 |
By STUART LAU
with ERIC BAZAIL-EIMIL
Send tips here | Tweet @StuartKLau | Subscribe for free | View in your browser
HELLO, CHINA WATCHERS: This is Stuart Lau in Brussels, bringing you this mid-summer update on all things Europe-China. And it turns out to be a big day for EU-Taiwan relations.
DRIVING THE DAY: TSMC IN GERMANY
TAIWAN’S SCHOLZ TIME: German Chancellor Olaf Scholz and European Commission President Ursula von der Leyen will be in Dresden today to sing the praises of a geopolitically symbolic new plant to be run by the Taiwan Semiconductors Manufacturing Company, or TSMC, the world’s largest chip-maker. TSMC breaks ground at 11 a.m. and Chief Executive C.C. Wei is expected to officiate the ceremony, my ace colleague Pieter Haeck writes in to report.
Delivering on a promise: TSMC announced its intention to set up shop in Dresden roughly a year ago. The new €10 billion factory — called the European Semiconductor Manufacturing Company (ESMC) — is a joint venture of TSMC (70 percent) and three European partners: Infineon and Bosch from Germany, and NXP from the Netherlands.
Focus on car chips: The factory will churn out chips for the car industry and other sectors, is expected to go live before the end of 2027 and will create 2,000 high-tech jobs.
EU needs chips urgently: Other major microchip investments have experienced significant delays (Intel's mega-fab in Magdeburg) or have been shelved altogether (Intel's projects in France and Italy) — threatening the EU's goal of claiming 20 percent of the global microchips value chain by 2030, up from 9 percent in 2021 (a goal of which industry executives were already highly skeptical in advance).
The bigger picture: The German plant is part of a wider expansion strategy by TSMC, which led the company also to build new plants in the U.S. and Japan. In its press invite, TSMC describes the Dresden factory as a "significant leap addressing the strategic capacity and technology needs" for its European customers.
Geopolitical maneuvering: Cozying up to Taiwan is not a strong suit for Germany, where the business lobby (read: cars) sees China as the most important market even amid an extended economic slowdown in the Asian economy.
But but but: German-Chinese trade ties are weakening by the day. In the first half of the year, German exporters shipped fewer goods to China than to Poland, Bloomberg reports.
The territory that can’t be named: In September 2020, the German government unveiled policy guidelines for the Indo-Pacific region which were striking thanks to one glaring omission: the 70-page document did not include a single mention of Taiwan. Three years later, a new German government published the country's first national security strategy. Once again, the document made no reference to Taiwan. Noah Barkin has this timely report from the German Council on Foreign Relations.
GERMAN WARSHIPS READY FOR TAIWAN STRAIT PASSAGE: In the meantime, two German warships are about to sail through the Taiwan Strait for the first time in more than two decades — while awaiting Berlin’s orders.
“We are showing our flag here to demonstrate that we stand by our partners and friends, our commitment to the rules-based order, the peaceful solution of territorial conflicts and free and secure shipping lanes,” Rear Admiral Axel Schulz told Reuters. “I expect the Chinese navy and potentially the coastguard or maritime militia to escort us.”
Beijing’s warning: “The key to keeping the Taiwan Strait peaceful and stable lies in firmly opposing ‘Taiwan independence,'” Foreign Ministry spokesperson Mao Ning said Monday when asked about the German naval plan. “China opposes attempts to undermine China's territorial sovereignty and security in the name of freedom of navigation.”
CHINA-RUSSIA
TIMELY VISIT: China is sending its No 2 official, Premier Li Qiang, to visit Russia today and boost Beijing-Moscow ties, as Russia suffers a setback over Ukraine’s military incursion.
Very important: Mao, the foreign ministry spokesperson, said Li would chair the regular meeting between Chinese and Russian heads of government, which she called an important mechanism for coordinating practical cooperation.
“China-Russia relations have overcome external disturbances and maintained sound and stable growth, under the strategic guidance of the two presidents,” Mao added.
Will they address the pipeline question? Mongolia has not included the Power of Siberia 2 natural gas pipeline connecting Russia and China in its action programme through 2028, leading to skepticism over the future of the infrastructure, South China Morning Post reports.
Li is also going to Belarus: Li will meet Belarusian Prime Minister Roman Golovchenko and have talks for further cooperation, according to Mao.
CONTRAST THIS WITH … Indian Prime Minister Narendra Modi is visiting Kyiv this week, the first trip by an Indian leader since the two countries established diplomatic relations more than 30 years. Announcing the Aug. 23 trip, India’s foreign ministry said it would be a “landmark and historic” visit. Reuters has more.
EU-CHINA CAR CORNER
Courting Chinese carmakers: Italy’s Prime Minister Giorgia Meloni is trying to convince Chinese carmakers to invest in Italy. A group of officials from Italy's industry ministry will fly to Beijing by the end of August to continue talks with Chinese companies, my colleague Giorgio Leali writes in to report. These technical meetings come after Meloni visited China last month, signing some cooperation agreements, including on electric cars.
European pushback: Stellantis, the world’s fourth-largest automaker, is unhappy. CEO Carlos Tavares made clear Stellantis would have a good reason to produce less in Italy should Chinese carmakers come to the country.
Fiat's metamorphosis: Does Meloni have a point? While Italian officials visit China, several Stellantis' production lines in Italy will still be on hold. During the first half of the year, production in Italy went down by 25 percent compared to the previous year, according to unions. Here’s Giorgio’s full story.
EV SALES DROP OFF: Electric vehicle sales declined 8 percent in July 2024 compared to the same month last year, according to data from Rho Motion. The likely culprit? A decline in Chinese EV sales. Chinese automakers rushed to get their vehicles into the European single market before new duties go into effect on July 5, leading to a surge in June imports, Jordyn Dahl writes in to report.
By the numbers: The number of new EVs from Chinese automakers dropped 45 percent in July compared to June's figures, according to data from Dataforce. But that may not matter. BYD sales have surged across the EU market, and it was hit with the lowest duty of 17.4 percent. The EV giant first entered the bloc in 2023, selling 2,268 in the first half of 2023 in the EU, compared to 12,538 in the first half of 2024, figures from Dataforce provided to POLITICO show.
Remember: As we reported earlier this month, automakers that rushed to get their vehicles into the European single market by the July 5 deadline could face a hefty bill come October. That is when the European Commission will vote on the definitive duties and whether it will make the duties retroactive from March. Expect more to come on this issue today.
TRANSLATING WASHINGTON
HOUSE PROBES WALZ'S CHINA TIES: The House Oversight Committee announced Friday that it was opening a probe into Minnesota Gov. Tim Walz's ties to China, including his work coordinating student trips to China with his wife before entering politics. House Oversight Committee Chair James Comer (R-Ky.) said in a statement that "the American people deserve to fully understand how deep Governor Walz's relationship with China goes." As part of the probe into Vice President Kamala Harris' running mate in the November election, the committee has requested relevant documents and correspondence from the Federal Bureau of Investigation. POLITICO's Jordain Carney has the full story here.
GREEN FLAGS FOR GREEN MINERALS: The Biden administration's point person for a critical minerals partnership is arguing that sustainability conditions for U.S. investments are actually yielding competitive advantages. In an interview with POLITICO's Doug Palmer, undersecretary of State Jose Fernandez, who leads U.S. engagement in the 14-country Minerals Security Partnership, acknowledged that "our starting line is behind China’s. They are ahead of us." But Fernandez made the case that tougher environmental requirements are "a competitive advantage" as the U.S. and other countries seek to diversify their supply chains.
DRONE HELLSCAPE FOR TAIWAN: The Pentagon is devising a plan to defend Taiwan using thousands of drones in an effort to flood the zone and complicate a Chinese advance. As Wired reports, details of what that plan may look like have spilled out, as government officials have embraced the messaging at forums like Shangri-La and Washington think tanks explore exactly how drone warfare could look like in the Straits. At the core of this strategy is partnerships with the defense industry, including "nontraditional" defense manufacturers as part of the Department of Defense's Replicator Initiative, to secure the needed drones to wage such a defense.
RAIMONDO ON TECH RACE: Commerce Secretary Gina Raimondo is not resting on her department's laurels as the tech competition between the U.S. and China rages. In an interview with Foreign Policy, Raimondo explained that "it's very dangerous to assume that it's inevitable that we'll stay ahead. I think that's an arrogant viewpoint." She added: "I feel good about where we are, but literally every single day, we should be on the edge of our seat." Raimondo's department has been at the forefront of designing and enforcing export controls that the Biden administration and observers argue have increased the gap between Washington and Beijing's technological capabilities.
Not all are thrilled with the continued pace of Commerce Department rules. California Democrats want the Biden administration to take a break from imposing new restrictions on technology exports, arguing that a further round of controls “could send longstanding U.S. companies into a death spiral" Tech companies are also frustrated with export restrictions as the U.S. and European Union both reckon with the costs of those policies on the sector's growth.
MORE HEADLINES
POLITICO: China threat prompts Japan to rethink its security.
BLOOMBERG: Foreign investors pull record amount of money from China.
FINANCIAL TIMES: Western airlines slash flights to China.
WALL STREET JOURNAL: Argentina finds it hard to decouple from China.
MANY THANKS: To editor Christian Oliver, reporters Pieter Haeck and Jordyn Dahl.
SUBSCRIBE to the POLITICO newsletter family: Brussels Playbook | London Playbook | London Playbook PM | Playbook Paris | EU Election Playbook | Berlin Playbook | Global Playbook | POLITICO Confidential | Sunday Crunch | EU Influence | London Influence | Digital Bridge | China Watcher | Berlin Bulletin | D.C. Playbook | D.C. Influence | All our POLITICO Pro policy morning newsletters