The Future of China-Europe Engagement
Watch it on NIICE Nepal Youtube Channel
Event Report
A webinar was conducted by the Nepal Institute for International Cooperation and Engagement (NIICE) on the future engagement between China and the European Union (EU). The discussion was led by Dr. Ivana Karásková, a project coordinator from the Association for International Affairs in the Czech Republic. Throughout the discussion, Dr. Karásková focused on the economic relations between China and the EU by determining its strengths, weaknesses, threats, opportunities, revolving issues, and economic legislation.
In the first part of the discussion, the speaker shared a brief background of the economic relations between the EU and China concerning its benefits and threats. Over the past decades, China has been known as a rising power with its continuous growth in the country’s gross domestic product (GDP). The country’s share on the global economy has risen from 2 percent to 18 percent in 2021. China became the third largest partner for export goods and the largest partner for import goods of the EU. Therefore, the EU recognized China as an essential economic partner, and at the same time, a strategic rival and competitor.
Dr. Karásková prepared a SWOT Analysis to identify the strengths and weaknesses of the EU and opportunities and threats in China.
Strengths: The EU has a favourable position in terms of knowledge of technology that sets an advantage in the Chinese local markets. The high-quality products and services of the European companies are also the reason behind the EU’s strong presence in China.
Weaknesses: The problematic part of the EU is concerned with the strong currency which sets a high price on the import of European goods for the local markets and huge risk for the small and medium-sized enterprises (SMEs).
Opportunities: Despite the number of problems in the Chinese market, the EU still considered the opportunities in China including its expanding market, availability of raw materials, and low-cost skilled labour.
Threats: European companies have been vocal about the force of technology transfer, discriminatory treatment, and weak enforcement of International Property Rights (IPR).
The speaker pointed out that it is not only the Chinese companies that are benefiting from their partnership with foreign counterparts but also the European companies residing in China. These include the cheaper cost of labour, lesser stringent control on using the environment and work safety standards. With the EU’s goal of moving toward cleaner energy, these made companies relocate their production to other parts of the world.
Chinese companies have been initially welcomed by the EU and were treated as other Asian investors. However, things have turned the tide back in 2016 when a Chinese company was trying to buy a German company of appliances. Data had shown an influx of Chinese foreign direct investment (FDI) targeting European companies in the high-technology sector. Thus, this situation triggered concerns about national security and military implications. In February 2017, the three European countries – France, Germany, and Italy – started the discussion on the regulations for holding Chinese takeovers of European companies, particularly those producing “important technologies”. This discussion evolved later on as the EU investment screening mechanism that came into force in April 2019 and was implemented by October 2020. The mechanism is applied to all investors of any nationality that are interested in entering the European market. Several member states of the EU decided to impose their investment screening which has stricter conditions. Putting it into a basket, the screening mechanism was structuralized not to entirely close the Chinese investment to the EU, instead, it will limit the uncontrolled influx of Chinese FDI and will regulate the sharing of information among EU member states with the European commission. This screening mechanism will serve as a bargaining chip for European companies to gain fair access to the Chinese market.
The speaker asserted that the European companies have observed that forming a business relationship with China through investments may not be without any strings attached, including security considerations. Thus, Dr. Karásková emphasized two essential legislations by the EU in dealing with the risk. The first one is the Comprehensive Agreement on Investment (CAI) which was originally proposed back in 2013 and concluded last December 2020. In essence, it eliminates joint venture requirements, forced transfer of technology, equity caps, and quantitative restrictions. However, this agreement was controversial as it was hastily completed due to the insistence of China who wanted to have it before the start of US president Joe Biden’s term. There is also a lack of internal agreement between the member states of the EU because of uncertainties and trust issues regarding the similar pledges made by Chinese President Xi Jinping. Therefore, the questionable part of CAI is how will it differ from other similar agreements and if China would comply with the conditions. The second legislation is the newly proposed Anti-Coercion Instrument which is linked to trade barriers and sanctions. Its mechanism is focused on helping a country that is sanctioned or under economic coercion to leverage its losses. This was initiated in reference to China’s sanction on Lithuanian goods following its refusal to participate in the format for cooperation between China and the Central and Eastern European Countries and the renaming of the Taiwanese representative office in Vilnius in 2021. Simultaneously, the EU appealed to the World Trade Organisation (WTO) to investigate the case of Chinese activities against Lithuanian goods.
Dr. Karásková concluded that the EU’s economic demands remain unchanged for decades. The EU wanted China to end its non-tariff barriers and open up some of its sectors that are closed to foreign investment including telecommunication and media. Additionally, the EU also demands the discontinuance of subsidies, forced transfers of technology, and joint ventures. The Lithuanian sanction issue with China triggered new demands to end the economic pressure between the EU and China. However, the speaker asserted that this might be quite difficult for the EU considering that its member states have different approaches to economic measures and interests.
Prepared by Nikki Leoniza S. Abarientos, Intern at NIICE.