#1 EU DIVIDES ON CHINA
#2 CHINA’S TROUBLED PROPERTY SECTOR
#3 CHINA’S BRI INITIATIVE – ALIVE AND KICKING
#1 EU DIVIDES ON HANDLING CHINA
NIKKEI ASIA
“European Commission chief Ursula von der Leyen has built an image over the past year as the continent’s toughest talker on China. But just months before the end of her first term in office, a string of high-minded legislative moves and actions targeting Beijing have run into political reality as the wheels appear to be coming off its combative agenda.
Splits are emerging with France and Germany at odds on everything from solar energy and electric vehicles to trade deals and supply chains. “There is no such thing as a Franco-German couple any more, it just doesn’t work … the division on China is typical of that,” said a French diplomat, speaking on condition of anonymity.
Last month the EU suspended a World Trade Organization dispute with Beijing over its alleged economic coercion of Lithuania. The Baltic state saw its exports to China collapse after it allowed a controversially named Taiwanese government office to open in Vilnius in late 2021.
The EU represents its members at the WTO and Von der Leyen’s self-described “geopolitical commission” was under pressure to sue China, despite lawyers’ warnings that unofficial boycotts do not fall neatly into WTO rules. The EU decided to suspend the case at the end of last month when a second tranche of evidence was due to be submitted. It now has 12 months to resume it but observers question whether the WTO is cut out for dealing with such matters.
In legislative terms, too, the EU agenda is in danger of running aground. Von der Leyen’s flagship de-risking project, unveiled last March, has been put on the back burner amid furious resistance from member states. Key tenets of de-risking, plans to screen outbound investments and impose export controls kicked a hornets’ nest.
Some capitals were angered by the conflation of national and economic security, the perceived “power grab” by Brussels, and what one diplomat described as the “blind following” of US China policy.
The policy has been kicked into 2025, with insiders believing its best chance of succeeding may be based on Beijing’s own actions. “There will be plenty of wake-up calls on the road ahead,” one official said. Tough corporate supply chain rules – that would force big businesses to conduct stringent social, labour and environmental audits of their suppliers – are also at risk of collapsing.
Businesses fear the plans could push them out of the Chinese market, with one senior lobbyist questioning how they could comply with Beijing’s vague anti-espionage and data outflow rules while providing the information Brussels requires.
A forced labour ban being negotiated between the European Parliament and Council, which represents member states, could face a similar fate. The law was written with China in mind, due to allegations of forced labour in Xinjiang, although it is not named directly. Negotiators must strike a deal by March 9 or it will be mothballed until after June’s European Parliament elections, when the political landscape could look very different. Talks, however, are proving tricky.
‘Neither commission nor member states want to take responsibility for inspections. They don’t want to say they unleashed this administrative monster before elections,’ said one person involved.
The EU faces a related dilemma over Chinese solar panels. There it is torn between calls for a ban on panels linked to Xinjiang and broader import quotas, and fears it cannot reach its climate goals without these imports.
Last month EU trade officials held in-depth discussions on measures available to protect the solar industry from Chinese imports, people familiar with the discussions said, but held fire because of divisions within the industry and among member states. Behind the scenes, officials fret about Chinese retaliation and the impact of a solar trade war on its ability to hit its climate targets.
The bloc’s finance chief Mairead McGuinness said on Monday it needs “access to affordable solar panels to fuel the green transition and unlock the economic opportunities”, and Europe’s own industry currently relies on Chinese-made components.
But Europe’s biggest supplier is Huawei Technologies, which the EU is trying to get out of its 5G network at a time when there has been little debate about the fact it supplied 26 per cent of Europe’s inverters in 2021, according to consultancy Wood MacKenzie.
The solar debate is symptomatic of the wider Franco-German division at the heart of EU policy. France, which generated less than 5 per cent of its electricity using solar power last year, would back curbs on Chinese products. In stark contrast, Germany is increasingly reliant on green energy and strongly opposes such measures.
France was also behind a probe into Chinese-made electric vehicles that infuriated the Germans, whose firms would be disproportionately hit by import duties.
Berlin strongly backed a push for a free-trade deal with the South American Mercosur bloc that could help the EU de-risking process by weaning it off Chinese minerals. But France vetoed the deal, as President Emmanuel Macron seeks to court the farmers’ votes ahead of the European elections.
Meanwhile, the pair are vying for the attentions of Chinese leader Xi Jinping. A business source confirmed that German Chancellor Olaf Scholz will go to Beijing in April accompanied by industry representatives. Macron, on the other hand, is expecting France to be Xi’s first post-Covid European destination. “I’d say before the EU elections, with Macron wanting to put on a show of power to change the course of what looks like a very bad result for him,” the French diplomat said of the timing.”
GRAHAM PERRY COMMENTS
The EU has more division and less unity where China is concerned. This should not be a surprise. The EU is a combination of countries that come together to promote a common purpose – to stand together and present a united front to China. But each individual government is beholden not to Brussels and the European Commission chief Ursula von der Leyen but to the electors in each of their own countries. There are occasions when the member countries can make common cause and unite on a particular issue and when that occurs the EU can exercise formidable power. But the actual unity of action, as William Shakespeare wrote, is observed more in the breach than in the performance.
There is no government in the world that has more experience of the politics of negotiation than China. The Party came into existence in 1921 and through every year it has had to negotiate with the Kuomintang, the USA, the Japanese, the Indians, the British, the United Nations, the IMF. The list is very long and the experience of different negotiations has emboldened the Government of China to be confident and assertive in pursuit of its own goals.
China is particularly experienced in exploiting discord when it arises on the other side of the table. The starting point is Mao Tsetung’s article entitled On Contradiction – the primary contradiction and the secondary contradiction; and the analysis of the principal antagonistic aspect of the contradiction and also the non-antagonistic aspect of the principal contradiction and the changing relationship between the two. Things are always changing. Movement is constant and stability is temporary and the applicable formulas at any one time depend on a clear analysis of the issue.
China will have done its homework on the EU and it will have a firm grasp of the ebb and flow of rising and falling issues. Whether it is solar panels or SRV automobiles, or Huawei or Lithuania or forced labour in Xinjiang, China will know how the arguments are distributed between the EU countries. At the start of every Politburo Meeting, the Party will, first, engage in the study and the application of the works of Mao. They are regarded as an essential guide to action and China’s EU team will surely have looked at On Contradiction and prepared for the approaching meeting with the EU Commission.
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#2 CHINA’S TROUBLED PROPERTY SECTOR
WALL STREET JOURNAL
“In a January speech, which was widely circulated on China’s internet, Huang Qifan, a former senior economic adviser to the country’s national legislature, said housing prices in China had already fallen by as much as 20% over the past few years.
If prices were to decline another 30% this year, as some have estimated, Huang said, the government could “take the opportunity” to use a projected $700 billion or so to buy up properties at reduced prices and then lease them out as government-subsidized housing.
That way, Huang said, the government could help developers get unsold or unfinished properties off their books and shield banks from huge loan losses. The approach could allow the government to both “save the housing market” and avoid having to spend more to build out social housing on its own, he said.
The strategy that Huang outlined is in keeping with the view of some current officials, according to policy advisers involved in discussions. For policymakers, the property meltdown might actually provide an opportunity for the government to swoop in to buy more properties at a lower cost, making it easier for authorities to reach its goal of adding more affordable housing to the market.
However, if the government insists on buying excess housing at steep discounts, say 50% below the levels from three or five years ago, many existing homeowners would stand to lose or even see their equity wiped out—a knotty moral conundrum for any government, especially for one promoting socialist ideals.
In addition, some analysts think the approach described by Huang suggests that the government would not only receive rental income, effectively making it a massive landlord, but also gain from any potential price appreciation down the road.
To be sure, the devil is in the details—and for now, details are woefully scarce. That absence of particulars on the design, scale and expected implementation of any such social-housing plan has left some wondering if such grand plans will only accelerate the state’s advance at the expense of the private sector.”
GRAHAM PERRY COMMENTS;-
It is inevitable that the problems affecting China’s property sector will attract much comment. Clearly things have gone wrong and China’s critics will use this setback to call into question the viability of the Chinese model of development. China’s response is therefore being watched with interest by the rest of the world. The news this week that China has cut the interest rate for mortgage loans suggests that more policy initiatives will follow to assist the crisis-hit property market.
On 20 February 2024, the People’s Bank of China (PBOC) lowered the five-year loan prime rate (LPR), which commercial banks use as a benchmark to adjust their mortgage rates, from 4.2 to 3.95 per cent, marking the largest rollback since the system was introduced in 2019.
The rate cut was more than the market expected, which may indicate that the policymakers recognise the need to take action quickly. “The LPR rate cut is another step in the right direction to address the deflation problem China faces,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, adding that more aggressive fiscal policy easing is needed to boost effectiveness.
More steps will follow. Correcting the imbalance in the property sector and the negative consequences to Chinese citizens will be a medium to long term policy move but the interest rate cut is a move in the right direction. More is called for than mere rate adjustments and Beijing is aware of the importance of learning the right lessons from the Evergrande and Country Garden collapse. This Column will continue to report on the Government’s policy responses to the property setback.
#3 BIG INCREASE IN CHINA – AFRICA INVESTMENT
SOUTH CHINA MORNING POST
“China’s increased appetite for metals and minerals to power its industries is fuelling a boom in Chinese investments and construction deals in Africa, after years of slowdown partly caused by the coronavirus pandemic.
African countries that have a Belt and Road Initiative cooperation agreement with China saw a 47 per cent jump in Chinese construction contracts and a 114 per cent increase in investments last year compared with 2022, according to the China Belt and Road Initiative Investment report for 2023 by the Griffith Asia Institute at Griffith University in Brisbane, Australia.
The increase in 2023 saw Africa become the largest recipient of Chinese engagement, worth US$21.7 billion, overtaking Middle Eastern countries which saw US$15.8 billion in engagement.
Meanwhile, East Asian Belt and Road countries expanded their intake of 94 per cent to US$6.8 billion in 2023, according to the report, which was produced in collaboration with the Green Finance & Development Centre of the Fanhai InternatUniversity, Shanghai.
Observers expect the upward trend for Chinese investments in Africa to continue, though they say they will not reach the same levels that were seen a decade ago. Powering the recovery is the race for raw minerals that are vital in the global transition to green energy.
Major players in this transition are the electric vehicle, battery and renewable energy industries, referred to as the “New Three” by the report’s author Professor Christoph Nedopil Wang, a director at Griffith Asia Institute.
Other resource-rich African countries including the Democratic Republic of the Congo (DRC), Namibia, Zimbabwe and Mali have all witnessed a rush by China to secure minerals, in particular raw materials such as cobalt and lithium which are essential for making electric vehicle batteries and electronics. As well as leading the charge for vital minerals, Chinese companies have also won construction deals in energy, railways, roads and real estate in various African countries.
The Chinese companies will build the 506km line connecting the towns of Tabora in the mid-west of the country with Kigoma, on Lake Tanganyika near the Burundi and DRC borders. In 2021, the two Chinese entities were also appointed to construct the fifth phase of the SGR line, about 250km long, connecting the town of Isaka with Mwanza, the second-largest city in Tanzania.
Meanwhile, Chinese companies, including China National Petroleum Corp, China Energy Engineering Corporation, and China Communications Construction Company, last year won construction projects worth US$930 million in Tanzania. Plus Chinese firm Weihai Huatan is investing US$110 million to build the East Africa Commercial and Logistics Centre there.
Nedopil Wang, who is also a director at Green Finance & Development Centre, said the top destinations for investment and construction engagement were Tanzania, the DRC, Nigeria, Botswana, Algeria, Zimbabwe and Ethiopia.
Yun Sun, co-director of the East Asia Programme and director of the China Programme at the Washington-based Stimson Centre, said: “As China reopens, investment will resume, but loans have always been the more significant portion of Chinese financing.”
