EU-China Briefing - 1 June 2020
YOUR WEEKLY SHOT OF EU-CHINA NEWS
BY FLAVIAN BERNEAGĂ AND GRZEGORZ STEC
1. Reactions to Hong Kong National Security Law
The National People’s Congress (NPC) adopted the motion on Hong Kong’s national security law.
► The NPC’s approval equates to its authorisation for its Standing Committee to draft the law and later insert it into Hong Kong’s Basic Law by promulgation;
► The EU issued a call for Beijing to uphold its international commitments but did not name any potential punitive actions;
► Internationally, the harshest critics were the US, which lifted Hong Kong’s special status and is set to implement other measures, and the UK, which opened a path to citizenship for 3 million Hongkongers.
Rubber Stamped
On May 28, at its closing session, the National People’s Congress passed the motion for developing Hong Kong’s new national security law.
Out of 2885 delegates 2878 voted in favour of the motion, with only one vote against and six abstentions.
The legislation will now move to the Standing Committee of the NPC, which will draft its details in the upcoming weeks and decide how much autonomy Hong Kong will preserve.
Beijing gave clear indications that it plans to crack down on actions that “seriously endanger national security” and those which perpetrate “separatist, subversive, infiltrative, or destructive activities”.
Once the law is written, Hong Kong authorities will be required to implement it.
The decision has already given rise to a new wave of demonstrations against the mainland on May 28, followed by the ejection of two pro-democracy legislators from the Hong Kong parliament the next day.
European Responses
The EU has put forward a cohesive response that nonetheless does not indicate a plan to apply punitive measures on China.
EU Foreign Affairs ministers agreed on a statement that expresses “grave concern” over the situation in Hong Kong.
The statement stresses the breach of Hong Kong’s Basic Law and argues the move “calls into question China’s will to uphold its international commitments.”
It also implies that the move undermines the basis of the EU-China relationship, namely mutual respect and trust.
The statement does not indicate the EU will apply any sanctions against Beijing. In fact, Sweden was the only country in the meeting to raise the issue of potential sanctions.
High Representative Josep Borrell indicated the national security law will not affect the Comprehensive Agreement on Investment and pledged to deal with the issue by “reaching out to Beijing” and “put pressure” through dialogue.
Reinhard Bütikofer, the Chair of the European Parliament’s Delegation for Relations with the PRC, argued it has become increasingly difficult to uphold the strategic partnership and said that, if it wants to break international law, Beijing must do so at a price.
Two important European business groups have raised concerns about the national security law as well.
The EU Chamber of Commerce in China stated that the new law damages business confidence for businesses in both Hong Kong and the Mainland.
The Federation of German Industries (BDI) stated the rights conferred by the Basic Law were decisive for businesses to set up shop in Hong Kong. Their breach diminishes its attractiveness as a business location.
In exchange, Zhang Ming, the Ambassador of China’s Mission to the EU called for the EU to “respect China’s efforts to safeguard national security” and not intervene in China’s internal affairs.
International Responses
Outside of the EU, the United States and the United Kingdom took the harshest approaches in response to Hong Kong.
From the United Kingdom, Chris Patten (the last British governor of Hong Kong) encouraged the G7 to address the issue and called for the creation of a UN envoy to protect human rights in Hong Kong.
The UK also extended its visa rights to anyone who was an ordinary resident or whose parents were an ordinary resident in Hong Kong at the time of the handover, effectively covering 3 million people.
The UK, alongside the US, has also raised the issue of Hong Kong at the United Nations Security Council, where it was met with stark opposition from Chinese and Russian counterparts.
On May 28, a joint statement written by the UK, the US, Australia, and Canada called on China to honour its international obligations under the SIno-British Joint Declaration.
The joint statement was also sent to EU counterparts, who chose not to co-sign it, with HR Borrell arguing the EU already put out its own statement and does not need to join “other people’s statements”.
In the United States, Secretary of State Mike Pompeo announced on May 27 that the US considers retracting Hong Kong’s special status under US law, which was granted in 1992.
Under this status, Hong Kong has enjoyed the benefits of reciprocal visa-free travel deals, a dollar-pegged currency, one of the world’s largest stock exchanges, and business-friendly regulations and taxes. In 2018 the total trade exchange between the US and Hong Kong amounted to almost $44 billion.
It is unclear what the ultimate impact on Western businesses will be, but the effect on international banks and trading firms could effectively end Hong Kong’s status as a global financial hub.
Donald Trump’s Response
On May 29, US President Donald Trump took important decisions targeting China.
Firstly, he withdrew Hong Kong’s special status, claiming the territory is not sufficiently autonomous from the Mainland anymore.
Trump did not disclose specific plans, but he did announce the change will reverberate into “the full range of agreements, from our extradition treaty to our exports controls on dual-use technologies”.
The expectation is that he will take important steps towards decoupling from Hong Kong, in order to show China he is serious, but will not revise every US law pertaining to Hong Kong.
Secondly, Trump issued an executive order that will likely ban study visas for thousands of Chinese students believed to have links to the People’s Liberation Army (PLA).
The decision could impact up to 5000 students, including those who already reside in the US, who would be forced to leave the country.
The motive behind this act is to tackle the spying and intellectual property theft that is believed to be perpetrated by Chinese nationals in American universities.
Thirdly, Trump announced that the US will impose unspecified sanctions on “the PRC and Hong Kong officials directly and indirectly involved in eroding Hong Kong’s autonomy.”
Finally, citing China’s influence in the organisation, President Trump decided to withdraw the US’ membership in the WHO.
On May 30, this last decision prompted a joint statement by High Representative Borrell and President von der Leyen urging the American administration to reconsider departing from the WHO.
On June 1, the Chinese government responded by ordering state-run agriculture companies to halt purchases of American agricultural products (including soybeans) posing a serious question about the future of phase-one trade deal between the US and China.
TAKEAWAYS
► MULTIPLE BIRDS WITH ONE LAW
The ball is now with the Standing Committee of the NPC, but don’t expect it to back down. With its move to impose the national security law, Beijing seeks to score a number of goals at a calculated cost.
Obviously the move allows the Party-State to assert greater control over Hong Kong and to broaden the toolbox to crack down on dissent. It is something that Beijing has sought to achieve since at least 2003, but protests following the proposal of the controversial Extradition Bill that have been ongoing for over a year added to the Party’s resolve. Likely, the pandemic was seen as a factor that could potentially limit the will of the Hong Kong people to protest the law through public gatherings. But imposing the national security law also allows the Party-State to send a message of stability and strength to domestic audiences, something that Beijing needs very much in facing the economic challenges resulting from the pandemic, in particular looming unemployment.
Internationally, the move allows Beijing to stress test the global scene, particularly the position of the EU, whom Beijing sees as having to pick a side in its rivalry with the US. The fact that the negotiations on the Comprehensive Agreement on Investment are ongoing likely limited the EU’s willingness to respond to Beijing too harshly and this further indicates a rift between the US and the EU on China, which the Party-State wants to ensure. At the same time, the damage to Beijing’s image may not be treated as a major cost, as the leadership reportedly may already believe that the international impression of China is at its lowest since 1989 (as we discussed in one of the past briefings). Trump’s decision to leave the WHO is just a bonus.
The cost of Hong Kong losing its special status in the US was surely a calculated cost,, the results of which Beijing may have been trying to mitigate in advance, by developing the Greater Bay Area plan since 2015 and integrating Hong Kong’s resources into the wider ecosystem of the Pearl River Delta. Still, the global financial city status of Hong Kong may be ending soon.
► FOLDING AND NOT EVEN BLUFFING
Values and red lines get increasingly defined when they are tested. So does the dynamic of being a negotiating partner and a systemic rival at the same time. The challenge of responding to Beijing’s move to impose national security law on Hong Kong put the EU—struggling with the complexities of its relationship with China—on the spot.
While the EU voiced its concerns, not only did it refrain from naming any potential punitive actions but also the High Representative explicitly stated that there are no such measures considered “on the agenda”.
This may be a result of a pragmatic calculation that putting pressure on Beijing is not going to make it revise its policy, may actually taunt it to crack down on Hong Kong harder and at the same time undermining the progress on CAI, the most recent round of which—conveniently for Beijing—has been taking place as the events unfolded between the 25th and 29th of May.
Such a decision by the EU and its member states poses questions as to how exactly the EU see its systemic rivalry with China (as defined in the 2019 Strategic Outlook) and its commitments to upholding its values and international law. Referring to points made by Reinhard Bütikofer, as of now disregarding international law comes at no price, at least in immediate terms. Still, such experiences are likely going to accelerate the EU's revision of its policy on China in the long term as they undermine strategic trust that has long been lacking in the relationship.
► SHAKY THIRD PARTY
It is also important to note that the EU decided not to join the joint statement by the US, UK, Canada, and Australia. Likely the motivation behind this was to avoid getting its messaging hijacked by partners and to not be regarded by China as siding with the US. On top of that comes Donald Trump’s diplomacy style and tensions between the US and the EU. Unfortunately, more broadly it does not seem that the EU is clear on its iown position within the global stage of the Sino-American split, as we will discuss in the next news bite.
READ MORE
China Approves Plan to Rein In Hong Kong, Defying Worldwide Outcry - The New York Times (Keith Bradsher), May 28
Declaration of the High Representative on behalf of the European Union on Hong Kong - European Council, May 29
Borrell: China’s move in Hong Kong doesn’t endanger investment deals - Politico (Jacopo Barigazzi), May 29
China’s proposed new security law for Hong Kong: joint statement - Gov.uk, May 28
Donald Trump says US to end Hong Kong trade privileges as ‘it is no longer autonomous from China’ after new security law introduced by Beijing - South China Morning Post (Owen Churchill), May 30
2. Geopolitical Perspectives from Beijing and Brussels - Important Speeches by Top Diplomats Analysed
Recent speeches by top diplomats of the EU and China offer an insight into their perspective on the geopolitical scene and EU-China dynamics.
► Speaking during the Two Sessions, Minister of Foreign Affairs Wang Yi adhered to the diplomatic lexicon developed as part of China’s peaceful development rhetoric, which seems out of synch with the current situation;
► Addressing the Annual German Ambassadors’ Conference, High Representative Borrell spoke of the EU trying to protect its own interests and values in a leaderless world defined by a transition from an American to an Asian century;
► The acceleration of historical change brought about by COVID-19 makes it even more urgent for the EU to define more clearly its geopolitical and China strategies.
China’s Top Diplomat’s View
On the sidelines of the third session of the NPC on May 24, Chinese Minister of Foreign Affairs Wang Yi addressed some of the (pre-approved) questions from the press, offering Beijing’s official line on the geopolitical landscape:
Wang followed long-standing messaging, emphasising win-win cooperation, mutual respect, and limited confrontation; overall a benevolent message.
In regard to rivalry with the US, he said that “China has no intention to change, still less replace, the US,” but he took note of “some political forces in the US” that are supposedly taking US-China relations “hostage and pushing our two countries to the brink of a "new Cold War.”
This comes in the context of the CCP’s internal report, leaked to the international press, which states that the Party-State is now facing the harshest backlash since 1989 and is engaged in a new form of Cold War with the US. We covered this in one of our past briefings.
Commenting on the rise of “wolf-warrior diplomacy”, Wang said that ,regardless of interpretations of its rhetoric, China follows “independent foreign policy of peace,” even alluding to the fact that China’s diplomacy is “rooted in its 5,000-year civilisation” as “a nation of moderation”. But he also stated that the PRC will “push back against any deliberate insult to resolutely defend our national honor and dignity.”
The message on EU-China relations also followed a similar, long-standing narrative, as Wang lauded 45 years of “building trust through equal-footed dialogue and resolving differences through constructive communication.”
He also alluded to the conceptual shift of EU-China relations that took place in the EU by saying that “China and the EU must remain each other's comprehensive strategic partners and not become systemic rivals.”
Wang said that the focus of EU-China relationship is now completing CAI within the 2020 framework and expanding cooperation on connectivity, the environment, the digital economy, and artificial intelligence.
EU’s Top Diplomat’s View
On May 25, High Representative Borrell used his address to the Annual German Ambassadors’ Conference to provide a frank outline of the geopolitical landscape, as viewed from Brussels:
His main message: “‘This is not a moment to think or act small. But a moment for investing in an ambitious Europe.“
COVID-19 acted as a “history accelerator” speeding up the development of previously existing (rather than creating new) trends.
The global picture is that of a “leaderless world” in which “the end of an American-led system and the arrival of an Asian century” is “happening in front of our eyes.”
The huge need for multinational cooperation is not being met, in “the first major crisis in decades where the US is not leading the international response” and “US-China rivalry is also having a major, often paralysing effect on the multilateral system.”
Consequently, “our globalisation model” is being threatened as is “Democracy and respect for human rights – our political model.”
In this context, Borrell used the expression “global battle of narratives”, which he had previously used on March 24 to draw criticism of China’s so-called “mask diplomacy”. Consequently, the challenge to globalisation and the political model can be viewed through the lens of the EU’s systemic rivalry with China.
Reiterating the points from his blog post from May 15, Borrell said that the relation with China “must be based on trust, transparency and reciprocity” and as this is not always the case, there is a need for “a more robust strategy for China”, which is going to include boosting ties with Asian democracies, including India, Japan, and South Korea.
When developing this approach, the EU has to stand united and “to build a real common strategic culture.” And this should take place even when divisions are in place, as “An EU response—even if it is imperfect in the eyes of some Member States—is often better than a deafening silence.”
So in a leaderless world dominated by US-China rivalry, “The pressure to choose sides is growing. As the EU, we should follow our own interests and values and avoid being instrumentalised by one or the other.”
This seems to be the general line in the messaging of the EU actors, however, they put emphasis on different aspects of the multifaceted EU-China relations:
In a short article “EU-China relations in the time of COVID-19“ from May 22, EU Ambassador to China Nicolas Chapuis put emphasis on the need for EU-China cooperation while refraining from mentioning aspects of systemic rivalry with China.
In her speech on May 28 concerning priorities of German Presidency, which we will discuss in news bite 5, Chancellor Angela Merkel stated that in these times of US-China rivalry, EU-China relations need to be based on “open, critical dialogue.”
When addressing the press following the informal meeting of EU foreign ministers on May 29, the High Representative was less blunt, but reiterated these points, meaning that this viewpoint is shared between the member states.
But some European diplomats see the EU’s approach as “schizophrenic”, as it is unable to decide between seeing China as "a strategic partner or an aggressive rival”.
Such a viewpoint is also visible in comments by the Chairman of the European Parliament's Delegation for Relations with the PRC, Reinhard Bütikofer, who recently remarked that while the EU still wants to partner with China, “it would be folly to assume that you can be systemic rivals on Monday and then go back to partnering for the rest of the week as if you were not. Systemic rivalry implies that you can only cooperate on the basis of a firm stance that says, ‘We will not trade off the defense of our own interests and values for some short-term advantages.’”
TAKEAWAYS
► VOICE FROM THE PAST, CALLING FROM THE FUTURE
Compared to one another, the messages from the High Representative Borrell and Foreign Minister Wang seem to come from two different eras of the EU-China relations.
Wang Yi deployed language rooted in Hu Jintao’s concept of “China’s peaceful rise/development” and emphasised EU-China Comprehensive Strategic Partnership from 2003. His statement looked to the past not offering proposals on how to adjust the EU-China relations amid the changing geopolitical scene. Instead, Wang’s statement seemed to call for keeping the old status quo from before Brussels began to scrutinise its relationship with Beijing. Wang even explicitly dismissed strategic rivalry with the EU by saying “we must not [...] become systemic rivals”, as if this has not yet been the case. But the difference between Hu Jintao’s time language and Xi Jinping’s time reality is simply jarring and is unlikely to convince anyone in the EU’s capital. This is naturally not to say that Beijing is out of sync with the reality in its thinking, but rather that its strategy of trying to prolong the cooperation status quo has already outlived itself and Beijing doesn’t really present new concepts simply trying to squeeze as much of the old ones as possible.
Josep Borrell’s speech was clearly focused on the future, which remains uncertain. The shifts in the geopolitical landscape highlight how problematic is the multifaceted dynamic defined in the 2019 Strategic Outlook. Frustrated with limited reciprocity from China, the EU has been securitising its economic relations with Beijing since 2016 through a line of actions, such as development of the investment screening mechanism, 5G toolbox, and currently discussed diversification of the strategic supply chains. But the tension between systemic rivalry and other aspects of the EU-China relations has been an underlying theme of the relationship - a status quo in itself. But with both the EU's globalisation model and political model being simultaneously threatened, Europe needs to give its strategic thinking a broader picture. In the context of China, this means going beyond simply further economic securitisation of its relation with China.
To put it briefly, neither of the two status quo is sustainable and it is up to the EU to come up with a plan for redefining its relation with China and its role in the leaderless world.
► START WITH YOURSELF FIRST
The key challenge of EU-China relations is arguably not about China, but about the EU itself. The issues of asymmetrical market conditions and systemic rivalry are naturally of utmost importance, but it is the fragmentation of the EU’s decision making process and its lack of unity that limits the ability of the block to effectively deal with the changing geopolitical landscape. After all, the relations between Beijing and Brussels, are relations between a highly unitary nation (Party-)State and a fragmented block in which not all member states are willing to coordinate their agendas and actions. We have been talking about these limitations in our past briefings.
Therefore, the core of the answer to China and the geopolitical changes is the EU’s ability to come together - and this issue transcendents EU-China relations. Building “a real common strategic culture” mentioned by Borrell sounds like the place to start. And hopefully this is the direction that we will see emerging under the German presidency of the Council of the EU as well as through the new budget and the “Next Generation EU” recovery fund.
READ MORE
State Councilor and Foreign Minister Wang Yi Meets the Press - Ministry of Foreign Affairs of the People's Republic of China, May 24
Annual German Ambassadors’ Conference 2020: Opening remarks by High Representative/ Vice President Josep Borrell - European External Action Service, May 25
Europe Reaches a Tipping Point Over China’s Hong Kong Gamble - Bloomberg (Alan Crawford, Ania Nussbaum, Arne Delfs), May 29
“You Can’t Be Systemic Rivals on Monday and Then Go Back to Partnering for the Rest of the Week” - The American Interest, May 28
3. Priorities of the Upcoming German Presidency of the Council Revisited
On July 1, Germany is set to take over the presidency of the Council of the EU from Croatia.
► The Union’s biggest economy will be taking the reins of the decision-making institution of the EU at a time when economic recovery will be of utmost importance;
► Angela Merkel has already stated that relations with China will be the primary focus of the German presidency’s foreign affairs agenda.
Right Country at the Right Time?
Germany will be assuming the rotating presidency of the Council of the European Union within a month.
The core of the presidency will be guiding the economic recovery, meaning it will negotiate the final drafts of the MFF for 2021-2027, the ‘Next Generation’ recovery fund, and the final draft of the Brexit deal with the UK.
The motto of the presidency will be “Gemeinsam. Europa wieder stark machen”, which translates directly to “Together. Making Europe strong again”. Nonetheless the English version of the slogan sounds slightly less Trump-ish: “Together for Europe’s Recovery”.
Initially, the priorities of the presidency gravitated around cooperation with third countries, tackling climate change, and trade policy. The COVID-19 pandemic has altered these goals and made health a top policy objective.
A China-focused Presidency
Angela Merkel indicated that “relations with China will be a foreign policy priority of the Council Presidency.”
The German Chancellor acknowledged there are vast differences between the two sides on “rule of law, freedom, democracy and human rights” (and even mentioned Hong Kong as an example of these differences), but has called nonetheless for keeping the dialogue with Beijing open.
Merkel articulated that Europeans need to come to terms with the fact that “China will claim a leading position in the existing structures of international architecture”, which makes the strategic partnership even more important.
The same call was echoed by German Foreign Minister Heiko Maas, who argued that engaging with China, instead of imposing sanctions, is a more efficient way of dealing with Beijing.
Concretely, Germany is interested in concluding negotiations on the CAI and seeks to further engage China on commitments to curb CO2 emissions according to the thresholds of the Paris Climate Accord.
On a similar note, Merkel stressed the importance of cooperating in global health policy and in supporting a sustainable development for countries in Africa.
Domestically, Merkel’s appeals were met with opposition from the coalition partner party, SPD, and from the Greens, who plead that Germany should take a harsher stance against Chinese human rights breaches.
Closer to her home base in the CDU, Merkel met opposition from Norbert Röttgen, a candidate for CDU leadership, who affirmed that Chinese human rights breaches should not be met with European silence.
Reinhard Bütikofer, the Chair of the European Parliament’s Delegation for Relations with the PRC, told us in a podcast interview recorded late March that he is doubtful of the “substance that might be delivered at the Leipzig summit”, indicating the EU and China do not have a multitude of areas where consensus could be easily reached by the time of the summit.
TAKEAWAYS
► GERMANY - CHINESE CORE OF EUROPE
If there is one country who is interested in the EU maintaining good trade relations with China, that would be, by a far margin, Germany. The auto industry is a widely known example of this dynamic, as one quarter of the cars sold in China are made by German companies, which translates domestically to over 830,000 jobs and 2 million adjacent jobs. Merkel has taken calculated, strategic choices when dealing with China and this is likely to be a tenet of the German presidency of the Council. In Berlin, a successful presidency would likely be described as one where the Leipzig Summit happens helping the European member states to define a more coherent, joint policy on China, and where the EU manages to sign the CAI with favourable conditions.
► DEFINING TIMES
The German presidency falls at a crucial time in EU-China relations and will also cover key presidential elections within the US. Given the pace at which China-US tensions have been escalating in the last months, it is likely during this Presidency the EU will be pushed by actions of the US and China to develop its stance perhaps quicker than it has hoped.
And that makes the Leipzig Summit very important - regardless of what concrete announcements are going to come out of it - as it may set the political ground for a new dynamic in relation between member states and China and/or undermine relations with the US. In this last regard, the personal animosity between Chancellor Merkel and President Trump will surely not be helpful. This dynamic might have also played a role in Merkel’s decision to not attend in person the G7 meeting organised by Trump.
READ MORE
All eyes on Germany’s ‘crisis’ presidency, expected to lead EU recovery - Euractiv (Christina Goßner, Claire Stam, Sarah Lawton), May 28
Merkel Says EU Has ‘Strategic Interest’ in Working With China - Bloomberg (Patrick Donahue), May 27
Bundeskanzlerin Merkel im Livestream zur deutschen EU-Ratspräsidentschaft - Konrad Adenauer Stiftung, May 28
4. EU’s Recovery Plan and New Budget - Roadmap Explained
On May 27, European Commission President Ursula von der Leyen put forward a post-pandemic recovery proposal worth €1.85 trillion.
► €750 billion is made up of a recovery fund called “Next Generation”, which uses borrowed money;
► The remaining €1.1 trillion is part of the EU’s upcoming 7-year budget, called the Multiannual Financial Framework (MFF);
► The plan was received well by most member states, but some of the Frugal Four, alongside Hungary, have already disagreed with the proposal.
Berlaymont’s Ambitions
A recovery fund called ‘Next Generation’ proposes to offer €500 million in grants and €250 billion in loans.
The program is made of three pillars:
Support to member states for investment and reforms
Aiding private investment
Learning lessons from the crisis (meaning investments in prevention, crisis preparedness, and procurement of vital medicine and equipments)
The EU would issue bonds backed by national commitments to the EU budget. The debt would be repaid jointly, although von der Leyen has insisted on not calling this “debt mutualisation”.
The hardest hit regions would receive the most money. The top three receiving countries would be: Italy, with €81.8 billion in grants and €90.9 billion in loans; Spain, with €77.3 billion in grants and €63.1 billion in loans; and Poland, with €37.7 billion in grants and €26.1 billion in loans.
Repayment of the debt would be through EU budgets from 2028 to 2058.
The grants portion rests on the €500 billion proposed by Germany and France last week, while the other €250 billion represent the Commission meeting the Frugal Four halfway in their requests for loans.
This also plays into the Commission's advantage, since the overall sum would be increased.
The MFF Explained
Another €1.1 trillion is dedicated to the EU’s next multiannual financial framework (2021-2027)
The MFF is the EU’s long-term budget, which is set for a period of 7 years, with the current period finishing at the end of 2020.
The MFF implies a great deal of negotiation between member states to decide how much money is allocated, which sectors receive bigger sums, and how budgetary discipline is enforced.
Under the Commission’s current proposal, the EU budget will prioritize the EU’s Green Deal and the digital transformation.
Consequently, the new budget would raise new taxes, the most important being:
Extending taxes of the Emissions Trading System to cover the maritime and aviation sectors
A tax on the carbon content of imports
A tax on multinationals with over €750 million in annual revenues
A tax on digital businesses with over €750 million in annual revenues
The policy areas that would suffer cuts as a result of the proposed changes are cohesion, defense, research, and administration.
The Commission is aware that negotiations on the proposal will not be finished in time for the next European Council (June 19th), and is hoping to have agreement and ratification by December 2020, in time for the start of the new MFF.
Varied Reactions
The plan was welcomed by the majority of member states, but some countries have already announced they will seek to alter the final sums.
The recovery fund proposal and the new budget found allies in France, Germany, the Balkans, and Southern Europe, and was received well in Poland, Slovakia, and the Czech Republic.
Denmark, Finland, Austria, and the Netherlands, which had previously been adamant in their rejection of grants, have now given signs they are willing to negotiate a plan starting from the Commission’s proposals.
In Austria, Chancellor Sebastian Kurz did not outright accept the grants, but said the plan is a “starting point for negotiations”.
In the Netherlands, a Dutch diplomat said he doesn’t believe the current plan will be the “end state of those negotiations”. However, Prime Minister Mark Rutte complimented Italy on Twitter for its reconstruction plan (based on money from the EU).
On the other hand, the plan was not well-received in Sweden and in Hungary.
In Sweden, Prime Minister Stefan Lövfen said the €500 billion in grants will lead to the “wrong incentives, and an inefficient allocation of resources”.
In Hungary, Prime Minister Viktor Orbán called the plan “absurd and perverse” and described it as a “Soros plan” for “debt slavery”. In turn, he announced a “national consultation”, referring to questions to be sent by post to Hungarians on their feelings towards the recovery fund.
TAKEAWAYS
► CONVINCING THE OPPOSERS
Judging from the reactions of leaders, it appears that Austria and the Netherlands are starting to agree with the Commission’s plans, leaving Sweden and Hungary as the only big member states vocally opposed to the fund. Sweden will most likely budge, since it will probably not find enough support for its calls from other member states. Hungary, on the other hand, is once more at odds with policies coming from Brussels. Nonetheless, Berlin has some very strong cards it could play, most importantly the fact that German companies account for over 300,000 jobs in Hungary. This gives Germany some leverage at the upcoming European Council on June 19th. It is expected that Angela Merkel will use her best persuasion skills with the last opposers, since the recovery fund, alongside the Leipzig Summit with China, are her attempts to finalise her chancellorship with a lasting legacy.
READ MORE
EU long-term budget 2021-2027: Commission Proposal May 2020 - European Commission, May 2020
Europe's moment: Repair and prepare for the next generation - European Commission, May 27
Ursula von der Leyen’s big gamble with borrowed money - Politico (David M. Herszenhorn, Lili Bayer), May 27
5. Pressure Mounts on Huawei Globally - Survival is the Key Word
Recent weeks have seen Huawei receive multiple instances of bad news, which raises the stakes in ensuring its participation in Europe’s 5G market.
► The British Columbia Supreme Court ruled that Meng Wanzhou’s extradition case can continue;
► The Trump administration announced restrictions on Huawei’s access to semiconductors using American technology, which are vital for the Chinese company;
► This has wider implications for Huawei’s status in Europe, which seems to diverge for a multitude of reasons.
Meng’s Extradition Process Continues
On May 27, a justice at the British Columbia Supreme Court ruled that the principle of “double criminality” applies in Meng Wanzhou’s case, thus allowing the extradition processes to continue.
Meng Wanzhou was arrested in Vancouver at the request of US officials who accused her of fraud charges.
The US claims Meng lied to a bank about Huawei’s dealings in Iran, which contravened the current US sanctions.
The court in Vancouver did not rule over the final extradition decision, it simply agreed that the crime of fraud happened, which exists in both Canada and the US, thus fulfilling the threshold of double criminality.
Proceedings are far from being over. In the next phase, Meng will appeal an abuse of process, claiming her rights were violated when she was arrested, while a further phase will determine if there is enough evidence to sent her to trial.
The Chinese embassy in Ottawa took an aggressive stance, calling Canada an accomplice of the US in its quest to “bring down Huawei.”
Cutting the Supply
On May 19, the US Commerce Department instituted new export rules on semiconductor chips used by Huawei in its phones and 5G infrastructure.
Concretely, chipmakers in South Korea and Taiwan are barred from using US machinery and software to manufacture semiconductors that were usually sold to Huawei.
These semiconductors are vital for Huawei phones and 5G technology, which, in turn, increases prices for any country relying on Huawei to build up its 5G infrastructure.
The ban ignites a new phase of the Sino-American competition for tech dominance, which is increasingly described as “techno-nationalism”.
While Huawei had been stockpiling up to two years’ worth of semiconductors, the ban gives it no long-term solutions to prevent a shortage and cuts access to the next generation of semiconductors, which are already under development.
The situation is serious. In the words of Huawei's rotating chairman, Guo Ping, speaking at the company's annual analyst conference, "Survival is the keyword for us now."
Divergence in Europe
Despite the Commission’s call to establish a single policy framework and releasing a EU 5G toolbox, the landscape for Huawei in Europe is still dispersed.
In Central and Eastern Europe, where many countries depend on the US for security assurance, Washington has managed to sign memorandums on employing only reliable providers of 5G technologies. We talked about this in our briefing on May 18.
In Germany, Angela Merkel has been sceptical of Washington’s moves against Huawei. Furthermore, Germany’s leading operators, Deutsche Telekom and Vodafone, already use Huawei technology for their 4G networks.
Deutsche Telekom announced they won’t place any new orders, but paradoxically, expanded their last order from December 2019 by €60 million. This move shows the uncertainty surrounding the future of Huawei in providing 5G infrastructure.
In France, any supplier must obtain authorisation from the Prime Minister for the deployment of base stations, thus implying heavy state control.
Huawei attempted to ease these rules by investing in a manufacturing base, but relations chilled after the Chinese Ambassador in Paris was summoned after false remarks about elder care homes in France were posted on the Embassy’s website.
In the UK, Boris Johnson has given indications he wants to fully decouple Huawei from the UK’s telecommunication infrastructure by 2023.
Furthermore, London has pushed for the creation of a club of democracies, made of the G7 + Australia, South Korea, and India, that would create alternatives for the supply of 5G technologies.
TAKEAWAYS
► STAKES GOING HIGHER
With all the pressure that has been put on Huawei, it would be a huge blow for the company to lose the European markets. Consequently, we can expect increased PR efforts—likely including a mixture of positive and negative messaging—from the company and the Chinese government. Importantly, in 2019 activity on the European market summed up to 24% of the company’s revenues and roughly half of Huawei’s 5G contracts were signed with European entities. We wrote about the standing of the company by the end of 2019 in one of our past briefings.
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The Latest U.S. Blow To China's Huawei Could Knock Out Its Global 5G Plans - NPR (Emily Feng), May 28
Trump and friends: Where European countries come down on Huawei - Politico (Laurens Cerulus), May 31
UK seeks alliance to avoid reliance on Chinese tech: The Times - Reuters (Sabahatjahan), May 28