EU-China Briefing - 8 June 2020
YOUR WEEKLY SHOT OF EU-CHINA NEWS
BY FLAVIAN BERNEAGĂ AND GRZEGORZ STEC
1. Leipzig Postponed - What Does This Mean?
The Leipzig Summit, which had been set for September 2020 and was expected to bring together Xi Jinping with the 27 EU leaders, has been postponed by Germany, which will take up Presidency of the Council of the European Union in July.
► The motive given was the ongoing coronavirus crisis, but the wider state of EU-China relations appears to have also played a big role;
► Angela Merkel had hoped to use the summit to streamline the EU’s relations with China and finalise the EU-China Comprehensive Agreement on Investment (CAI), but negotiating a meaningful deal with only 3 months left seems out of reach.
“Pause” Button Pressed
On June 4, an EU-China summit set of September was postponed until a date yet to be determined. This would have been the first encounter of this type bringing together a PRC’s President/CCP’s General Secretary and the leaders of the EU 27.
The summit was expected to play a significant role in adjusting EU-China relations and to help homogenise the EU’s policy on China.
The epitome of the summit was intended to be the signing of the CAI, which has been in negotiations since 2014. This objective now seems out of reach, with questions remaining as to the date by which negotiations can be concluded.
Three days before the postponement, German Foreign Minister Heiko Maas tweeted: “we continue to work towards the EU-China Summit during our EU Council Presidency”, which indicates the decision might have been relatively sudden.
Angela Merkel’s spokesperson indicated the summit “should be rescheduled” and that “details should be agreed upon soon.”
Relationship Status: It’s Complicated
The official reason offered for the postponement was COVID-19, but with infections dropping and economies reopening, it seems larger elements are at play here.
Doubts were also cast over progress on China’s climate pledges and the CAI. Some feared that, by September, only incomplete political promises without much substance could have been made.
By the end of May, China’s ambassador to the EU, Zhang Ming, encouraged the EU to keep negotiations going for the CAI. He said officials on both sides made “great progress: during the 29th round of negotiations”—the EU acknowledged “progress being made” as well—but said he was “not sure” if a final deal could be finalised at Leipzig.
It also comes in the context of Europeans reassessing the “cooperation partner/systemic rival” dichotomy and possibly wanting to wait for the November US presidential election result before tightening relations with China.
Perhaps not coincidentally, the announcement comes one week after the National People’s Congress adopted a national security law that sidelined Hong Kong’s autonomy.
For example, Norbert Röttgen, one of Merkel’s potential successors, stated the delay had more to do with China’s lack of transparency with COVID-19 and its repression in Hong Kong.
Merkel’s Legacy
Angela Merkel, the summit’s main engine in Europe, had seen Leipzig as a way to consolidate her contribution to Europe’s multilateral standing in the world.
The summit would have happened in Germany during the German Presidency of the Council, thus bestowing Berlin with a significant amount of leverage.
Merkel had long claimed that Europeans must recognise “China’s determination to claim a leading role,” which she paired with distancing herself from the Trump administration, supporting a soft approach to restrictions on Huawei’s 5G buildup in Germany, and preferring a behind-closed-doors diplomatic approach on human rights issues (including Hong Kong).
This is part business (the Germany-China bilateral trade volume was €206 billion in 2019), part pragmatism (as Merkel understands that isolating China will neither solve human rights issues nor advance efficient global governance).
According to a Xinhua readout, in her phone call with Xi on delaying the summit, Merkel reiterated she wants to “maintain the dialogue with China” and “push the relationship between Germany, China, and Europe to a higher level.”
TAKEAWAYS
► LET’S NOT WASTE LEIPZIG SPIRIT
Even with the Leipzig Summit with China postponed, the German presidency would be wise not to abandon the goal of unifying the European position on China (particularly as postponement might be actually connected to revising that position). This generally should be a part of wider strategic thinking on the EU's position amid the Sino-American rivalry. Returning to the words of the High Representative Josep Borrell at the Annual German Ambassadors’ Conference in May, “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.” Developing “a real common strategic culture” within the EU towards China (and the US) is a feat even greater than bringing Xi and 27 EU leaders together.
► THE POTENTIAL GAME CHANGER
Remember that a key piece of the EU-US-China puzzle is the confrontational, unilateral approach of President Donald Trump, who also targets the EU in his economic policies. His controversial remarks amid the nation-wide pro-equality protests following the murder of George Floyd have further complicated the EU’s possible convergence with the US.
The person of Donald Trump also plays a factor in the foreign policy of Merkel’s Germany, as reportedly one of the key reasons for the Chancellor to cancel her attendance at the (now postponed) G7 summit in June was her unwillingness to support President Trump in convincing Americans that the pandemic is well under control. Declining the G7 invitation Merkel quoted coronavirus concerns, which also may shed light at the fact that this is a convenient excuse for the Chancellor to cover other reasons - as might have been the case also with Leipzig. Now, given the crucial role of the polarising American president, the elections in the US in November can very well reshuffle the geopolitical cards once again, before the postponed Leipzig Summit can take place.
READ MORE
Merkel and the EU Trapped between China and the U.S.- Spiegel International (Christiane Hoffmann, Peter Müller, Christoph Schult, Gerald Traufetter), Jun 4
EU-China summit: What really happened? - DW (Richard Walker), Jun 4
2. The EU Moves to Further Scrutinise State-aided Takeovers
On June 2, reports emerged that the European Commission is currently drafting a White Paper tightening regulation on takeovers of European companies and strengthening protection against distortions of the single European market by non-EU state-aided actors.
► The paper would be universally applicable, but the main target here is clearly Chinese takeovers;
► It is a logical outcome, after we have seen multiple member state leaders and Commissioners supporting tightening protection against strategic takeovers by non-EU (especially Chinese) entities in recent months;
► This would add to the EU’s existing framework on screening foreign direct investment, which will enter info force this October.
The Commission’s White Paper
Financial Times reported on June 2 that it had seen plans by the European Commission to increase scrutiny of foreign takeovers, due for publication by June 17.
The main scrutiny will be directed towards state-owned and supported enterprises that are already active in or seek to enter the EU’s common market.
The plan would follow a two-track procedure. The first would look at general distortions to the single market, while the latter would specifically tackle takeovers of EU companies, which will be monitored through a notification system.
The main arbiter would be the Commission itself, which would monitor FDI, give companies a chance to balance the distortive effects, or—in exceptional cases—prohibit a takeover.
Not Out of the Blue
Calls to shield European industry and enterprises from Chinese takeovers are not exactly new. They have specifically made headlines during the corona crisis, as we have reported here and here.
The debate was ignited in mid-April, when Europe’s dependence on medicine produced abroad raised broader questions on FDI.
The idea found important supporters among European commissioners, namely Margrethe Vestager (Competition), Phil Hogan (Trade), Thierry Breton (Internal Market), Stella Kyriakides (Health), and Věra Jourová (VP; Values and Transparency).
Manfred Weber, EPP chairman in the European Parliament, echoed those calls. In a letter to Vestager, he argued Europe has “no choice but to counter forcefully unfair competition” from China that seeks to “take control of key technologies, infrastructure, and expertise.”
The Existing Legal Framework
In April 2019, the European Commission adopted a new regulation on FDI screening, scheduled to enter force on October 11, 2020.
Its focus lies with critical infrastructure - energy, health, media, telecom, transport, but also with critical tech- and data-driven business, robotics, and AI.
The screening and decision-making on FDI rests with member states, but additional criteria was put in place for member states to consider. The only area where the Commission has powers of decision is with merger controls, where it already has this competency.
This regulation did not create a supranational FDI screening body. Instead, it crafted a channel of somewhat more harmonised communication, where the Commission expressed concerns over investments, and member states did or did not take into account Brussels’ advice.
China perceived the framework as isolationist-induced “political pressure” against its transactions. Roughly 85% of Chinese companies think that the screening procedure will treat Chinese investors unfairly.
TAKEAWAYS
► SECURE FIRST, COOPERATE LATER
The leaked white paper by the Commission is set to be the newest of the EU measures to try to securitise its economic relationship with China. The FDI screening mechanism and the EU 5G toolbox are the most visible examples of Brussels acting on an assessment that achieving market access reciprocity and a level playing field with China is currently highly unlikely. While this has been the general trajectory of the EU’s economic policy towards China since 2016, the new white paper has the potential to cast a large shadow over the upcoming virtual EU-China Summit and the CAI negotiations that are intended to be completed until the end of 2020. We are eager to analyse the details of the paper once it is released.
READ MORE
EU-CHINA, TOWARDS A CHINESE WIN - Institut Montaigne, Jun 2020
New EU Investment Screening Rules: 10 Key Things Dealmakers Need to Know - Morrison Foerster (Felix Helmstädter, Theresa Oehm), May 13
3. The Inter-Parliamentary Alliance on China (IPAC) Gets Launched
On June 5, lawmakers from a variety of countries jointly launched “The Inter-Parliamentary Alliance on China”, which is meant to address China’s growing geopolitical power.
► The consensus among Alliance members is that China deciding not to liberalise threatens the rules-based, human rights system. The Alliance plans to tackle this challenge;
► The goal is to establish a cross-border, common stance on China that would oblige dovish democratic governments to adopt stronger stances against Chinese breaches of international law.
What Is It?
The IPAC is a team of 24 important policy-makers from 12 countries who seek to promote a tougher response to controversies related to China’s rise.
Among the members, we find Marco Rubio (Republican US Senator), Reinhard Bütikofer (Chair of the European Parliament delegation for relations with the PRC), Iain Duncan Smith (former leader of the Conservative Party in the UK), and Gen Natakani (former Japanese Minister of Defence).
Also the advisory board - at current 12 experts strong - features prominent names.
Their main goal is to develop a “coherent response” to China’s rise, which they identify as “a defining challenge for the world’s democratic states”.
It will not be publishing reports or organising campaigns, but will function as a network in which its members will focus on whichever policy areas they may find most salient (human rights, economic decoupling, climate change).
IPAC’s work will be supported by an adjacent network of experts on Chinese law, politics, human rights, foreign policy, and economics.
Its Objectives
IPAC members defined five areas of policy they would like to tackle:
Holding China accountable relative to international law
Upholding human rights in engagement with China
Promoting trade fairness
Strengthening security
Fending off emerging economies from Chinese investments that compromises the recipient countries’ sovereignty
The broader understanding is that tackling China’s rise requires a response that transcends countries, parties, and democratic ideologies.
The group will seek to apply pressure to their home governments to take a tougher stance on Chinese human rights breaches (including the oppression of Uyghurs and moves to limit Hong Kong’s autonomy) and, in general, to China’s activities that challenge the democratic international order.
TAKEAWAYS
► AVENGERS, ASSEMBLE
While not yet overly strong in numbers (albeit uniting influential figures), the IPAC initiative is surely worth observing. Such a cross-political and cross-national network of lawmakers with a highly assertive China agenda can exercise more effective, coordinated pressure on governments that oftentimes avoid stepping on China’s toes. Whether the initiative will grow and lead to a constructive and coherent vision of how to address China’s growing position or will simply become a vehicle for discussion of China containment remains to be seen. It will also be very interesting to observe whether the initiative, which states as one of its key goals fending off excessive Chinese influence in emerging markets, will have among its ranks lawmakers other than from developed countries.
READ MORE
18 Western lawmakers form group to take ‘tougher stance’ on China - South China Morning Post (Stuart Lau), Jun 5
4. The UK’s Plans on Hong Kong and Post-Brexit Global Britain
As we reported last week, Boris Johnson has pledged to offer a way for BN(O) holders in Hong Kong to acquire British citizenship, as a response to the NPC’s decision on the national security law.
► This seems like a break from anti-immigration stances taken in the Brexit campaign and is also poised to undermine London-Beijing relations;
► On the other hand, it fits neatly into Johnson’s vision of a post-Brexit Global Britain that acts as an upholder of the Western-values based international system;
► In this context, Brexit negotiations seem increasingly deprioritised, posing wider questions whether London is willing to negotiate much before its transition period in the EU expires at the end of 2020.
What’s the Deal with the BN(O)’s?
The BN(O), a.k.a. British National (Overseas), is a document granted to Hongkongers by the UK in 1987. During British rule, it allowed them to live in Hong Kong, but not in another British territory. Following the transition to China, the BN(O) allowed the holders to visit the UK without a visa for 6 months.
Almost 350,000 Hongkongers have BN(O) and 2.5 million others are eligible to apply for it.
Until recently, the significance of BN(O) status was limited, but interest in it increased drastically after Hong Kong protests started and again last week, when Boris Johnson promised a path to British citizenship to all BN(O) holders.
Concretely, Britain suggests BN(O) holders could stay in the UK for twelve months (instead of six, as it is now), and could be given the right to work, thus facilitating a path to British citizenship.
Even so, what Johsnon is offering is still lacking essential details. Important questions hover over how long Hongkongers will need to stay before becoming citizens, whether they will be able to get jobs, whether they will be subject to financial thresholds, and what the “burden sharing” scheme will look like.
The prospect of massive brain-drain has angered officials in Beijing, whose foreign ministry accused the UK of “gross interference” and warned “there will be consequences” if Johnson’s proposal materialises.
Sweet Dreams of a Global Britain?
British involvement in Hong Kong corresponds to a newly rehashed vision in the Prime Minister’s Office that Britain should be the lighthouse of democracy and free trade in the post-Brexit era. This stance is likely to bring it on a collision course with China.
The term ‘Global Britain’, coined by the Henry Jackson Society and endorsed by Johnson last year, means Britain would uphold free trade through its navy and would support the spread of liberal values in stark opposition to those who opt for autocracy or mercantilism.
As such, a ‘Global Britain’ would make use of its extensive alliances and trade partnerships to foster good relations with other powerful democracies, ranging from the US and Canada, to India, Chile, and Japan.
In a similar vein, the UK worked to boost its relations with ASEAN, as exemplified by its application to become a ‘dialogue partner’ for ASEAN on June 6.
What is more, the UK moved to host the Global Vaccine Summit 2020 boosting the country’s global status (more in news bite 5).
‘Global Britain’ is not likely to get applause in Beijing. Aside from London’s stance on Hong Kong, the UK has also indicated it is likely to opt out from Huawei’s 5G infrastructure (which, together with Huawei’s struggle with supply chain, might have played a role in encouraging important Canadian and German operators to go with Nokia or Ericsson instead) and cut out Huawei from telecommunication infrastructure by 2023.
In this context, it is also important to recall the UK’s idea of launching a D10 club uniting democratic countries (surprisingly not including Sweden and Finland - home to Ericsson and Nokia) to develop alternative 5G supply chains.
On the other hand, China threatened that, if Huawei equipment is banned in the UK, HSBC will face reprisals and China would cancel its investments in nuclear plants and the HS2 high-speed rail network.
What About Brexit?
With the UK increasingly concerned about making friends overseas, Brexit negotiations have stalled with just over half a year before Britain is due to end its transition period in the Union.
On June 5, Michel Barnier, the chief EU negotiator for Brexit, blamed the UK for “backtracking on its commitments” made in January, indicating there was “no significant progress” made during the 4th round of negotiations on a trade deal.
The EU and UK held stark disagreements over fishing rights, a level playing field for businesses, governance, and security. The lax British attitude also shows they are less fearful of a ‘no deal’ separation by the end of the year.
The EU and the UK also disagreed over the UK’s obligation to contribute to the Emergency Support Instrument, with British officials say a proposed sum is higher than they had agreed to for the transition period.
TAKEAWAYS
► GET BREXIT DONE NO MORE?
Theoretically, the Brexit transition period we are now in is supposed to end in October, so that national parliaments will be able to ratify the agreement by the end of the year, when the UK officially leaves the EU. As per Michel Barnier, it appears the UK is not very stressed by this deadline, nor is it concerned about the potential of entering 2021 without a deal in place. Most of its foreign affairs energy is now devoted to dealing with Hong Kong and to building relations with big and mid-sized powers around the world. The UK has aligned itself with the US on 5G and on ‘tough on China’ rhetoric. In addition, the fact that Bell and Telus (Canada) opted out from using Huawei’s equipment in building 5G infrastructure means the UK can try to reach out to Canada over the issue (e.g. in regard to UK’s idea of D10 Club). The application to become a dialogue partner for ASEAN is another example of opening a new door for Post-Brexit UK.
It may point to a broader attempt by the British Foreign Ministry to offset the negative effects of ‘no deal’ with the EU by building trade relations elsewhere (recall that Johnson’s Global Britain promises to use its navy to protect free trade). It is disheartening for Barnier’s negotiation team but in the long term it will also strain relations across la Manche. This doesn’t mean that a ‘no deal’ outcome will not have an impact on the British economy. However, given the economic downturn brought on by COVID-19, the British government likely has the political capacity to blame the economic repercussions of a potential no-deal Brexit on a wider pandemic-induced crisis. This means that - politically speaking - the government of Boris Johnson may be planning to push for Global Britain strategy with a no-deal scenario. This would limit the UK’s access to the EU market, but leave it to pursue trade and investment relations with actors from other parts of the world unconstrained by concessions to keep access to the single market.
READ MORE
What is a BN(O) passport, who in Hong Kong is eligible and how will holders be affected by London’s plan to relax visa rules? - South China Morning Post (Zoe Low and Lilian Cheng), Jun 4
For Hongkongers fearing for their way of life, Britain will provide an alternative - South China Morning Post (Boris Johnson), Jun 3
Boris Johnson’s post-Brexit Global Britain sounds good – and that’s about it - South China Morning Post (Anthony Rowley), Dec 22, 2019
5. The Politics of Global Health Governance
Several new developments on coronavirus pledges emerged this week, accompanied by new information on early communication between China and the WHO.
► At the Global Vaccine Summit 2020, the EU and the US made sizeable donations, while China donated much less, citing its other investments into vaccines and therapies;
► The European Commission’s Coronavirus Global Response hit €9.8 billion in pledges (above the €7.5 billion target);
► The Associated Press published a new report that detailed how China was not eager to share information with the WHO in the early days of the virus’ spread.
Global Vaccine Summit 2020
On June 4, world leaders joined a virtual summit started in London that fundraised for Gavi, a UN-backed alliance that distributes vaccines to developing countries.
The European Commission pledged €300 million for the 2021-2025 period, which it said would immunise 300 million children and would help with the stockpiling of vaccines for future outbreaks.
The US pledged $290 million, matching its 2018 and 2019 pledges.
China pledged a much lower sum ($20 million), but pointed to its other pledges to vaccines and global health totalling ¥4 billion/$565 million (and estimated to exceed ¥10 billion/$1.4 billion).
The Commission's Coronavirus Global Response
Ursula von der Leyen announced that the EC’s Coronavirus Global Response pledging marathon reached €9.8 billion, as the campaign entered a new phase of fundraising.
Pledges by the European Commission (€1.4 billion) and the European Investment Bank (€1.9 billion) provided a foundation.
The United States has not pledged any money to this initiative, while China promised a relatively low sum of €45.6 million. For comparison, that is about half of what Poland pledged (€89,7 million) and it stands well below the contributions of bigger powers: France (€1.5 billion), Germany (€525 million), Canada (€551 million), Saudia Arabia (€457 million), and the UK (€441 million).
One month ago, during the launch event of the fundraising, China’s ambassador to the EU, Zhang Ming (standing in for Premier Li Keqiang, who decided last moment not to appear), took a truculent stance, telling the rest of the world to stop the “blame games” and did not make any financial pledge at all.
Updates on the WHO
A report by AP published on June 3 describes actions taken by the Chinese government that delayed sharing essential data with the WHO.
Despite praises from the WHO in January, the Chinese government delayed distributing the virus’ genome with the world for more than a week, even though three different Chinese government labs had managed to decode it.
Even when the genome was released, China took two more weeks to share data on patients and cases with the WHO. This was still in January, meaning this information was held at a crucial time in the spread of the virus.
According to the reporting the WHO staff decided to resort to praising China as a way of ensuring its cooperation, albeit WHO’s Director General Tedros Adhanom Ghebreysus might have been excessive in his positive remarks on China’s activity.
The report comes at a critical crossroads for the UN agency, which is heavily criticised for its lack of prevention, and the US has announced it will fully withdraw from the WHO - as announced by President Trump on May 29th.
What “withdraw” means here is still unclear, however. It could mean that the US will pull out altogether from the organisation or it may mean that the US will continue to freeze its funds while still observing the agency’s operations from the sidelines.
TAKEAWAYS
► HEALTH POLITICS
While the Gavi event is a positive story of the world coming together, it appears politics have been driving the global health response. American unilateralism under Trump leading the US to leave the WHO, China preferring bilateral health diplomacy, and the EU doing its best to keep the flame of multilateralism alight are all intermingled elements of a politicised global health governance response.
The WHO plays a distinct role here. Hoping to appease China into releasing data, the organisation only received delayed responses. Had this data surfaced faster, it might have significantly improved the global response to COVID-19. This is why the WHO and Dr. Tedros take a chunk of the blame (albeit read the piece by AP before making your judgement). The blame is echoed the loudest from Washington, which is not wrong in its argument. But Trump has been eager to scapegoat the WHO consequently making a controversial move by cutting funding and withdrawing for the organisation in the midst of a global pandemic.
► WANT TO HELP THE WORLD? DONATE
We encourage you to get to know more about the Coronavirus Global Response launched by the European Commission, which has already gathered €9.8 billion (66% donated by ‘Team Europe’) for joint development of a globally available vaccine against COVID-19.
This pledging effort will continue until June 27, when it will culminate in a Global Pledging Summit. If you want to donate funds for the Coronavirus Global Response, you can do so here, as explained on the Commission’s website.
READ MORE
China delayed releasing coronavirus virus, frustrating WHO - AP News, Jun 3
Coronavirus Global Response - European Commission