EU-China News Brief - 13 January 2020
In todays news we cover:
France, Germany and China get on a phone over Iran crisis
EU’s reaction to Taiwanese elections
New Data on Chinese FDI to Europe
China takes first spot on Commissions’ list of IP troublemakers
Huawei or the highway - Europe is setting up framework for its 5G
President Xi will host the next 17+1 Summit
Chinese academia gains its first foothold in Central and Eastern Europe
German carmakers go big in China
France, Germany and China get on a phone over Iran crisis
Following the US airstrike, which killed Iranian general Qasem Soleimani on the 3rd of January, the foreign ministers of France Jean-Yves Le Drian, Germany Haiko Maas and China’s Wang Yi exchanged an important phone call on January 4th. As reported by Reuters, Le Drian announced that the three parties: “agreed on the importance of preserving the sovereignty and stability of Iraq, and the importance of ensuring that Iran does not violate the Vienna Agreement”. Moreover, France and China agreed to work to prevent further escalation in the region.
Of course the situation has progressed since then with the unintentional shooting down of a Ukrainian aircraft by Teheran and the following protest in Iran. But it is still important to take note of the ministers’ call and how fast it was organised, which shows a real political will for cooperation between the three partners, who have all been firm supporters of the so-called “Iran nuclear deal” from 2015, which US has withdrawn from in May 2018.
EU’s reaction to Taiwanese elections
Taiwan presidential elections, which took place on the 11th of January, resulted in re-election of the incumbent president Mrs. Tsai Ing-Wen. Her Democratic Progressive Party is associated with pro-independence stance. Tsai secured over 57% of the votes having a big majority over 38.6% of Mr. Han Kuo-yu of the Kuomintang party, which would like to seek closer economic ties with the Mainland. A key topic in the pre-election discussions were the protests in Hong Kong, which left many Taiwanese more suspicious towards the Mainland.
Following the announcement of the results, the European External Action Service released the following statement:
“We congratulate the people of Taiwan for the high turnout on their elections. Our respective systems of governance are founded on a shared commitment to democracy, the rule of law and human rights.
The European Union closely follows cross-Strait developments, and has consistently encouraged dialogue and constructive engagement.”
Let’s see how this dialogue and engagement will develop, as some experts assess that Tsai’s re-election is going to harden Beijing’s stance towards the island. Already on Sunday, January 12th Chinese Foreign Ministry Spokesman Geng Shuang stated that "China expresses its strong dissatisfaction and firm opposition to [the congratulatory messages] and has made solemn representations to the countries concerned.”
New Data on Chinese FDI to Europe
According to data published by Baker McKenzie and Rhodium Group, Chinese Foreign Direct Investment to Europe fell by 40% in 2019 reaching the lowest level since 2013. This translates to a mere 20% of value of investments in the record year of 2017.
Still, in 2019 the value of Chinese FDI to Europe amounted to more than twice of that made to the US. 13.4 billion USD to Europe vs. 5.5. billion USD to the United States.
The biggest volumes of Chinese FDI poured into Finland (5.3 billion USD), the United Kingdom (3.8 billion USD) and Sweden (1.3 billion USD).
It's important to note a high result of the UK despite Brexit. McKenzie actually predicts that the UK will launch a charm offensive towards China the following year.
More broadly, the law firm also expects to see a recovery of Chinese FDI in Europe in 2020 given the easing trade tensions, steps to liberalize inbound FDI policy in China and more liquidity in the Chinese economy.
A small disclaimer from my side, it is always hard to measure the exact value of Chinese FDI, because some companies are controlled through complicated ownership structures with their ties to China not being evident. There are also low-key and low-value investments that can more easily go “under the radar”. But that’s of course a general problem - I highly recommend checking out the results for 2019. Link to the data is available in this episode’s transcript on the website.
China takes first spot on Commision’s list of IP troublemakers
On the 9th of January 2020, the European Commission published a report on protection and enforcement of Intellectual Property rights in third countries. As highlighted by Commissioner for Trade Phil Hogan: “As much as 82% of all EU exports is generated by sectors which depend on intellectual property. Infringements of intellectual property, including forced technology transfer, intellectual property theft, counterfeiting and piracy threaten hundreds of thousands of jobs in the EU every year.”
And, well, China was assigned a level-1 priority and it tops the list of countries giving the EU an intellectual property headache.
The report found that “more than 80% of counterfeit and pirated goods seized by EU customs authorities come from China and Hong Kong”. But the Commission is also concerned about the protection of IP rights of the European companies in China. These concerns include protection of designs, trademarks, trade secrets and forced technology transfer; all paired with an unequal IP regulations enforcement between various provinces and cities.
While clearly critical towards China’s record on IP protection, the report also highlights the PRC’s recent moves to address the issue. These included a fundamental restructuring of the institutional framework for IP protection, establishment of three specialised IP Courts in Beijing, Shanghai and Guangzhou and creation - in early 2019 - of a specialised IP court responsible for patent cases as part of the Supreme People’s Court (SPC). Moreover, the report acknowledged China’s efforts to review and update its IP laws - such as patent law, copyright law and trademark law.
But the assessment of implementation and actual impact of these actions will only be possible in the future.
You can find a link to the full report in the transcript of the episode. Also, I promise that we will explore the topic of EU-China IP debate more in-depth in one of the future episodes. If you are interested in practical, business materials on IP in China, check out the website of IPR SME Helpdesk, which provides a lot of great, free resources on the issue. Link in the transcript.
Huawei or the highway - Europe is setting up framework for its 5G
We’re turning to Huawei, the world’s second largest smartphone manufacturer by volume and world’s leading supplier of 5G equipment.
By the end of last year the company’s rotating Chairman Eric Xu issued a statement reflecting on company’s performance in 2019 and his predictions for 2020. In it Xu said that the impact of getting blacklisted in the US on Huawei’s performance in 2019 was lower than expected and that the company is “standing strong in the face of adversity”. However, the Chairman also said that 2020 “is going to be a difficult year” as the impact of US’ efforts to contain Huawei’s activity is going to kick in.
And at the same time, 2020 is going to be a deciding year for Huawei in European 5G.
The whole discussion about this topic in 2019 has been a fascinating and complex saga. Of course, the decision on whether or not to allow Huawei to participate in building up 5G infrastructure will be made by every member state individually. But we have also seen very important developments on the EU-level that can tell us a bit about where we stand at the beginning of 2020.
Following the recommendations from the EU Commission from March 2019, experts from member states and the European Union Agency for Cybersecurity (ENISA) completed a risk assessment of 5G networks, which got published last October. The report pointed at a risk coming from “non-EU states” and “state-backed actors” that may be involved in creation of 5G networks in Europe.
Obviously, this has been interpreted as indirectly meaning Huawei. On the basis of this report, the member states, ENISA and the Commission worked to develop a toolbox of best practices and standards that are aimed at mitigating the cybersecurity risks associated with rollout of 5G.
The preparation of the toolbox was completed by December 31st and according to people in the know, it will be published by the end of this month.
How bold is the toolbox going to be, will be an important message beyond just the 5G discussion. By that I mean that it may give us a hint of how bold is the the EU cybersecurity certification framework going to be.
If you haven’t heard about it, this framework will establish an EU-level certification system for ICT digital products, services and processes and will enable creation of risk-based EU certification schemes. So to put simply, you will be able to easily check whether a specific ICT product or service - your laptop, an app on your phone or your self-driving car - meets the EU cybersecurity standards. The development of this framework was ordered in the EU Cybersecurity Act from July 2019 and is led by the same ENISA, which is one of the key players in discussions on Huawei.
To wrap up this news bite, we’re still ahead of the publication of the 5G toolbox of course and we’re seeing a lot of heated debates about Huawei (for example in Germany), but my bet is that the EU and - importantly - most of the member states are going to explore a middle-ground solution. By that I mean minimizing the security risks and putting in place mechanisms to intervene in case Huawei is proven untrustworthy beyond doubt, while not fully excluding the company from construction of domestic 5G networks.
For those interested in learning more about the European response to Huawei 5G’s, I invite you to check out the links included to the transcript episode. I also included there my piece on this very topic from last October.
President Xi will host the next 17+1 Summit
Moving on to the 17+1 China-Central and Eastern Europe or 17+1 China-CEE framework.
First a bit of context for those of our listeners, who are not quite familiar with this framework. It was created out of Chinese initiative in 2012 as then 16+1 China-CEE initiative and - who could have guessed - it brought together China and 16 CEE countries. Among them 11 are members of the European Union and 5 are non-EU members. The 11 are: Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria Slovenia, and Croatia (which joined EU in 2013). The five are: Serbia, Bosnia and Herzegovina, Montenegro, Albania and North Macedonia. The highlight of the framework are annual summits during which CEE prime ministers meet with Chinese premier, but the framework also features ministerial-level meetings, academic cooperation projects, as well as institutions focusing on sectoral cooperation (like trade, tourism or agriculture),
The 16+1 has been… controversial. In Western Europe it has been treated as a key example of China’s attempts to divide the EU. It is so despite the fact that the EU representatives are involved in the summits and that China’s economic leverage in CEE remains very limited - to give you an example in Poland, by far the largest economy of the region, the Chinese FDI are less than 1 percent.
In CEE, the 16+1 has faced criticism over its unclear objective and limited economic achievements among the EU members of the platform (as the situation has been quite different in the Balkans). The flagship project of the framework - Belgrade-Budapest high-speed railway connection - was announced in 2013, but things didn’t go smoothly, as it was stalled on the Hungarian side until 2019 due to EU tender regulations. So in 2018 voices were even raised whether the 16+1 format is not redundant or whether it should be downscaled from annual to biannual format. Instead, in 2019 Greece joined the format making it 17+1 and giving the initiative new energy.
So let’s get back to the actual news. Information emerged that the next 17+1 summit, which is set to take place in Beijing in April will be presided not by Premier Li Keqiang, but by Secretary General of CCP and the President of the People’s Republic of China, Xi Jinping himself. Consequently, the CEE states will be represented by their heads of state rather than prime ministers increasing the profile of the event.
This naturally sparked a flurry of interpretations by observers.
Some would interpret it as Beijing’s move to boost the importance of the 17+1 and increase its engagement with the CEE. Others have regarded it as China’s attempt to give the 17+1 summit greater status than that of EU-China Summit set to take place at the end of March in Beijing and will feature a meeting between Premier Li Keqiang and the new EU Commission leadership. Some see this move as an attempt to make 17+1 more comparable in rank to the upcoming so-called 27+1 summit that will take place in the second half of 2020 in Leipzig, Germany. This summit is going to be the event of EU-China relations of 2020, as it will be the first time for a Chinese President to meet with all the heads of EU states and EU institutions at once.
But there is also a less dramatic interpretation of reasons behind Xi’s decision - diplomatic protocol and China’s diplomatic practice in managing its South-South cooperation diplomacy platforms - which is how Beijing views the 17+1. As pointed out by Martin Šebeňa from CHOICE (China Observers in Central and Eastern Europe), “Forum on China–Africa Cooperation (FOCAC) is hosted by the Chinese president when the summit takes place in Beijing, otherwise China is mostly represented by its prime minister. Since this is the first time 17+1 summit moves to Beijing, Xi Jinping naturally becomes the host. Chances are that prime minister Li Keqiang will be back at the steering wheel for the next round.”
Regardless of reasons behind Beijing’s decision, the move might be poorly received in Brussels, which is highly suspicious of the 17+1.
Personally, I wouldn’t read into this announcement too much and put my money on the diplomatic protocol interpretation. But, I invite you to check out the links in the transcript to get a feel of the discussion on this topic.
Chinese academia gains its first foothold in Central and Eastern Europe
We stay in the Central and Eastern Europe. Fudan University from Shanghai, one of China’s top universities, is set to open its campus in Budapest. The declared objective is to boost scientific cooperation between Hungary and China.
While other countries in the region also pursue science and innovation cooperation with Chinese universities, this announcement makes Hungary the first CEE country to host a Chinese campus. A memorandum of understanding on this matter was signed by Hungarian innovation minister László Palkovics and Fudan’s president Xu Ningsheng.
Hungary is also working with China on a setting up a joint technology transfer centre in Chongqing. The center is to focus on renewable energy, smart cities and wastewater management.
If you are interested in scientific cooperation between China and the region, keep an eye on the fifth “China-CEE Conference on Innovation Cooperation”, which will take place in Slovakia this year.
German carmakers go big in China - again!
Still in business - a major JV of a European company is coming up. On January 8th Mercedes-Benz and its Chinese partner Zhejiang Geely Holding received a regulatory approval for a China-based joint venture that will construct electric vehicles under the brand of Smart. The two companies will each invest over 380 million USD in a 50:50 venture, in which Mercedes will design the new generation of electric cars, which Geely will develop.
This will further increase the importance of China for German carmakers, which already is significant.
In November last year BMW partnered with Great Wall Motor forming a JV called Spotlight Automotive. The JV is to build electric Minis in an attempt to take a share in the biggest market for electric vehicles - China. The 716 million USD factory is to be completed by 2022 and be located in Zhangjiagang city in Jiangsu province.
It is important to remember that such business victories also create leverage and “German automotive” button was indeed recently pressed by Chinese Ambassador to Germany in relation to Huawei debate.
In December at an event organized by Handelsblatt Ambassador Wu Ken stated that “If Germany were to take a decision that leads to Huawei’s exclusion from the German market, there will be consequences” before alluding to the position of German car industry in China. Ambassador said “Could we say one day that German cars are no longer safe because we’re in a position to manufacture our own cars? No. That is pure protectionism.”
The move was widely interpreted as a threat to German decision-makers debating whether or not to allow Huawei to participate in German 5G. But regardless of whether Ambassador Wu did or did not mean it that way, the fact that one fourth of 28 million cars solid in China in 2018 came from German manufacturers. And that is a button that China can push.