236391145_EU-China-Weekly_210609
picture alliance / ASSOCIATED PRESS | Virginia Mayo
MERICS Briefs
EU-China Weekly Review
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EU-US summits + Economic relations + International Procurement Instrument

EU and US to discuss China in multiple summits

Starting this Friday, European leaders will meet with President Joe Biden during a number of high level in-person summits. The following is a list of key meetings and their expected impact on China.

What you need to know

  • June 11-13 – G7 summit in Cornwall. Leaders from Australia, India, South Africa and South Korea are expected to join. The participants are expected to launch the Green Clean Initiative (GCI), an alternative to China’s Belt and Road Initiative. The EU leaders will be in a good position to discuss GCI. Just two days before the summit, the European Parliament is expected to vote on a near to EUR 80 billion Global Europe fund – a unified, main instrument of the EU’s external policy.  
  • June 14 – NATO summit in Brussels. China will likely be high on the agenda with NATO exploring a role of a “political-military alliance” tackling “an authoritarian pushback against the rules-based international order.”  Yet members may find it hard to reach a general consensus on how to approach China. A likely outcome will be alignment in cyber and security. 
  • June 15 – EU-US summit in Brussels. The two sides are expected to launch the Trade and Technology Council, initially proposed by the European Commission in December 2020. The Council will act as a common front on reforming the economic system and tech standards that are being redefined by China.

Quick take

Transatlantic cooperation on China is likely to develop gradually. The EU and the US could start with technical cooperation on concrete policies through the Trade and Technology Council or GCL. The more granular-level cooperation can help develop a wider consensus on China and at the same time resolve outstanding issues in their own bilateral relations. The technical, gradual approach could mitigate the fact that from a political angle, a level of divergence on China remains. While the American administration focuses on confronting China as a geopolitical and systemic rival, the EU acknowledges the challenges but seeks to respond to it with a low-key, technocratic approach that will limit disruptions in economic relations with China.

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EU-China economic relations are set to grow

EU-China economic relations recover following the uncertainty brought about by the pandemic, while European companies are planning to expand their operations within the Chinese market.

What you need to know

  • On June 8, the European Chamber released its annual Business Confidence Survey based on responses from 585 European companies operating in China. Only nine percent of them are considering offshoring from China (lowest ever recorded) while 60 percent plan to expand their operations in China given recent optimism about the growth of the Chinese market. 27 percent of participants plan to increase their ownership within their joint ventures while over 25 percent aim to onshore their supply chains which would minimize the impact of potential international political tensions. 41 percent reported an increasing politicization of the business environment (even before the March sanctions). Human capital remains a challenge as multiple experts decided not to return to China after entering the country has been difficult for an prolonged period.
  • On June 7, the General Administration of Customs of the PRC released import and export data from January – May showing that China’s trade with the EU bounced back by almost 29 percent, compared to the period of disruptions last year and amounted to CNY 2.06 trillion (over EUR 256 billion). In this timeframe China's export to the EU grew by almost 28 percent, compared to a 30 percent increase in imports. The EU is China's second-largest trading partner close behind ASEAN.

Quick take

While the EU-China politics have grown colder over the last year, the economic ties show no sign of cooling. This runs counter to some of the political discussions about the need for offshoring or decoupling from China. The prevailing economic link that European companies seek to strengthen is likely to remain a strong consideration for the European capitals that want to limit political tensions and reduce the number of disruptions for European businesses in China.

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Breakthrough on the EU International Procurement Instrument

On June 2, the Council endorsed negotiations with the European Parliament on the creation of the International Procurement Instrument (IPI). Once implemented, the instrument could have a significant impact on China’s access to European public procurement bids.

What you need to know

  • IPI is an offensive tool aimed to help the EU open public procurement markets of third countries such as China, the US or Japan, where European companies’ participation in public procurement bids is limited. First proposed by the Commission in 2012, IPI only became topic of wider discussion in 2019 in the context of China, but discussions in the Council were put on hold to prevent potential impact on the negotiation of the Comprehensive Agreement on Investment (CAI). The European Parliament is now expected to comment on the Council’s proposal, and inter-institutional discussions are expected to start over the summer.
  • IPI would allow the European Commission to initiate a public investigation into potential discrimination of European companies in third country procurement markets. Depending on the outcome of the investigation the Commission could, on a case-by-case basis, impose IPI measures such as price penalties to bids or exclusion from bids by companies from a third country.

Quick take

As the EU progresses in the development of its defensive toolbox, China is also strengthening its legal defenses against external instruments. For example, Beijing is in the process of developing its first anti-foreign sanctions law, presently being discussed by the Standing Committee of the National People’s Congress. Although it is primarily being considered in the context of the United States’ activity, the instrument is indicative of wider a trend of China wanting to shield itself from external legal measures. When developed, the EU’s new instruments such as the anti-subsidy law, IPI or the due diligence mechanism could fall into the category of measures that Beijing will seek to contain through its legal instruments.

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Hungarian government faces international and domestic backlash over its China policy

The Hungarian government is facing backlash over its China policy both from the EU and on a domestic level.

What you need to know

  • On June 7, German Minister of Foreign Affairs Heiko Maas decried European foreign policy being “held hostage” by member states’ veto power, which he said “has to go.” It was a clear reference to Hungary’s blockages of EU resolutions on Hong Kong and other foreign policy issues. Viktor Orbán rebuffed Maas’ comments opposing “ineffectual declarations” on Hong Kong and stated that “we need cooperation, investment, trade and cultural and scientific relations – not boycotts, sanctions, sermons and lectures.” The EU’s move to introduce qualified majority voting on foreign policy would require unanimous support of the Council, which is currently highly unlikely.
  • On June 5, the Hungarian government faced mass protests over the plans to build a Fudan University Campus, in the place previously allocated for a community project. Prior to the protests, Budapest Mayor Gergely Karacsony made a decision to name streets around the prospective campus as “Uyghur Martyrs,”, “Dalai Lama” and “Free Hong Kong.” Responding to the developments, the Hungarian government offered to hold a referendum on the project in 2023, thereby pushing the decision past the elections next year in which Karacsony is expected to be Orbán’s key competitor. Statements by the Chinese MFA and reporting in the Global Times suggest that postponing the project will not have a major impact on Sino-Hungarian relations.

Quick take

The Hungarian administration’s China policy is a cause for increasing criticism from Brussels and several European capitals. But it is the domestic controversy over their China policy that presents a more substantial challenge to Viktor Orbán. Should China become a major topic in next year’s elections, the Hungarian government may consider toning down its pro-China stance.

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Short takes

EU commemorates Tiananmen

On June 4, the European Commission and several MEPs released statements commemorating the victims of the “violent suppression” of 1989 Tiananmen protestors.

COSCO plans acquisition in Hamburg

COSCO, Chinese state-owned shipping giant prominent in European ports, is looking to acquire a 30-40 percent stake in one of the four container terminals in the port of Hamburg. 

IPAC launches action on Beijing Olympics

The Inter-Parliamentary Alliance on China launched a coordinated action bringing together members of 11 parliaments (including the European Parliament) calling on political leaders not to attend the games.

Borrell in Jakarta on Indo-Pacific

On June 3, High Representative Josep Borrell gave a speech in Jakarta outlining the EU’s Indo-Pacific strategy, which he presented as inclusive of China, but centered on ASEAN.

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