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The CCCEU Weekly Update July 1, 2023: Charting the Course | Strategic Deliberations on China at the EU Summit

CCCEU| Updated: Jul 1, 2023

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Editor's Note: Greetings! The just-concluded EU summit presented a chance for leaders of states to recalibrate the bloc's China approach following the commission's "economic security strategy," a key policy to support the executive arm's de-risking rhetoric. This issue of the CCCEU Weekly Update follows recent debate in the EU bubble and the wider China-EU dynamics. Enjoy reading and have a nice weekend.

Weekly updates: Focus

China high on EU summit agenda. In a highly anticipated gathering, leaders representing the European Union's 27 member states convened in the heart of Brussels for a two-day summit that scheduled a strategic debate on China. The deliberations carried out during the high-level meeting attracted keen attention from global observers and diplomats alike. Following discussions, the European Council issued its conclusion at midday on Friday, outlining a six-point consensus pertaining to the bloc's second largest trading partner, China.

Leaders' agreement. The EU's three-pronged approach to China—partner, competitor, and systemic rival—remains unchanged, they affirmed, but cooperation, especially on addressing global challenges, was immediately stressed. While acknowledging China's significance in trade, the bloc will "de-risk or diversify where necessary and appropriate", adding that Brussels "does not intend to decouple or to turn inward."

China's role. "As a permanent member of the UN Security Council, China has a special responsibility in upholding the rules-based international order, the United Nations Charter, and international law," said the leaders' agreement, calling on China to "press Russia" to stop the war.

Resumption of Human Rights Dialogue welcomed. Among these conclusions, a significant development that could be seen as a mutual positive for both parties is the revival of the Sino-EU human rights dialogue. This resumption signifies an opportunity for constructive engagement on the matter of human rights between China and the EU.

Economic security strategy discussed but…An intriguing observation emerges: while the commission's proposed "economic security strategy" sparked discussion, the heads of state notably omitted any mention of it in their agreement. European Council President Michel affirmed that the summit's deliberation on the "economic security strategy" merely marked the initial step, implying further action to follow. This subtle omission possibly alludes to the intricacies of control within the EU concerning the commission's contentious "de-risking" strategy. Notably, the strategy has generated controversy surrounding its implications for curbing Chinese investments in Europe and tightening European high-tech investments in China.

"EU-China: two of the biggest trading partners in the world." In a striking visual representation unveiled by the European Council, the interconnectedness of bilateral trade and economic relations takes center stage. With the EU and China jointly constituting a formidable one-third share of the global GDP and a commanding portion of global trade, their economic significance remains undeniable. Notably, China has secured its position as the EU's principal import partner and ranks as the third-largest destination for EU goods exports. The exchange of goods between the two entities highlights the EU's automotive prowess, as cars stand as its primary export to China, while China's telecommunications equipment assumes a prominent role as its leading export to the EU.

De-risking takes toll on R&I cooperation. In contrast to the European Council's emphasis on cooperation, the European Commission maintains a persistent inclination towards "de-risking," driven by a mindset rooted in rivalry. This approach has progressively influenced the commission's policy formulation pertaining to China, as discerned by keen observers. A recent illustration of this disposition is apparent in the assessment report on the bloc's R&I international approach, issued on June 29, by the EC's Directorate-General for Research and Innovation.

Two Europe-China research flagships. The report openly acknowledged the influence of "systemic rivalry" between China and Europe. Notably, the report highlights two research flagships slated for 2023 and 2024 under Horizon Europe, encompassing areas such as food and biotechnology, as well as climate change and biodiversity, as the EU's collaborative ventures with China.

Limited access in innovation-related areas. "The scope of EU-China R&I cooperation reflects the fact that systemic rivalry has gained in importance and that discussions on the roadmap show positive results on research-related framework conditions but a lack of progress on innovation-related framework conditions," the report noted, adding that "given the significant concerns regarding the use of intellectual property generated under Horizon Europe, Article 22 (6) of the Horizon Europe Regulation has been applied to prevent the participation of Chinese entities in innovation actions."

In conclusion, this week's developments underscored the divergent perspectives within the EU regarding the approach to be taken in their dealings with China. The true implications and effectiveness of "de-risking" remain uncertain amidst future changes in EU leadership. China, on its part, stresses the need to ensure that "de-risking" is not employed as a guise for severing economic ties, emphasising the distinct nature of economic and national security concerns.

Weekly updates: Hot Topics

Dutch curb chip equipment exports

The Dutch government announced new restrictions on exports of some semiconductor equipment on Friday, boosting a U.S.-led drive to curb supplies of high-tech components to China but drawing an angry response from Beijing, Reuters reported.

The rules, which will require companies that make advanced chipmaking equipment to seek a licence before they can export it, are expected to go into effect on Sept. 1. A technical document specifying which equipment will require a licence accompanied the announcement.

In Friday's statement, China called on the Netherlands to "immediately correct its wrongdoings" and said the restrictions imposed in the name of national security were in fact trade restrictions that would harm both Dutch and Chinese companies.


Commission proposes digital euro act

The European Commission, proposed two acts on June 28, 2023. The first act aims to ensure the continued use of physical currency within the euro area, ensuring the public's right to choose cash payments and maintaining the smooth operation of cash channels such as ATMs and physical banks. The second act provides the option for the public and businesses to use the Digital Euro as a payment instrument.


Germany, France, Italy to invest in critical raw materials

The economic or industry ministers of Germany, France, and Italy announced on Monday that they would deepen cooperation to ensure access to critical raw materials. France has promised €500 million in public funds in this regard, while Italy will have a €1 billion investment fund. German Economy Minister Peter Altmaier mentioned the possibility of establishing a fund of up to €1 billion.


Chinese battery industry enters European energy storage market

China's battery industry is making strategic moves in the European photovoltaic energy storage market (ESS) due to challenging market access conditions in the United States under the IRA regulations, as reported by BusinessKorea. This development has raised concerns among certain media outlets, highlighting the potential direct competition between Chinese and Korean battery companies in the European market.


Airbus China-assembled aircraft delivered to European airline

Airbus has, for the first time, delivered an aircraft assembled in north China's Tianjin Municipality to a European client, Xinhua reported.

Hungary's Wizz Air, the largest Central and Eastern European low-cost carrier, took delivery of its first A321neo aircraft assembled in Airbus' Final Assembly Line (FAL Asia) at an event in Tianjin on Tuesday.

The delivery is a milestone for Airbus Tianjin, said Christoph Schrempp, general manager of the Airbus Tianjin Delivery Centre.


VW slows ID.4 and ID.7 EV production

Volkswagen is reducing the output of electric cars at its Emden plant in northern Germany due to flagging sales. Production of the ID4 full-electric SUV and the brand's new ID7 all-electric sedan will be cut over the next two weeks, the Nordwest-Zeitung newspaper reported, citing the factory's works council.


Weekly Update: What are experts talking about?

China and Europe should take the lead in establishing a digital trust mechanism (originally in Chinese)

By: Fang Xingdong 

(Executive Director of the International Communication Research Centre at Zhejiang University and President of the Wuzhen Institute for Digital Civilization)

From: Global Times

The article said that digital trust is about establishing a trust mechanism based on digital technology between nations. It is based on principles such as open technology, diverse supply, data localization for global on-demand flow, equal mutual benefit, and non-discrimination.

The first edition of the "China-Germany Digital Trust Report" reveals that the level of digital interdependence between China and Germany far exceeds expectations and that there is a significant asymmetric relationship: China's technological reliance on Germany stays much higher than Germany's reliance on China.

The importance of global digital trade is becoming increasingly prominent. Once digital trust between the two countries is lost, it will not only affect the digital economies of both sides but also have a ripple effect on the entire economic sector.

Digital trust is one of the institutional safeguards for the entire international order in the future. 


The first step to addressing China is improving the EU-US relationship

By: Georg E. Riekeles

(Associate Director and Head of Europe's Political Economy programme)

From: European Policy Centre

The US and the EU appear poised to take joint action on some of their biggest common challenges in trade and technology.

Europe can ill afford Washington's logic of economic confrontation with China and unruly competition across the Atlantic. While Washington insists on an economic and technological decoupling from China, Berlin still believes in and plays a game of mutual dependence.

Not all Europeans are ready for a hardline approach to China, but they agree on the need to protect themselves against an increasingly hegemonic and coercive power. As European Commission President von der Leyen said during a speech she gave on EU-China relations at the European Policy Centre, through the decade that Chinese leader Xi Jinping has ruled, there has been a clear push to "make China less dependent on the world and the world more dependent on China."