Protesters gesture with five fingers, signifying the "Five demands - not one less" as they march along a downtown street during a pro-democracy protest against Beijing's national security legislation in Hong Kong, Sunday, May 24, 2020. picture alliance / AP Photo
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EU at odds with UK and US in response to new Hong Kong security law

TOP STORY: EU at odds with UK and US in response to new Hong Kong security law

The EU’s reaction to Beijing’s announcement that it is to impose national security laws on Hong Kong stands in stark contrast to that of its allies. Whereas the US is threatening to revoke Hong Kong’s special trading status and is debating sanctions, and the UK has said it will change its immigration rules to allow access to British National Overseas passport-holders from the territory, the EU’s response has been far less robust. EU High Representative Josep Borrell issued a statement expressing “grave concern at the steps taken by China” but signaled that the EU was not planning to take concrete action beyond “trying to put pressure on the Chinese authorities”. To date, Sweden has been the only member state to call for sanctions.

By contrast, the US threat to revoke Hong Kong’s special status is likely to have a measurable impact. A fall in exports could negatively affect the Hong Kong economy, which is already in recession. If that resulted in increased unemployment it would be likely to further stoke tensions. Hong Kong currently enjoys favorable trading terms with the US on the basis of its status as a separate customs territory from Mainland China. Revoking this special status could be just the starting point. If the US response extends to sanctions in the financial area, it will become difficult for US companies to operate in Hong Kong.

Meanwhile, reactions in Hong Kong have been mixed. While emigration inquiries have surged in recent days, the response from Hong Kong institutions has varied. For those with ties to China, it is a tricky balancing act positioning themselves publicly on the security law. The heads of five publicly funded Hong Kong universities have backed the decision, while Hong Kong’s justice minister, Teresa Jeng, has said there are “no grounds” to bar foreign judges from ruling on national security cases, but that the city could benefit from setting up a special court to try people over seditious crimes. The details of the legislation have yet to be clearly defined.

Merics analysis: “The reaction from Europe confirms the EU and its Members’ unwillingness to use the bloc’s economic power vis-à-vis Beijing, an area in which Europe could apply some leverage considering that the EU is China’s largest trading partner,” says MERICS analyst Lucrezia Poggetti. “The EU’s failure to elaborate a strong response to Beijing’s plans raises questions about Europe’s commitment to finding a “robust” strategy on China - as Josep Borrell recently put it in a meeting with German Ambassadors - and its commitment to the protection and promotion of liberal values and the rules-based international order.”

More on the topic: The MERICS Monitor “Financial hub at risk - How China's reaction to protests jeopardizes Hong Kong's status” analyzes the risk of Hong Kong losing its special trading status

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METRIX

1

1 vote was registered against the decision by the National People’s Congress to draft national security legislation for Hong Kong. In all, 2,878 delegates voted in favor, with six abstentions. (Source: NPC Observer)

FOCUS: National People’s Congress

Domestic policy: Social issues take front stage

The facts: Social issues loomed large at this year’s National People’s Congress. With the job market severely hit by Covid-19, the need to boost employment and protect livelihoods featured prominently in the official speeches and reports adopted by the Congress. Concerns about employment were apparent. As Figure 1 shows, the term “employment” appeared far more frequently in this year’s NPC work reports than any other term relating to social policy, indicating its political priority for the coming year. The main piece of legislation this year was the Civil Code, containing 1,260 articles dealing with, among other things, personal rights as well as laws on contracts, property, marriage, and inheritance. One of the key aims of the Code is to strengthen property rights - a demand made by private businesses, who say it is essential to build their confidence if they are to contribute to the economy. Looking ahead, the Standing Committee of the NPC will focus on epidemic prevention and emergency response (see Table 1).

MERICS analysis: “The NPC’s focus on social issues underscores how hard China has been hit by Covid-19 beyond the human cost. While the pandemic threatens the party’s plans to celebrate its leadership with the conclusion of the socio-economic development targets next year, the CCP wants to use successful outcomes during the crisis as a showcase for its superior governance capabilities. Beijing therefore needs to deliver on social goods and development. Measures to curb social instability and kickstart the economy will therefore trump all other issues,” says MERICS analyst Nis Grünberg.

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Foreign Policy: Under-pressure Beijing presents itself as a responsible and ambitious global power

The facts: Against the background of the coronavirus pandemic and increasing tensions with the United States, China’s government used the NPC to try to present itself as a responsible power, reiterating its ambition to contribute to a “human community with a shared future” and to the “reform” of the global governance system. Statements by party and military leaders at side meetings were more aggressive, however, with open discussion about an attack on Taiwan if peaceful reunification cannot be achieved and direct criticism of alleged US attempts to “contain” China. The Chinese leadership announced that the military budget for 2020 was going to grow by 6.6 percent year on year, a slower growth rate than in previous years. Meanwhile, foreign affairs spending will drop by 11.8 percent this year.

MERICS analysis: The fact that defense spending is still growing while other government expenditures are being cut is evidence of the importance that Beijing places on the military as a vehicle for its ambitions to become a global power by 2049, as well as proof of its sense of insecurity in the current geopolitical environment. “Beijing clearly does not feel safe enough domestically or internationally to slow down its military buildup and modernization, even at a time when the economy is suffering,” says MERICS analyst Helena Legarda.

What to watch: We are likely to see China continue with more aggressive actions in the South China Sea and the area surrounding Taiwan, to demonstrate that Beijing and its ambitions have not been weakened by the pandemic or the ensuing economic slowdown. Relations with Taiwan will be particularly interesting to watch, although it seems almost certain that they will continue to deteriorate, especially given China’s recent actions on Hong Kong. Tensions with the US are bound to continue to escalate as well, as an under-pressure Beijing tries to reassert its authority, distract from domestic troubles, and stoke nationalist sentiment.

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Delegates applaud as President Xi Jinping arrives for the opening session of China's National People's Congress (NPC) at the Great Hall of the People in Beijing.

Economy: China focuses on fiscal spending to boost growth post Covid-19

The facts: The economic policies announced at this year’s National People’s Congress (NPC) focused primarily on fiscal measures. As China emerges from the Covid-19 crisis all efforts are focused on supporting the economy – in particular, employment. The fiscal deficit is planned to be 3.6 percent, up from 2.8 percent last year. At the same time corporate tax burdens will be reduced. But while the fiscal measures received most of the attention, the People’s Bank of China began injecting cash into the economy – underlining the fact that other less transparent policies will play a key role in the recovery, too.

What to watch: While the fiscal guidance was relatively clear, monetary policy was less so. Statements made at the NPC were worded in such a way as to allow the government significant leeway in dealing with the aftermath of the crisis. Premier Li Keqiang said monetary policy would be “neither too tight nor too loose”. This suggests monetary policy may well expand. 

MERICS analyst Max Kärnfelt says: “These policies will affect everyone in the economy, and every party doing business with China. The key question, given the post-Covid-19 global recession, is how hard China is prepared to hit the gas pedal in order to get a positive growth number by the end of the year.”

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VIS-À-VIS

Interview: Tom Tugendhat, Tory MP and head of the newly established China Research Group (CRG) within the British Parliament

Tom Tugendhat

A few weeks ago, at the height of the coronavirus crisis in Britain, a group of conservative MPs decided to form the China Research Group (CRG) to promote “fresh thinking” about how Britain should respond to the rise of China. The group is led by the chairman of the British parliament’s Foreign Affairs Committee, Tom Tugendhat. MERICS had the opportunity to talk to him:

Could you tell us briefly about the purpose of this new grouping, including who its members are and if it has any specific political line?

The group wants to help people understand better a very important international partner and rival, China. Policies being made by Chinese officials today are having a very important effect on the UK. The CRG was set up to help inform a debate so that people can make better decisions on the implications for our trade policy, our defense policy, economic policy based on the facts. We want to work as a sort of network and closely cooperate with other research houses. And we are actually sharing information freely with any other political party as well.

Five years ago, Britain was celebrating the so-called “Golden Era” of UK-China relations. Since then, and since the coronavirus outbreak in particular, the mood seems to have been changing. Why is this?

I think that what the coronavirus crisis has done is it has brought home very clearly the reality of importing norms that are not those that a western democratic country would be used to. The levels of state control and silencing (…) is not something that we are used to seeing in the UK. For many years that didn't really matter because we were importing low value goods from China and it didn't matter. But nowadays the dependency on China and therefore the dependency on a system that is so much more fragile than ours because of the level of deception embedded within it, means that countries like the UK and Germany and France and others are now directly influenced by value sets that are not our own. (…) That wasn't as starkly clear as it is now until the Corona virus outbreak hit us all.

You voted remain in the UK's 2016 EU referendum. Do you hope that during the upcoming Brexit negotiations Britain would do better to try and remain a part of the EU’s foreign policy and security structures? And if not, how do you think post-Brexit Britain will fit in with the EU’s and the United States’ China policies?

The reality is that the EU is a club where you are either in or out. I don't think it makes very much sense for a country like the UK to remain part of elements of it, but I think we do need to reach out very quickly to find ways in which we can work together. However, the EU's foreign policy efforts have been extremely disjointed over the last 15 - 20 years. There hasn't really been an effective EU foreign policy. (…) Finding a new way to make that work is what we should be doing. And I do think we should be looking to work with other European powers on areas that we are supportive of.

How would the US fit in to this?

The US is an essential partner to international cooperation and we are going through a very unusual time in the US at the moment. (…) But the reality still is that the United States’ leadership amongst democracies around the world has always been extremely important, and I look forward to working with the US as much again. (…) US intellectual leadership in the China debate is just as important today as it always has been.

This is an edited excerpt of an interview Tom Tugendhat gave Thomas des Garets Geddes for the MERICS podcast series.

PROFILE: Li Zhanshu

The CCP’s showcase model

All eyes were on him as Li Zhanshu (栗战书) chaired the first plenary session of this year’s National People's Congress. As a member of the Politburo Standing Committee and Chairman of the NPC Standing Committee, Li Zhanshu is the third most powerful man in the People's Republic of China. Seen by many as a leading figure on a par with Vice-President Wang Qishan, former mayor of Beijing during the 2008 Olympics and the public face of Xi Jinping’s anti-corruption campaign, Li Zhanshu is said to be a trusted political ally of Xi Jinping on various fronts. His political path might well be what the Chinese Communist Party would consider a showcase career. 

Born to a family of Chinese communist veterans from Hebei Province, Li worked his way up through party bureaucracy. Starting out as an office clerk for the Shijiazhung commercial bureau and the Shijiazhuang party committee, he spent much of his career in party leadership roles at the county and provincial levels in his home region. It was here that he first crossed paths with Xi Jinping three decades ago, when Xi was serving as deputy party secretary and then party secretary of Zhengding County in Hebei. Li Zhanshu was serving as as party secretary of the neighboring Wuji County at the time, and the two worked together during that period. 

Li Zhanshu knows and has access to the nerve center of the CCP: From 2012 to 2017, he was the Director of the General Office of the CCP Central Committee. From 2014 to 2017, he served as Director of the Office of the Central National Security Commission, headed by Xi Jinping.

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