, implying the human-rights confrontations between China and the United States and the EU will continue.

However, his early remarks touched on the development of Xinjiang’s supply chains and the need to integrate the region into the Belt and Road Initiative, suggesting an attempt to develop export routes through Eurasia to the EU to drive a commercial wedge between Washington and Brussels.

On December 25, when his appointment was announced, Ma pledged to maintain his predecessor Chen Quanguo’s focus on stability and implement President Xi Jinping’s blueprint for Xinjiang.

Two days later, during his first appearance in Urumqi, Ma shifted tone, saying Xinjiang should become more integrated with the Belt and Road Initiative and called for the region’s supply chains to be modernised and the climate for international business made more welcoming, including through tax breaks. He also said that development and security in the region had to be balanced and that maintaining stability was a long-term general goal.

Ma Xingrui, Party Boss of Xinjiang seen in Urumqi on December 27, 2021. Photo credit: Xinjiang DailyMa, 62, (left), has a commercial and trade background. He was most recently governor of Guangdong province, a post he took up in 2017 after a couple of years as Party boss in Shenzhen. A similarly short spell as a vice-minister of industry and information technology had followed six years running China Aerospace Science and Technology Corp., the main contractor for China’s space program, from 2007 to 2013 (Ma is an aerospace engineer by profession).

He also has security experience. When governor of Guangdong, Ma was a member of the central coordinating group on Hong Kong and Macau affairs as Beijing brought Hong Kong more tightly under its control through the crackdown on dissent via the National Security Law. Providing he does not blot his copybook in Xinjiang, Ma looks set for a seat on the Politburo following next year’s Party Congress.

Chen, four years Ma’s senior and under US sanctions concerning the treatment of the Uighur minority in Xinjiang, is moving to a yet unnamed new position. In his outgoing comments, he praised Xi’s ‘helmsmanship’ — a phrase popping up a lot of late — for what, according to state media, he called ‘the general social stability, high-quality economic growth and a happy and peaceful life for the region’s residents’.

China has repeatedly denied human rights abuses against Uighurs, saying its policies in Xinjiang address extremism and poverty.

On December 25, the regional government ran through the standard arguments of Beijing’s position in response to the bill that US President Joe Biden signed into law that bans imports of goods from Xinjiang unless companies can prove no forced labour is involved. Intel and Walmart are the latest US multinationals ensnared in this aspect of the dispute.

Even with the lures that Ma may dangle, US multinationals will not find it any easier to bite while the current mood in Washington prevails.

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EU’s Global Gateway Opens A Small Development Door

Screenshot of European Commission's Global Gateway announcement

AS A COUNTER to the Belt and Road Initiative, the EU’s Global Gateway project is at least half a decade late and more than a euro short.

Brussels plans to spend 300 billion euros ($340 billion) over the next six years through loans, guarantees and grants to be invested in strategic industries in Latin America, Africa and Asia. There is no official figure for China’s BRI investment, but the most conservative estimates put it at $500 billion since its launch in 2013. 

Projects with an estimated value of $2.5 trillion have had the label slapped on them, although far from all have been realised. That speaks, however, to the power of the BRI brand.

The EU aims to spread its influence and values through Global Gateway. Thus, the initiative has heavy elements of transparency and sustainability to it. Target industries include technology, energy, transport and health. Tackling climate change and global health security will be priorities.  

Specific projects remain to be identified, and probably hostage to various EU member companies varying relationships with China, which is adept at picking off individual EU members when it feels its interests threatened. The stance of the new German coalition government, which is divided on how tough to be on Beijing, will be critical in this regard.

Efforts to counter the BRI by the EU and others are not new. Most recently, the United States put forward its Build Back Better World (B3W) Partnership. However, its openly anti-China stance and US leadership worried some European leaders sufficiently to ensure G7 support was watered down.

Yet even before B3W, there was the Japan Partnership for Quality Infrastructure (2015), the EU’s Asia-focused Connectivity Strategy and the Australia-Japan-United States Trilateral Infrastructure Partnership (both 2018) and the US Blue Dot Network (2019). 

All lacked coordination, shared ambition and a joint strategy. In short, they lacked a brand, and certainly one as powerful as the BRI. In a nod to that, European Commission President Ursula von der Leyen said Global Gateway should become a trusted brand. Easier said than done.

China is anyway reining in its ‘debt-diplomacy’ as it re-evaluates the risks of making high-interest loans to countries that cannot afford to repay them, such as in Africa, and expands its use of Western financing concepts like public-private partnerships.

Beijing’s strategic aim will be to discourage the EU from joining the United States in a common infrastructure drive against the BRI. Just the announcement of the Global Gateway does that. However, Beijing will also seek to draw specific EU nations into its regional development initiatives where they already have interests: France and Italy in Africa, Spain and Portugal in Latin America and Germany in the Balkans and the Caucasus. 

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Europe Gets More US Aligned Over China

IT HAS NOT been a good ten days for Beijing in Europe, where a hardening stance on China is being more readily articulated.

Last weekend’s G7 meeting solidified US President Joe Biden’s steady assemblage of an alliance against China. It elicited a promise from Italian Prime Minister Mario Draghi that his country would reassess its participation in the Belt and Road Initiative (BRI); Italy is the first and so far only EU country to sign up for the BRI, which Biden now wants to counter with his Build Back Better World (B3W) investment initiative.

The G7 further pushed Beijing’s buttons by criticising China for alleged human rights abuses and called for a further investigation into the origins of Covid-19. For the first time, a G7 summit communique mentioned Taiwan.

Hard on the heels of the G7 came a NATO summit that warned that China was increasingly operating within its sphere of influence and said that Beijing is rapidly expanding its nuclear arsenal, is opaque about its military modernisation and is co-operating militarily with Russia. Those are strong words, by NATO standards.

The Europeans’ ranks may be closing but are still not solid. Europeans do not want to be pushed into making a public choice between the United States and China, especially as they know they would have to side with the former. That would have political consequences they would rather avoid.

France and Germany are particularly keen to keep open trade, investment and academic and research links with China. However, Germany’s enthusiasm may moderate once Chancellor Angela Merkel, the European leader least convinced of the need to reset relations with China, steps down from office at the end of her fourth term in a few months.

Italy, too, will take its time in deciding whether to withdraw from the BRI, fearful of the potential damage that could cause the fragile Italian economy.

More worrisome for Beijing is that the far right-wing Brothers of Italy may be part of the next Italian government. The party holds a generally hawkish view of China and a Trump-like position on protecting the Italian economy from Chinese economic influence in strategic sectors.

How much the past ten days have substantively changed the relationship between Europe and China is moot. That Beijing has reacted in its now routine way — by denouncing the West for interfering in its domestic affairs and taking a Cold War mentality — may suggest that the change is one more of tone.

Tone, though, matters in international relations. These past ten days have confirmed that elite opinion in Europe is now more aligned with those European politicians and publics that are increasingly inclined to view China negatively and with similar shifts in attitudes in the United States.

This will improve the effectiveness of EU measures that seek to redress what is seen as undue influence in Europe’s civil societies and unfair Chinese competition in its markets and bolster Biden’s efforts to coordinate policy towards China with like-minded democracies.

That, in turn, will require new strategies from Beijing, which will no longer be able to create and exploit divisions in the West as easily.

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China Expands Its Sanctions Deterrence Arsenal

BEIJING’S FAST-TRACKING of an Anti-Foreign Sanctions Law suggests it feels an increasing need for urgency in creating mechanisms for retaliating against Western sanctions on China.

With US President Joe Biden using this weekend’s G7 summit to again urge Western countries to co-operate to counter China’s growing influence, the urgency is, if anything, more pressing.

The National People’s Congress Standing Committee passed the law on June 10 without the formality of the third reading that would usually be required. Nor were drafts circulated to relevant parties for consultation, as is typically the case. The contents of the final law are not yet public. That ambiguity alone will have a chilling effect on multinational companies. 

The fast-tracking follows the expansion last week by the Biden administration of the US blacklist of Chinese companies off-limits to US investors as part of Washington’s attempts to deny China capital and technology.

The Anti-Foreign Sanctions Law adds to a growing arsenal of trade-related laws and regulations China has adopted, but not yet used, in its confrontations with the sanctions-happy United States and, latterly, the EU. These include the Unreliable Entity List, Export Control Law and Rules on Unjustified Foreign Measures.

While these new trade weapons are at this point being used primarily for deterrence, they will create (an intended) uncertainty for multinationals with China subsidiaries. Custom and practice suggest that their use will be politically driven but neither transparent nor consistent. 

Collectively they ratchet up the pressure on multinationals to choose between the penalties from their home countries for violating sanctions against China and the penalties China can now impose on them for complying.

This, in turn, Beijing hopes will create domestic pressure that will influence Washington and Brussel’s cost-benefit calculations when it comes to considering new sanctions on Chinese firms.

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Hungary Grows As Beijing’s Peculiar Friend In Europe

HUNGARY OCCUPIES A peculiar place in China-EU relations. The country is run by a populist, right-wing government led by Viktor Orban, who is as strongly anti-communist as he is Eurosceptic.

However, If anything, his rift with Brussels is widening. Beijing is nurturing him as a wedge ally in Europe, although it portrays warm relations with Budapest as a bastion against those trying to weaken the China-EU relationship.

The strategy is meeting with some success. Hungary recently blocked the EU from issuing a statement criticising China’s treatment of Hong Kong. It was the first EU country to accept shipments of the Chinese Covid-19 vaccine, Sinopharm, against Brussels’ wishes, and has plans to produce it locally. Orban is also advocating the ratification of the EU-China investment agreement, about which many member states are now having second thoughts. He awarded a multi-billon dollar project to upgrade the railway line between Budapest and the Serbian capital, Belgrade, to a Chinese consortium.

Yet this weekend, thousands of Hungarians took to the streets to protest against Fudan University opening what would be its first European campus in Budapest. The campus is due to open in 2024 with a student body of some 5,000 and 500 faculty.

The protesters claim that any government subsidies Fudan is receiving would be better spent on Hungarian institutions. The Hungarian government intends to borrow $1.8 billion from China Development Bank to build the campus, and will contract China State Construction Engineering Corp. (CSEC) to do the construction using Chinese labour and materials, according to Direkt36, a Hungarian investigative-journalism site.

CSCE was on US President Donald Trump’s blacklist of companies deemed to have connections with the People’s Liberation Army, although not on the Biden administration’s new list.

The estimated construction cost is more than the Orban government’s annual budget for higher education. This is being reduced by converting public universities into independent non-profits. In 2017, Orban pushed through a higher education law that forced the Soros-funded Central European University to move from Budapest to Vienna to continue functioning as a US institution.

In April, the government amended the law so that foreign-based educational institutions could operate in Hungary if they do so under an inter-governmental agreement. This opened the door for Fudan. The Sino-Hungarian international agreement also seemingly lets the construction bidding be exempt from EU competition law.

A further complaint is that the campus will occupy land previously designated to house domestic university students. The left-wing mayor of Budapest has shown his displeasure by proposing renaming three streets around the campus as Free Hong Kong Road, Dalai Lama Street and Uyghur Martyrs’ Road.

That may be more to do with next year’s elections in Hungary than anything; the mayor is seeking to lead an opposition coalition to contest Orban’s Fidesz party. But the street renaming would be a provocation Beijing would find difficult to ignore.

Update: Following the protests, Orban’s chief of staff suggested that the Fudan University project could be put to a referendum in 18 months’ time. This co-opts an opposition proposal but would let the government defer a vote until it is too late to cancel the project. The opposition’s election campaign will likely have a strong anti-corruption and anti-Chinese theme.

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Human Rights Drives Deeper Wedge Between Beijing and Washington

Screenshot of US State Dept 2020 Country Report on Human Rights in China

BEIJING IS LIKELY to bat aside as false and hostile the latest annual human rights report issued by the US State Department on March 30 as readily as it did a statement of concern by the UN Working Group on Business and Human Rights the day before about allegations of the forced labour of Uighurs in Xinjiang.

The US State Department’s reaffirmation of its designation of China’s treatment of Uyghurs as ‘genocide’ will do nothing to reduce tensions in the China-US relationship. If anything, these have increased under the new Biden administration, not eased as expected.

Announcing the report, US Secretary of State Antony Blinken also signalled a broadening of the US human rights focus from the previous Trump administration’s narrow concern with individual freedom and religious rights.

Further US economic sanctions and visa restrictions against Chinese officials are likely with Washington looking to act in concert with its allies.

Commensurate retaliation can be expected from Beijing, along with more rhetoric about Western nations’ hypocrisy over their domestic civil rights issues and Trump-like denigrations of Western media for not reporting the party line at face value.

More trouble for Western businesses seems likely as Beijing experiments with expanding consumer boycotts‘ scope to apply leverage on the US and other Western governments through their multinational companies.

However, Blinken made clear that human rights were ‘front and centre’ of the Biden’s administration’s foreign policy, and Beijing will find that US business does not have Biden’s ear in the way that it did Donald Trump’s.

Retaliation against European companies will also do little to encourage European countries to ratify the EU and China’s investment agreement that Beijing rushed to conclusion ahead of Biden taking office and which it saw as a potential wedge issue it could drive between Brussels and Washington.

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The Hard Edge To The Soft Power Of Chinese Patriotism

WESTERN COMPANIES ARE not the first multinationals to suffer the power of a ‘patriotic’ Chinese consumer boycott when they get caught in the crosshairs of a political dispute.

US and European apparel retailers such as Nike, Adidas, H&M, Tommy Hilfiger and Burberry are now getting the same treatment that South Korea’s confectionary-to-hotels conglomerate Lotte and Japanese carmaker Toyota were subjected to in the past.

They are being abandoned by Chinese consumers and celebrity endorsers, and ‘disappeared’ from social media marketing and retail outlets. Their own-brand stores may remain open, but they are empty of customers, who are turning to indigenous brands.

In this case, the core dilemma for Western firms is whether they should continue to use cotton from Xinjiang in their products and face Western consumers’ censure for condoning the use of forced labour and other human rights abuses against Uighurs. Or should they stop using it and face the loss of their lucrative Chinese markets through boycotts by Chinese consumers whose shopping patriotism is being whipped up by the government?

In January, the United States banned the import of cotton from Xinjiang, and the United Kingdom told domestic firms doing business in China that they would be fined if they cannot show their products are not linked to forced labour in the region. Then, earlier this month, those two countries were joined by Canada and the EU on sanctioning Chinese officials over Xinjiang.

China has retaliated with countersanctions and knows that turning the economic screws on Western companies is a potentially more powerful way to silence its critics, as evidenced by how it has bought the silence of Islamic governments over the treatment of the Muslim Uighur minority in Xinjiang.

Western technology companies could be the next to be drawn into this as Xinjiang is a significant high-tech manufacturing sector feeding into global supply chains.

Beijing is defiantly maintaining in the face of international condemnation that accusations of cotton picked by forced labour and other charges of human rights abuses in Xinjiang are false. It describes its repression in Xinjiang as a campaign against terrorism, separatism and religious extremism.

This Bystander can allow that authorities are sincere in their view. Many governments view the violent repression of terrorism, separatism and religious extremism as legitimate. Some take their expression within ethnic minorities as evidence of them as being inherent in ethnic identity, as Beijing does with Uighurs.

Its policy response now abandons any pretence of affirmative action and accommodation of ethnic sensitivities towards the Uighurs and instead actively and often forcibly promotes their assimilation into the culture and society of China’ majority ethnic group, Han Chinese.

This justification of its near-total elimination of the Uighurs’ traditional ethnic identity appears a disproportionate policy response from the perspective of liberal democratic values. However, Beijing has no ideological qualms about repression and is restrained in its use only by its assessment of what is feasible and effective in pursuing its goals. Hong Kong provides another case in point.

Similarly, it calculates that Western sanctions and criticism over Xinjiang are unlikely to approach a severity that would force it to change course. It is betting that many Western companies will self-censor and quitely press their governments not to censure Beijing over Xinjiang and only criticise Beijing when they judge they will pay a higher price in their home market for not doing so.

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China-EU Investment Deal Riles Incoming US Administration

THE INVESTMENT AGREEMENT between China and the EU has been long in the making — seven years. Nevertheless, no sooner has agreement in principle finally been reached than it is running into criticism for undermining the prospective unified front of allies US President-elect Joe Biden plans to construct to confront Beijing. Prospective members of Biden’s administration are quietly but firmly making it clear that the agreement is premature. They say that Beijing’s last-minute concessions to get the deal done before Biden takes office were tactical moves to drive a wedge between the US and the EU.

The Comprehensive Agreement on Investment has been a high priority for Brussels. Itis being touted there as a big win.

It will open multiple industries in China to EU businesses, ranging from electric carmaking to healthcare and cloud computing. It will also put EU financial services on the same footing as US rivals by matching the opening of the insurance and asset management sectors achieved for US firms in the Phase One US-China trade deal struck a year ago. EU firms will also get similar assurances as US firms on subsidies, forced technology transfer and non-discrimination compared to state-owned enterprises.

Beijing also agreed in a late concession to making ‘continued and sustained efforts’ to ratify International Labour Organization conventions against the use of forced labour. However, the enforcement mechanisms for holding China to its promises look woolly.

For Beijing, the accord mostly secures existing EU market access rights. These would hamstring Brussels from driving Chinese firms out of some EU market sectors, as Washington has attempted in its domestic markets. However, the one-sided nature of the economic gains in the EU’s favour strongly suggests that China has prioritised geopolitical gains while leaving open plenty of potential pressure points on Brussels outside the agreement should it subsequently need to apply the squeeze.

That would seem to be confirmed by reading between the lines of President Xi Jinping’s pro-forms comments and statement during a video link-up with EU leaders that the agreement will make ‘significant contributions to the building of an open world economy’. It will undoubtedly allow Beijing to reinforce its narrative of market opening and reform.

The agreement’s legal text has still to be finalised and will then need to be ratified by both sides to come into force. Another reason for striking the deal now is to do so before German chancellor, Angela Merkel, a strong supporter of it, leaves office in 2021.

Brussels aims for the deal to take effect in early 2022, leaving plenty of time for the Biden administration to correct the misalignment it perceives the agreement creating. The incoming US national security adviser, Jake Sullivan, has already said that the new US administration ‘would welcome’ early consultations — welcome in the sense of is demanding.

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