Partner or Rival? Questions remain...

Only 2 EU countries without plans to establish FDI screening mechanism: Report.

Editor's Note: Dear readers, it appears that there is a lot of news on China-EU dynamics to digest this week. This edition follows the EU leader's latest remarks on China, as well as heavyweight reports on the EU's FDI screening mechanism and export control of dual-use items. Enjoy reading and have a lovely weekend.   

We identify the following events as key to China-EU relations:

To start with. It is always interesting to observe how EU leaders discuss China. On Monday, the President of the European Commission, von der Leyen, delivered a speech at a forum, mentioning China three times.

She spoke primarily about the conflict in the Ukraine and mentioned the "unlimited" friendship between Russia and China. She also made comments about how well her signature "European Green Deal" was being implemented. However, she claimed that China is dominant in the bloc's transition to a green economy because it is the main supplier of 10 out of 30 crucial raw materials.

On the EU's "Global Gateway," she noted that "tens of countries are on the brink of default because they cannot pay their debt with China," a claim Beijing categorically denies.

Her hawkish comments appeared the day after Mr. Borrell highlighted China's rise.

The foreign affairs chief of the EU asserted at a forum that China is "unavoidably" going to become a major power, commending Beijing's efforts to alleviate poverty and advance its economy and technology.

However, he issued a warning that Beijing is "selling" its political model and expressed concern over China's potential pursuit of the statue of an empire as it once was.

He also lamented Europe's status as a military "dwarf," saying that despite having more soldiers than the US and China, the EU's 27 member states are not seen as a significant military power and can only be united as one. He argued that the US and China shouldn't hold a bipolar dominance over the world and that the world needs Europe.

But it is clear from President von der Leyen to Mr. Borrell that the EU is still constrained by its conflicting three-thong positioning toward China—"partner, competitor, and systemic rival."

The mindset of the China-EU rivalry usually complicates matters. For instance, it is reported that Berlin has delayed a decision on whether to approve a Chinese acquisition of stakes in the German port of Hamburg.

German analysis noted the port has to compete with the ports of Antwerp and Rotterdam, which are bringing huge traffic dividends and strengthening their positions in global trade as a result of Chinese investment. The negative impact of vetoing Chinese acquisitions for "strategic security" could be a loss of competitiveness.

China has consistently and continuously positioned the EU as a comprehensive strategic partner. However, there appear to be many perceived contradictions in European policy, and the seemingly well-designed "triple positioning" appears to be "disconnected" from reality.

Nonetheless, discussions on China continue in the EU bubble: at the end of August, a European Parliament committee held a joint hearing on the influence of China and Russia; on 5 September, the European Parliament Delegation on Relations with China will meet with the Human Rights Committee to discuss China-related issues; and on 20 September, BusinessEurope will host an online conference to discuss EU-China relations.

There will be a slew of events in town, including the 8th Europe Forum 2022 on September 7th, with the theme "China-Europe Cooperation on Decarbonization."

On Friday, the European Commission released reports on the implementation of the bloc's FDI screening mechanism as well as its export controls on dual-use items.

On FDI screening, the report said only Bulgaria and Cyprus have yet to announce their intentions, despite the fact that 25 EU member states have tools in place or have just begun the legislative process.

Unfortunately, the EU's inward FDI decreased last year, falling 31% from 2020 and 68% from 2019.

Despite the fact that the global M&A market and business confidence recovered in 2021, the EU market did not "keep pace." M&A activity in the EU was still 9% lower than in 2019, while greenfield investment was 39% lower.

In 2021, US FDI accounted for 32.3% of M&A and nearly 40% of greenfield investment in the EU in 2021, with the UK coming in second. The only exceptions, both below 2020 levels, are China and Japan. China only contributes 2.3% of M&A volume, down from 3.4% in 2020, and 6% of greenfield projects, down from 7.1% in 2020, but thanks to several large deals, Chinese investment in the EU is up to €9 billion in 2021, from €6.5 billion in 2020.

In 2021, the EC reviewed more than 400 deals in the EU. Since its implementation in October 2020, the EC has reviewed over 740 FDI transactions. In 2021, less than 3% of transactions triggered an EC Commission opinion, with a focus on the security and public order sector; the top five countries notified as final investors were the US, the UK, China, the Cayman Islands, and Canada. FDI in Russia accounted for less than 1.5% of cases and Belarus for 0.2%.

Notifications were mainly related to manufacturing (44%)—covering different sectors including defence, aerospace, energy, health, semiconductor equipment, and information and communication technology (32%).

In terms of export controls, the commission says that the EU reviewed around 40,000 requests for exports of goods with potential military use to non-EU countries in 2020, worth €38.4 billion, blocking these exports in just over 550 cases.

With regard to the destination of export licences, the top 25 destinations outside the EU accounted for 94% of the value of licences, with the main destinations being China, the US, Taiwan, South Korea, and Russia. With regard to intra-EU transfers, the main destinations were France, Sweden, Finland, Germany, Spain and Belgium.

Some observers have noted that there is some "imbalance" in the implementation of the EU's unilateral economic and trade instruments.

Although the number of Chinese investment deals in Europe is far less than that of the US, UK, etc., it appears to be more likely to trigger the EU's FDI screening.

Although the EU has not provided more information regarding the veto of export controls, Chinese businesses operating in Europe have already brought up the difficulties brought on by EU export restrictions on dual-use goods. It is important to take this into account and exercise caution when implementing the EU's unilateral economic and trade instruments because of the "focus" on China.

Euro area annual inflation up to 9.1%

According to Eurostat, Euro area annual inflation is expected to be 9.1% in August 2022, up from 8.9% in July according to a flash estimate from Eurostat, the statistical office of the European Union.

In July 2022 Euro area unemployment at 6.6%

In July 2022, the euro area seasonally-adjusted unemployment rate was 6.6%, down from 6.7% in June 2022 and from 7.7% in July 2021. The EU unemployment rate was 6.0% in July 2022, down from 6.1% in June 2022 and from 6.9% in July 2021. These figures are published by Eurostat, the statistical office of the European Union. 

OECD GDP growth remains weak in the second quarter of 2022

According to OECD, in the second quarter of 2022, gross domestic product (GDP) in the OECD rose by 0.3% quarter-on-quarter according to provisional estimates, equal to the growth in the previous quarter.

In the G7, quarter-on-quarter GDP growth increased slightly in Q2 2022, by 0.2%, compared with zero growth in Q1 2022. This result reflects a mixed picture. On the one hand, GDP growth was negative in the United States and the United Kingdom (both minus 0.1%), and GDP growth in Germany slowed down sharply (0.1% compared to 0.8% in the previous quarter). On the other hand, growth turned positive in Japan and France (0.5%) and picked up pace in Italy (1.0%) and Canada (1.1%).

German chancellor Scholz visits Prague, discusses energy crisis

According to Xinhua, the European Union (EU) must find a solution to Europe's energy crisis, German Chancellor Olaf Scholz and Czech Prime Minister Petr Fiala said after a meeting here on Monday.

"We agreed on the need to find a pan-European solution to reduce electricity prices, which certainly do not correspond to production costs and are reaching a level that is not acceptable," Fiala told journalists.

EU FMs agree to suspend visa facilitation agreement with Russia

According to Xinhua, Foreign ministers of the European Union (EU) member states have agreed to suspend a visa facilitation agreement the bloc has with Russia, the EU's top diplomat Josep Borrell said here on Wednesday.

What are experts talking about?

"Grasping Development Opportunities in Addressing Global Economic Growth Challenges" by Xu Bu and Wang Jiapei of China Institute of International Studies points out that, at present, global geopolitical and security issues have become more prominent, and the world is facing major threats to peace and stable development. Global inflation is high, monetary policies in major economies are tightening at an accelerated pace. But the author believes that, at the same time, the new round of scientific and technological revolutions and industrial revolutions bring countries broader opportunities.

It would be a strategic mistake for the EU to ditch the Energy Charter Treaty published by CEPC, the author is Irina Kustova. The Modernisation of the Energy Charter Treaty (ECT), a multilateral investment treaty on energy, is an ongoing process to better align the ECT with the Paris Agreement and update certain investment provisions that have proven controversial in the past. However, there is now a growing call for the EU to exit the ECT. From a strategic viewpoint, this would be a mistake.

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.