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By STUART LAU
with PHELIM KINE
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WELCOME TO CHINA WATCHER.
This is Stuart Lau in Brussels. Phelim Kine will be with you in Washington on Thursday.
EU-CHINA TRADE FRICTION
ICY RECEPTION FOR EU TRADE CHIEF: The EU’s powerful Trade Commissioner Valdis Dombrovskis today finishes what has been a packed four-day visit to China. The trip took him to the commercial hub Shanghai, a scenic tourist spot Suzhou (where he inspected a brake factory) and, of course, the capital Beijing. The mood took a tougher turn on Monday, when Chinese Vice-Premier He Lifeng publicly criticized the EU for all its trade measures against China, especially on the anti-subsidy probe into made-in-China electric vehicles.
‘Strong dissatisfaction’: "China again … expresses our strong concern and dissatisfaction," He told reporters while sitting next to Dombrovskis, referring to the e-car probe. "We hope that the EU would exercise caution."
And it’s not just the cars… "The two sides exchanged views on IPI [the international procurement instrument], foreign subsidies regulations and CBAM [carbon border tax], among other trade policies introduced by the EU, and their impact," the Chinese top official said. "China hopes that the EU would exercise restraint on the use of trade remedies, and to keep the expectation of the development of EU-China trade stable." Meanwhile, Cui Hongjian, an international relations professor at Beijing Foreign Studies University, told the Global Times newspaper that “the EU side cannot adopt an attitude of blaming China for all the problems.”
Baby steps: Still, China and the EU agreed to work on a number of areas, such as Chinese teams carrying out on-site visits in Europe amid complaints about delayed exports of the EU’s infant milk formula products. Dombrovskis also announced a new working group on financial regulations.
EU MESSAGING: It’s not just the Chinese vice-premier uttering critical words. From Dombrovskis’ side, the Beijing-Moscow friendship tops the complaint list.
In a speech at Tsinghua University, the former Latvian leader said it's "very difficult" for Europe to understand China's stance on Russia's war against Ukraine, calling it the "strongest … headwind" potentially causing the EU and China to "drift apart.”
Indeed, speaking next to He during a question-free press conference, Dombrovskis said that “Russia’s war of aggression against Ukraine represents a massive menace, endangering not only lives but also global food supplies.” He urged Beijing to help bring Moscow back to the U.N.-brokered Black Sea grain deal.
— MEDTECH PROCUREMENT IN SPOTLIGHT: As soon as Dombrovskis leaves Beijing, Brussels is finalizing plans to hit out at China over yet another consequential issue: The unequal treatment of non-Chinese players in the public procurement market. Three people with knowledge of the plans told my colleagues Camille Gijs and Jakob Hanke Vela that the Commission is zooming in on the medical technology sector, with a probe likely to be launched against the Chinese government’s favoring of local medical devices suppliers.
How bad is it? According to the latest annual report by the EU Chamber of Commerce in China, almost 80 percent of EU medical suppliers complained about a worsening business environment.
“For the medical devices industry, this was in no small part due to China's staunch protection of its domestic firms. European companies were disadvantaged by opaque approval processes and China's centralised volume-based procurement directive, as well as the government's continued provision of direct financial support, tax benefits, and research and development (R&D) support to local firms,” it said, adding that some companies had to make “major staff cuts.”
Here’s the full story from Camille, Joshua Posaner and yours truly.
— OUTBOUND INVESTMENT CHECKS (PERHAPS): The other file on Commission President Ursula von der Leyen‘s desk is the so-called outbound investment screening proposal, which aims to forbid EU companies from investing in certain places such as China. So far, major member countries like France and Germany are not ready for it, given the domestic opposition from business lobbies. Still, an EU diplomat said he expected von der Leyen, a transatlanticist, to come up with her proposals in the remainder of her mandate, which ends around November next year.
Despite Germany's vulnerability, German Economy Minister Robert Habeck urged EU countries to adopt such a screening scheme, which he said was "necessary" but should be done "not so much by the European countries" and instead "on a European level” — meaning the Commission should be given more power.
Aber aber aber: That's not the fixed German position: Chancellor Olaf Scholz is much more skeptical toward such investment controls, especially if their oversight is put into Brussels' hands.
— CAR PROBE SCARES THE GERMANS: Germany's carmakers are "afraid" they could be hit by retaliation if the EU were to impose duties on Chinese electric vehicles as a result of a new anti-subsidy probe, Habeck warned at an Atlantic Council event on Friday.
Still, Berlin finds the car subsidy probe 'legitimate': Scholz's top adviser on EU and economic and financial policies, Jörg Kukies, told the same event that the EU's anti-subsidy investigation against Chinese cars was "perfectly normal" and "totally legitimate." Yet Kukies stressed that such a probe must respect "very high standards." More by Hans von der Burchard.
China wants … France to backpedal: Chinese Foreign Minister Wang Yi reached out to his old contact, French presidential advisor Emmanuel Bonne, for help. In a phone call on Friday, Wang said that he “hopes that the France will play a constructive role in properly handling a relevant anti-subsidy investigation.” (The EU probe was actually launched at the insistence of … the French, which POLITICO first reported.)
ALL AROUND EUROPE
BELT AND NO RAILROAD IN HUNGARY: The Viktor Orbán government finds itself in bind after Beijing reportedly failed to continue the construction of the Budapest-Belgrade railway, one of the flagship projects under the Belt and Road initiative.
No money, no technology: According to Hungarian media, the Chinese financing for the project has come to a halt, despite the fact that Chinese lending is responsible for 85 percent of the project, with the remainder from Hungarian state money. The media outlets, including VSquare and Telex, reported that the Chinese builders were also unable to complete the project in compliance with the European Train Control System standards. The Chinese Embassy to Budapest has not responded to a request for comment.
Can he save the deal? Telex also reported that Orbán is expected to travel to China next month, and is hoping to sort it out when he meets the Chinese leaders.
ITALY WELCOMES CHINA’S SPYMASTER: Politburo member and former State Security Minister Chen Wenqing, also dubbed the spy chief of the Communist Party, was visiting Rome on Friday. Foreign Minister Antonio Tajani told Chen that Italy looked “with great confidence at the relaunch of relations with China” and “expressed his appreciation for Beijing's constructive role in the [Ukraine] dossier.”
Highly unusual: An EU diplomat noted that it was “extremely unusual” for a security official of China to tour Europe. The Chinese readout made no mention of Ukraine, but said that Chen — now head of the Communist Party’s Commission for Political and Legal Affairs — told Tajani that they could “make new contributions to safeguarding security interests of the two countries.” His visit comes as Rome is planning to exit from the Belt and Road initiative.
IRISH CONCERNS: Ireland's Central Bank has suggested U.S. restrictions on selling high-end computer chips to China could be partially responsible for a slowdown in Irish exports. BBC has the story.
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THREE MINUTES WITH…
ALEXANDER TAH-RAY YUI, Taiwan’s new top envoy to the European Union, sat down last week with POLITICO to share his thoughts on his stint in Brussels, how Europe’s position on Taiwan is (and is not) changing, and what the Taiwanese presidential election in January means for the world. The interview has been slightly edited for clarity.
As Taiwan’s world-leading chipmaker TSMC is setting up plants around the world, including Germany, would that weaken Taiwan’s “silicon shield“?
There has been talk about whether we are thinning away our protective [shield] and we put ourselves into more danger, because we’ll be exposed to the strategic relevance of moving away our productions into other places, [which] will lessen the importance of Taiwan. But I think it’s not just that. Because most of the production is still made in Taiwan, and I think the highest degree, the highest tech production is still in Taiwan. The production in the United States, and also … the large investments with Germany is still only a fraction of what they [TSMC] produce as a whole.
European stakeholders care a lot about Taiwan’s semiconductor sector. What’s your message to them?
The relevance of Taiwan is not only about semiconductors. It’s not only about trade — 50, 60 percent of trade goes through Taiwan Strait. But it’s about the values. Taiwan [is] a thriving democracy, and that should be preserved.
The EU is not keen to start negotiations on an investment agreement with Taiwan.
This is obviously something that we would like to be a common goal — or at least from our side. Instead of getting there at once, maybe [we can be] going through building blocks — the trade and promotion between our two sides, especially after COVID-19, and normal trade relationships will resume. So we’ll work towards that, but we have to lay the groundwork first.
What do you think about comparisons between Taiwan and Ukraine?
The two are not exactly the same. Obviously, we come from different historical backgrounds. But there are similarities — it’s a small country facing a very large enemy. So we are also learning a lot from Ukraine. The people thought that it was a cakewalk for the Russians to take over Ukraine within a few days, but now it’s been more than a year and a half. We’re learning a lot from the Ukraine war scenario. We call it asymmetric warfare, how small countries with lesser resources can stand up to larger forces.
The Taiwanese elections will take place in January. What’s Beijing’s take on it?
To the PRC, it doesn’t matter who wins. Obviously, they may have preferred political parties or candidates because there are some certain positions — I will not get into that. But for the PRC, they don’t really care who which party wins, but rather, the candidate who wins is a weak one, so they can manipulate or at least at the end [he or she would] kowtow to their pressures and allow them to accomplish the final goal, which is to take over Taiwan and impose their rules, their ways of life, on us.
TRANSLATING WASHINGTON
SPACE FORCE CHIEF EYES CHINA HOTLINE: The Biden administration is considering creating a hotline with Beijing to help manage space-based bilateral crises. “What we have talked about on the U.S. side at least is opening up a line of communication to make sure that if there is a crisis, we know who we can contact,” U.S. Space Force commander General Chance Saltzman told Reuters on Monday. The administration has yet to green light any such initiative. That might reflect the administration's recognition that doing so might be an exercise in futility given Beijing's closure of existing military contact and dialogue mechanisms. Beijing canceled — and refuses to renew — a trio of military dialogues, including China-U.S. Theater Commanders Talks, China U.S. Defense Policy Coordination Talks and the China-U.S. Military Maritime Consultative Agreement meetings. The Chinese government also denied Defense Secretary Lloyd Austin's multiple requests to meet with his now apparently ousted counterpart, Li Shangfu.
CHINA OVERSHADOWS BIDEN'S PACIFIC ISLAND SUMMIT: The good news — the Biden administration used the occasion of its two-day Pacific Island summit to announce diplomatic recognition of the Pacific island countries Cook Islands and Niue on Sunday. The bad news — Beijing-aligned Solomon Islands Prime Minister Manasseh Sogavare is skipping the summit which concludes today in Washington. The White House is "disappointed" by Sogavare's decision to return home after the United Nations General Assembly in New York, said a senior administration official who briefed officials on condition of anonymity. Sogavare inked a controversial security pact with Beijing in 2022, spurring a U.S. diplomatic outreach campaign to Pacific island countries aimed to offset China's growing diplomatic muscle in the region. China's "assertiveness and influence … has been a factor that requires us to sustain our strategic focus," on Pacific island countries, the senior administration official said.
YELLEN'S BEIJING VISIT REAPS 'WORKING GROUPS': Treasury Secretary Janet Yellen's visit to Beijing in July has resulted in more than just a senior official's accidental brush with hallucinogenic mushrooms. It also put wheels in motion for the creation of two new bilateral "working groups" —one for financial issues, the other for economic matters. The two new groupings "will provide ongoing structured channels for frank and substantive discussions," in those areas, said a Treasury Department statement published on Friday. The working groups "will hold regular and ad-hoc meetings to strengthen communication and exchanges," China's Commerce Ministry said in a statement on Friday. Meanwhile despite Secretary of State Antony Blinken's announcement in June that the U.S. and China "agreed to explore setting up a working group or joint effort" on fentanyl, Beijing has shown zero interest in doing so.
LAWMAKERS SLAM XINJIANG UYGHURS' JAIL SENTENCES: The Chinese government's ongoing targeting of Xinjiang Uyghur scholars with long prison sentences has reaped bipartisan criticism on Capitol Hill. A Xinjiang court sentenced prominent Uyghur ethnographer Rahile Dawut to a life sentence in January for "splittism," the nonprofit prisoner release advocacy organization Duihua reported last week. Beijing routinely conflates expressions of Uyghur cultural identity with treason. Dawut "must be released, and her case raised prominently by every U.S., @UN or foreign official visiting the PRC," the co-chairs of the Congressional Executive Commission on China, Rep. Chris Smith (R-N.J.) and Sen. Jeff Merkley (D-Ore.) posted on the social media platform X, formerly known as Twitter, on Friday. The ninth anniversary on Saturday of the jailing of Xinjiang Uyghur scholar Ilham Tohti on "splittism" charges prompted a call for his immediate release "so he can reunite w/ his family & loved ones," from House Foreign Affairs Committee chair Michael McCaul (R-Texas) on Friday.
MORE HEADLINES
Bloomberg: China’s ultra-rich Gen Zs flock home as global tensions rise.
CNBC: Oil markets' decades-long dependence on China could be ending.
Guardian: China gets old before it gets rich.
New York Times: In risky hunt for secrets, U.S. and China expand global spy operations.
Washington Post: Covid helped China secure the DNA of millions, spurring arms’ race fears.
MANY THANKS: To editor Christian Oliver, reporters Camille Gijs, Josh Posaner and producer Fiona Lally.
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