World Economic Forum 2022 Annual Meeting in Davos, Switzerland, May 21, 2022.[Xinhua]

A Tale of Two Davoses

After the chamber's busy annual gathering last Friday, the CCCEU Weekly Update is happy to be back. The last two weeks have seen a lot of interaction between China and the EU, but also a complex and delicate aspect that has gotten a lot of attention, particularly around the World Economic Forum's annual meeting, Sino-EU green dialogues, visits by the Chinese Special Representative to Europe, the UN Human Rights High Commissioner's trip to China, and the war in Ukraine. While the Chinese delegation, led by its climate change special envoy, had a packed itinerary for green diplomacy at Davos, European Commission President von der Leyen suggested reducing the bloc's reliance on China. Enjoy reading and have a restful holiday break!

Beyond the Readout

Chinese readouts have intrigued many journalists who attempt to decipher Beijing's tone, position, and attitude, particularly in relation to the war in Ukraine.

A recent one, following the video meeting between Chinese and German foreign ministers, garnered some criticism because the war was only briefly mentioned and  in relation to the food crisis.

Beijing, on the other hand, appears to want to convey a sharper message. Mr. Wang Lutong, director-general of China's Foreign Ministry's European Affairs Department, didn’t shy away from presenting the Chinese FM’s fresh warning in his tweet: the Russia-Ukraine conflict “must not become World War III, which could be catastrophic.” His full post can be found here.

The warning was sobering, but as the war rages on, Brussels is determined that “Ukraine must win,” as President von der Leyen stated in her speech in Davos.

On Tuesday, EU member states approved a fourth tranche of €500 million in military aid to Ukraine, increasing the bloc's total military aid to €2 billion; Brussels has imposed five rounds of sanctions on Moscow. The European Commission proposed new rules on Wednesday that would make it easier for EU member states to "freeze and confiscate" Russian oligarchs' assets.

In Davos, President von der Leyen didn't hold back from facing the harsh realities. She claimed that the Russia-Ukraine conflict was further disrupting supply chains, putting more strain on businesses and families, and creating significant uncertainty for investors, and that companies already dealing with the gloom of the pandemic were now dealing with additional pressures such as rising energy prices.

The EU intends to free itself from Russian energy. Last week, the European Commission proposed a €300 billion "REPowerEU" plan to phase out Russian fossil fuels and accelerate the green transition, with the goal of increasing renewable energy's share in the energy mix from approximately 25% today to 45 percent by 2030.

The EU also highlights its reliance on Chinese solar products in its heavyweight "REPowerEU" proposal. According to a statement, the EU has 165 Gigawatts (GW) of solar energy capacity installed and will need more than 600 GW by 2030. “And today, more than 70% of these needs are imported from a single country, China.”

The pace of the EU's and member states' green transformation has quickened in the face of the war in Ukraine. Denmark, Germany, the Netherlands, and Belgium announced last week that they will work together to harness North Sea offshore wind energy and quadruple their offshore wind power capacity by 2030.

In March, the EU and the U.S. agreed to significantly boost US LNG deliveries to the EU to replace roughly a third of the EU's current Russian gas, and the EU would also purchase more LNG and pipeline gas from the Middle East and North Africa. In Greece, Cyprus, and Poland, new LNG terminals are set to open. In addition, the EU also eyes hydrogen, calling it “the new frontier of Europe’s energy network.”

The spillover from the Russia-Ukraine conflict is taking a toll on China-EU relations.

A report released a fortnight ago by the European Council on Foreign Relations cautioned that the EU's green sector is at risk of becoming overly reliant on China. Now, it appears that this worry has been passed on to the EU leadership.

At least two top commission officials have euphemistically voiced a wish to minimise their strategic reliance on China in the green and trade sectors this week. One is von der Leyen herself, who stated in her Davos address that the future economy is reliant on lithium for batteries, silicon metal for chips, and rare earth permanent magnets for moving automobiles and wind turbines, all of which the EU sources from "a handful of producers in the world". She said, without naming China or any other country: "We must avoid falling into the same trap as with oil and gas. We should not replace old dependencies with new ones. “

The second was Vice President Vestager, who was quoted in the German newspaper "Handelsblatt" on Wednesday as saying that Europe wants to be independent of China and Russia, which would mean much higher prices for European consumers.

Vestager reportedly said, "A large part of European industry is based on very cheap energy from Russia, on very cheap labour from China and on highly subsidised semiconductors from Taiwan…The lesson I learned: We have to pay a security premium."

In contrast to the EU's efforts to decouple from Russia and its intention to reduce dependency on China, China appears to have been more active in its engagement with Europe since the 23rd China-EU Summit on 1 April, as it has been this week.

First, in Davos.

The Chinese delegation's packed agenda has sparked a frenzy of "green" diplomacy. Xie Zhenhua, China's special envoy for climate change, led a Chinese delegation to the World Economic Forum 2022 annual meeting between Sunday and Tuesday.

Xie gave a speech at the "Safeguarding Our Planet and People" stakeholder dialogue, where he interacted with various parties on four topics: maintaining the direction of nature and climate action, food security, the critical link between biodiversity and climate, and maintaining momentum for nature and climate action. He also met with movers and shakers, as well as businesspeople, during his stay in Davos.

According to the European Commission, Vice President Frans Timmermans, who also attended the Davos event, will travel to Germany and meet with Mr. Xie in Berlin, barely over ten days after their previous video conference.

Meanwhile, the other veteran Chinese diplomat, China's first special representative for European affairs Mr Wu Hongbo, has landed in the EU headquarters for the second time in about six months.

The South China Morning Post reported that officials from the EU's foreign affairs arm would meet with Mr. Wu.Brussels and Beijing are also scheduling a high-level economic and trade meeting for the end of June.

According to the Chinese Embassy in Belgium, on Tuesday, Ambassador Wu met with the Belgian Foreign Ministry's director general for bilateral affairs, during which the two sides discussed subjects of common interest, such as China-Belgium and China-EU relations.

Not long ago, another Chinese group toured eight central and eastern European countries: the Czech Republic, Slovakia, Hungary, Croatia, Slovenia, Estonia, Latvia, and Poland.

Some observations on recent China-EU developments:

To begin with, despite negative murmurs from western media or think tanks, China and the EU maintain working-level dialogues, particularly in the green field, which is a new highlight; special representatives from the Chinese side are shuttling around Europe one after the other, with a promising focus on repairing and developing China-EU relations. Bilateral economic and trade figures remain solid for the time being.

Second, Europe's concern about its reliance on China has spread, from previously "sensitive" strategic areas like digital, raw materials, and rare earths to new energy and green transformation, a concern that likely stems from a lack of strategic mutual trust in the new geopolitical context and a growing perception of "institutional rivalry" with China.

It also demonstrates the EU's alienation and precautions against China from the perspective of "value added" economic and trade diplomacy. How the EU responds to and deals with such concerns demands careful consideration and further research.

Finally, as the war in Ukraine drags on, external risks and confrontational variables may become more prevalent. A tranquil and steady atmosphere for development is extremely rare and valuable. The Chinese side advocates being "cool-headed" and doing things "that help restore peace," while the "Russia-Ukraine conflict must not become World War III" is deafening.

Finland and Sweden move closer to join NATO

Finland and Sweden have formally submitted their applications to NATO Secretary-General Jens Stoltenberg, who said the move was a "historic step" in a "critical moment" for European security.

Russian President Vladimir Putin said Finland and Sweden’s bids to join NATO posed no direct threat to Russia, but warned the Western military alliance against moving weapons into the two countries’ territories.

According to China News Service, China and Finland enjoy very friendly relations, and Finland's application to join NATO will naturally add new factors to bilateral relations, Chinese Foreign Ministry spokesperson Zhao Lijian said on May 16.

China's position on the European security issue is consistent and clear, said Zhao at a press conference held on May 16. "We hope all sides will follow the principle of indivisible security and build a balanced, effective and sustainable regional security architecture through dialogue and negotiation on the basis of respecting each other’s legitimate concerns and guided by the vision of common, comprehensive, cooperative and sustainable security," said the spokesperson.

"This is the only way to realize lasting peace and true security in Europe," the spokesperson added.
 

ENVI approves CBAM text

On the afternoon of May 17, the European Parliament's Committee on the Environment, Public Health and Food Safety (ENVI) voted to adopt the text of the Carbon Border Adjustment Mechanism (CBAM) bill.

CBAM is essentially a carbon tax on specific imports, intended to protect climate action in the EU from "carbon leakage" caused by European companies outsourcing production to countries with lower emissions targets.

The report is scheduled for a vote in plenary session June 6-9, and the European Parliament will be ready to start negotiations with member states, the Parliament said.
 

What are experts talking about?

"Two Models of NATO - Prospects for Finland and Sweden to Join NATO" was published on May 17 on the website of the Russian newspaper Kommersant. The author is Andrei Kortunov, director of the Russian Council for International Affairs and Valdai Club expert.

According to the article, at least two distinct models for the participation of sub-regional countries in NATO have developed in Northern Europe. One is the "Baltic model", represented by Estonia, Latvia, Lithuania and Poland. This model positions the country as an impregnable military and political outpost of Western civilization. The “Scandinavian model”, chosen by Norway, Iceland and Denmark, combines NATO membership with a policy of active bilateral cooperation with Moscow and a more restrained approach to excessive NATO activities on their territories. The choice of how Finland and Sweden "join" NATO is of great importance to Russia and will depend on many decisions made by Moscow.

“The Impact of the Russia-Ukraine Crisis on the World Economy," released by the Center for Strategic and Security Studies at Tsinghua University, is authored by Ding Yifan, a contributing expert to China Forum and vice president of the Chinese Society for World Economics. This article divides the impact of the Russia-Ukraine crisis on the world economy into the near, medium and long term. And points out the long-term impact of the Russia-Ukraine crisis will lead to perhaps a major restructuring of the world economic landscape.

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.