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By STUART LAU
with PHELIM KINE
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WELCOME TO CHINA WATCHER. This is Stuart Lau in Brussels with full coverage on a freshly-baked report everyone is talking about in this town — and why it matters for future EU-China relations. Phelim Kine will be with you on Thursday from the U.S.
ONCE A MINISTER, NOW … PRINTING BOOKS? Ex-Chinese Foreign Minister Qin Gang — whose disappearance last year spawned lurid rumors that he'd committed suicide or died after being tortured — is alive, well and working at a humble state publishing house, the Washington Post reported Sunday. The Chinese government has declined to comment on the status or whereabouts of Qin — whose close ties to Chinese leader Xi Jinping elevated him from ambassador to the U.S. to top Chinese envoy in 2023.
EU’S GAME PLAN FOR NEXT 5 YEARS
THE DRAGHI BLUEPRINT AND THE CHINA FACTOR: The EU is losing in the beauty contest called competitiveness as China becomes too aggressive in controlling the supply chains in critical areas such as green transition. That’s according to a fresh report written by former Italian Prime Minister Mario Draghi, also an ex-head of the European Central Bank. If anything, the report points to one significant political sentiment: That the EU, despite China’s claims, is not just getting tougher on Beijing because of pressure from Washington, as there’s evidence the EU’s own economy is weakened as a direct result of Chinese state policies.
TOP WARNING SHOT: “An increasing number of countries are raising tariff and non-tariff barriers against China, which will re-direct Chinese overcapacity towards the EU market.”
Why it matters: Draghi — who once said the ECB would do “whatever it takes” to save the euro — wrote the report to lay the ground for the next five-year mandate of Ursula von der Leyen, president of the European Commission, the European Union’s executive powerhouse. Indeed von der Leyen stood next to Draghi yesterday when he delivered the report to the media.
Here are four highlights concerning China:
FILE 1 — GREEN TECH’S NAME OF THE GAME: The greener the EU wants to go, the more entrapped it becomes in China’s massive supply chains, according to the Draghi report.
“It is not guaranteed that EU demand for clean tech will be met by EU supply given increasing Chinese capacity and scale,” he said, adding that the Commission estimates that Chinese subsidies for clean tech manufacturing have been twice as high as the EU’s as a share of GDP.
EV-ENTUAL DECLINE? Taking a laissez-faire approach to China’s massive imports of electric vehicles is “unlikely to succeed in Europe given the threat it could pose to employment, productivity and economic security,” Draghi said.
How big of a deal is it? The auto industry employs, directly and indirectly, almost 14 million Europeans.
There’s fear Beijing will copy the successful solar panel playbook for EVs.“According to ECB simulations, if the Chinese EV industry were to follow a similar trajectory of subsidies to that applied in the solar [panel] industry, EU domestic production of EVs would decline by 70% and EU producers' global market share would fall by 30 percentage points,” the report noted.
FILE 2 — ELECTRIC CARS: Draghi's section on the automotive sector didn't pull any punches, stating "the automotive sector is a key example of lack of EU planning, applying a climate policy without an industrial policy,” my colleague Jordyn Dahl reports.
But as lawmakers look to develop an industrial action plan, it should "avoid a radical delocalization of production away from the EU or the rapid takeover of EU plants and companies by state-subsidized foreign producers."
One solution to automakers’ woes is to take the same joint venture partnership legally mandated to enter the Chinese market and reverse it for the European one. Executives should be wary of such a proposal, though, as the recent anti-subsidy EV tariffs "will help level the playing field," Draghi wrote.
FILE 3 — WATCH OUT FOR INVESTORS: Draghi also called on EU countries to coordinate efforts to scrutinize Chinese foreign direct investments (FDI) in the EU single market.
“Chinese greenfield investment in the EU has increased substantially in recent years, particularly in Central and Eastern Europe,” the report says. While this can promote tech development in Europe and create high-quality jobs, “asymmetries arising from small Member States negotiating with large foreign investors could lead to unwelcome concessions being extracted by foreign countries,” he warned.
China could be ‘a security threat’: The FDI issue is particularly concerning, Draghi stressed, “when a potential security threat and a geopolitical rival of the EU are involved.”
Solution: The EU should strengthen its investment screening mechanism, Draghi said. The current model is based on member countries’ own rules, and “this fragmentation prevents the EU from leveraging its collective power in FDI negotiations and complicates the formulation of a common FDI policy,” he said.
FILE 4 — MINERAL MONOPOLY: Draghi also shed light on the EU’s dependency on China’s global supply chains of critical minerals.
“China … is the leading source of numerous critical minerals and accounts for almost 70% of the world's output of rare earths. Moreover, it holds a quasi-monopoly on the processing and refining of critical minerals,” Draghi said, highlighting the Belt and Road initiative’s active investment in mining assets in Africa, Indonesia and Latin America.
What’s at stake? The Draghi report noted that China has substantially increased the number of restrictions — growing nine-fold between 2009 and 2020 — “establishing itself as the country with the most extensive array of export restrictions on critical raw materials.”
IN OTHER EUROPE-CHINA NEWS
SPANISH PM LAVISHES PRAISE ON XI THE PEACE-LOVER: Spanish Prime Minister Pedro Sánchez met Chinese President Xi in Beijing yesterday.
Never mind NATO’s characterization of Beijing as a “decisive enabler” of Russia’s war against Ukraine. Sánchez had very warm words for Xi: “China and Spain are two friendly nations, defenders of peace and committed to the multilateral order.”
A little protest on EVs: Sánchez’s meeting with Chinese Premier Li Qiang saw the Chinese No. 2 official make a complaint about the EU’s tariffs against made-in-China electric vehicles — a decision for which Madrid backed Brussels — calling overcapacity claims “unfounded.”
FELLOW VIP IN CHINA: Xi also met Norway’s PM Jonas Gahr Støre yesterday. Like Sánchez, Støre made the decision to recognize Palestine as a state earlier this year, defying pressure from the U.S. In the meeting, Xi said China would like to promote “friendly” cooperation with Norway including on green energy. Reuters has more.
DUTCH DEFENSE ON CHIP BANS: The Netherlands last week decided to step up restrictions on microchip giant ASML’s export of advanced machines to China. Beijing was not pleased, but Dutch Defense Minister Ruben Brekelmans doubled down on the urgency of the policy. "We do see a risk of the way in which China is developing its military capabilities and also using the most modern technologies and the most advanced chips, so we share some of the concerns that our U.S. partners have,” Brekelmans told Stuart on Sunday.
CHINA-RUSSIA
JOINT MILITARY DRILLS: China said on Monday that it would hold joint military drills with Russia this month. According to the Chinese defense ministry, the North-Joint 2024 exercises would take place in the skies and around the Sea of Japan and Sea of Okhotsk, off Russia’s coast.
TOP ENVOY HEADS TO RUSSIA: Chinese Foreign Minister Wang Yi will attend a BRICS security meeting in St. Petersburg tomorrow, the Chinese ministry announced.
TRANSLATING WASHINGTON
YELLEN HINTS AT POSSIBLE BEIJING TRIP: The Biden administration's latest spree of senior officials' visits to China may include Treasury Secretary Janet Yellen. At an event in Texas on Saturday, per Reuters, Yellen hinted at an upcoming meeting with China's Vice Premier He Lifeng. The meeting's location could be either China or the U.S. “My guess is that we will have, one way or another, a visit," Yellen said. Meanwhile, Treasury Under Secretary for International Affairs Jay Shambaugh will hold meetings with his counterparts in Beijing "very soon," Yellen said.
PODESTA TELLS WANG YI ‘LET'S 'COLLABORATE': President Joe Biden's senior adviser for international climate policy, John Podesta, sounded a hopeful note about the prospects for U.S.-China climate cooperation following a meeting with Chinese Foreign Minister Wang Yi in Beijing on Friday. Despite bilateral tensions, "we can find places to collaborate for the good of our people and of our climate," Podesta told reporters, per Reuters. Wang called U.S.-China climate "an integral part of bilateral relations," Chinese state media reported Friday.
Podesta's three-day trip marked a last-gasp effort by the Biden administration ahead of the U.S. presidential election in November to get traction on elements of the U.S.-China Sunnylands' agreement on bilateral climate action brokered by Biden's then-climate envoy John Kerry in 2023. Podesta and his Chinese counterpart Liu Zhenmin reaffirmed their plan to co-host a summit on reducing methane and other non-CO2 greenhouse gases on the sidelines of the United Nations COP29 meeting in November, said a State Department statement published Sunday.
CHINESE DIPLOMAT DEFIES SPY CASE FUROR: The State Department has a problem: China's Consul-General Huang Ping's presence at a gala dinner on Thursday. New York Governor Kathy Hochul told reporters on Wednesday that she'd requested the State Department expel Huang in the wake of the arrest of a former Hochul aide as an alleged Chinese spy. Hours later, State Department spokesperson Matthew Miller said Huang had already left the U.S. at the end of August. That departure was unrelated to the New York spying allegations and Huang had "reached the end of a regular scheduled rotation in August, and so rotated out of the position, but was not expelled," Miller told reporters Wednesday. Huang clearly hadn't got the memo and is busily talking up "advancing China-US relations" in New York. The State Department didn't respond to a request for comment.
U.S. GOVT: BEWARE HONG KONG'S LAWS: The Biden administration is warning that Hong Kong's security laws —and its government's intent to impose them outside of Hong Kong's borders via "extraterritoriality" provisions — pose a clear and present danger to U.S. businesses and their staff operating in the territory. Those laws create "potential legal, regulatory, operational, financial, and reputational risks, including of increased scrutiny, potential financial penalties, and legal actions for perceived violation," said a joint business advisory notice on Friday issued by the Departments of Homeland Security, Treasury, Commerce, Agriculture and State. "Businesses should be aware that the risks they face in the People’s Republic of China are now increasingly present in Hong Kong," State Department spokesperson Matthew Miller said in an X post. Hong Kong authorities dismissed the advisory as " false and baseless accusations" and accused the U.S. government of "trying to create panic" in a statement published Saturday. China's Foreign Ministry echoed those views. The advisory is "a groundless attack" that "smears the business environment in Hong Kong," ministry spokesperson Mao Ning said Monday.
EMBASSY BLASTS 'CHINA WEEK' LEGISLATIVE PUSH: The House of Representatives has Beijing in its crosshairs with the launch of a "China Week" in which lawmakers will try to pass a slew of hawkish China-related legislation over the coming days (see Phelim's curtain raiser here). That legislative push kicked off Monday with the House Rules Committee teeing up five China-focused bills including H.R. 1398 – Protect America's Innovation and Economic Security from CCP Act of 2024 — and H.R. 1516 – DHS Restrictions on Confucius Institutes and Chinese Entities of Concern Act. The Chinese embassy isn't holding back on what it calls a "new McCarthyism." Some of the 20-odd bills "interfere in China’s internal affairs, infringe upon China’s sovereignty, and smear China’s image," said embassy spokesperson Liu Pengyu in a statement on Friday. Liu warned that passage of that legislation "will cause serious interference to China-U.S. relations … and will inevitably damage the U.S.’s own interests, image and credibility."
MANILA AND HANOI HATCH BEIJING RESISTANCE: The Philippines and Vietnam sent a message to Beijing last week about its increasingly aggressive moves in the South China Sea — back off. Beijing, so far, is brushing off the warning.
The letters of intent from Vietnam's Defense Minister General Phan Van Giang and his Philippine counterpart Gilberto Teodoro on Aug. 30 pledge to improve military cooperation between the two Southeast Asian nations in a formal agreement expected in December. The terms of that cooperation are modest — a focus on military medicine and humanitarian aid. But it's a way to signal that the countries' first-ever joint coast guard drills last month are part of a larger effort to curb China's power in the region. Read Phelim's full story from Friday here.
WHAT WE’RE ALSO READING THIS WEEK
BLOOMBERG: A tiny Norway port is becoming a key test of China’s Arctic ambitions.
ECONOMIST: How to get kicked out of China's Communist Party?
WALL STREET JOURNAL: China is becoming much harder for Western scholars to study.
MANY THANKS: To editor Paul Dallison, reporter Jordyn Dahl and producer Lola Boom.
This email was sent to salenamartine360.news1@blogger.com
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