Editor's Note: Greetings! On July 27th, the European Central Bank (ECB) announced its latest monetary policy decision, raising interest rates by 25 basis points. The ECB's future rate decisions will ensure that key rates remain at sufficiently strict levels when necessary to achieve the medium-term inflation target of 2%. On July 25th, the EU's "Chip Act" received approval in the European Council. The background of this act is that chips are essential for various daily items, from credit cards to cars or smartphones. With the development of artificial intelligence, 5G networks, and the Internet of Things, the demand and market opportunities for chips and semiconductors are expected to significantly increase. However, Europe currently relies too much on chips produced abroad, leading to supply interruptions and shortages in strategic sectors such as industry, health, defense, and energy. This edition of the CCCEU Weekly Update keeps you informed of China-EU dynamics. Enjoy reading and have a nice weekend.

▶︎ Focus

On July 27th, the European Central Bank announced its interest rate decision. The ECB announced a 25-basis points interest rates hike. Starting from August 2nd, the Main Refinancing Operations Rate (MROR), Marginal Lending Facility Rate (MLFR), and Deposit Facility Rate (DFR) will be raised to 4.25%, 4.50%, and 3.75% respectively. The ECB's three key interest rates have cumulatively increased by 425 basis points in less than a year. ECB President Lagarde stated in the post-meeting press conference that the outlook for economic growth and inflation remains highly uncertain.

Analysis: The interest rate hike by the European Central Bank will have some impact on Chinese companies operating in the EU. For example, it will lead to increased borrowing costs, restricted investments, exchange rate fluctuations, and intensified competition. Based on this, we believe that Chinese companies can respond in the following ways: 1) Strengthen financial planning, optimize financial structure, reduce reliance on loans, and mitigate the impact of interest rate increases on operations. 2) Establish a robust risk management system, including managing foreign exchange and market risks. 3) Actively seek diversified financing channels, such as bond issuance, equity financing, and collaboration with local financial institutions, to reduce dependence on bank loans. 4) Enhance product and service innovation, improve quality standards, increase brand awareness, and enhance competitiveness in the EU market.

The European Council issued an announcement on the 25th, officially reporting the approval of the "Chip Act." The aim of this act is to create conditions for the development of the European industrial base in the semiconductor field, attract investment, promote research and innovation, and prepare the EU for future chip supply crises. The EU plans to mobilize 43 billion euros in public and private investments (including allocating 3.3 billion euros from the EU budget) with the intention of increasing the EU's global market share of chips from the current less than 10% to 20% by 2030. Additionally, the EU will establish capacity centers, attract talent for chip research and development, set up a chip export monitoring mechanism to deal with potential supply crises, encourage member states to support chip production and entrepreneurship, and create conditions for building the EU's chip production base.

The "Chip Act" is based on three pillars: First, it proposes the "European Chip Initiative" to support large-scale technology capacity building and innovation. Second, it ensures supply security and increases advanced process chip supply capabilities by attracting more investment. Third, it establishes a crisis assessment mechanism, monitoring and crisis response system to achieve timely forecasting of shortages and coordinate actions during crises.

Analysis: The implementation of the "Chip Act" after its approval by the EU may bring both challenges and opportunities to the chip industries in China and the EU. For Chinese companies: a) It increases the difficulty of access to the EU market. b) Chinese chip companies face greater competitive pressure in the European market. c) Technology cooperation is limited, restricting technological exchanges and collaborations between China and Europe. For the EU companies: a) EU chip companies may gain a competitive advantage in the local market due to regulatory support. b) The implementation of the Chip Act may attract more investments into the EU's chip industry, improving local chip manufacturing capabilities. c) Enhancing security measures, strengthening chip product regulation and standards, and increasing the safety and reliability of EU companies' products.

The EU's move may bring new challenges to China. Based on this, we believe that Chinese companies can respond through the following approaches: 1) Technological innovation: Increase investment in chip technology research and development to enhance their technological capabilities and compete with higher-quality products. 2) Collaboration and exchange: Actively engage in technical cooperation and exchange with EU companies to promote technology sharing and improve cooperation between both sides. 3) Compliance with regulations: Adhere to EU chip laws and regulations to ensure products meet EU market standards and requirements, thereby reducing market access difficulties. 4) Diversified market strategy: Seek more market opportunities to mitigate the impact of the Chip Act on businesses.

▶︎ Hot Topics

>>Chips Act: Council gives its final approval

The Council has today approved the regulation to strengthen Europe's semiconductor ecosystem, better known as the 'Chips Act'. This is the last step in the decision-making procedure.

The Chips Act aims to create the conditions for the development of a European industrial base in the field of semiconductors, attract investment, promote research and innovation and prepare Europe for any future chip supply crisis. The programme should mobilise €43 billion in public and private investment (€3.3 billion from the EU budget), with the objective of doubling the EU's global market share in semiconductors, from 10% now to at least 20% by 2030.

>>Council adopts energy efficiency directive

The Council today adopted new rules to reduce final energy consumption at the EU level by 11.7% in 2030. Member states will benefit from flexibilities in reaching the target.

The consumption limit for final consumption will be binding for member states collectively. Member states will collectively ensure a reduction of final energy consumption of at least 11.7% in 2030, compared with the energy consumption forecasts for 2030 made in 2020. This translates into an upper limit to the EU's final energy consumption of 763 million tonnes of oil equivalent and of 993 million tonnes of oil equivalent for primary consumption.

>>Southern Europeans splash out on air-con as heatwave drags on

As Southern Europe battles extreme heat with no end in sight, people have rushed out to buy fans and even invest in air-conditioning to keep cool. Italian consumer electronics retailer Unieuro, which has more than 500 shops across the country, said sales of air-conditioning products doubled in the week to July 21 compared to the same week last year.El Corte Inglés, one of Spain's largest department store chains, said that by mid-July it had already sold 15% more units than it did last year by the end of August.

>>PM Orbán keynote speech: the USA does not accept China's victory and may go to war

PM Viktor Orbán regularly gives his annual keynote speech outside Hungary, in Transylvania, in the heart of Szeklerland, at Tusnádfürdő. He said China was in deep slumber for hundreds of years, but Beijing woke up and managed to develop as much in 30 years as other countries in 200 years. Therefore, they claim their "place under the sun". However, Washington does not accept that quick development, the fact that China preceded them in many sectors.

>>Europe Stockpiling Chinese Solar Panels, Highlighting Dependence on China

Now, Europe is following a similar playbook with solar energy. New research by Rystad Energy shows that €7 billion ($7.8 billion) worth of solar panels, or 40 gigawatts direct current (GWdc) of capacity, are sitting unused in European warehouses. This stockpile is expected to grow even larger, reaching 100 GWdc in storage by the end of 2023. The majority of these panels are coming from China, highlighting the risk of Europe depending too heavily on China for its solar needs.

▶︎ What are experts talking about？

The Serious Challenges Behind the "June Riots" in France

Source: Institute of European Studies, Chinese Academy of Social Sciences

Author: Zhang Jinling

(Research Fellow, Institute of European Studies, Chinese Academy of Social Sciences)

On June 27th, in the southern suburb of Nanterre in Paris, France, a 17-year-old North African-origin teenager named Nahel was shot dead during a police traffic check. Involving sensitive issues such as police violence and discrimination against ethnic minorities and racism, this incident immediately ignited an unprecedented wave of social riots across France.

In recent years, police violence in France has been widely criticized. As early as the beginning of 2017, there was an incident where a black youth was seriously injured due to suspected police violence, which sparked large-scale anti-police violence demonstrations. According to data from the French National Police Supervision Agency, nearly half of the more than 1,000 complaints they received in 2021 were related to police violence.

This riot has intensified the already thorny ethnic issue in France, further dividing the nation and society. Non-European ethnic minorities in France have always faced the dilemma of "not being truly accepted." From a legal perspective, ethnic minorities with citizenship are naturally part of the French nation, but in reality, due to a lack of cultural and emotional recognition from mainstream French society, their identity is still incomplete.

Resolving the EU's industrial policy trilemma

Source: European Policy Centre

Author: 

Fabian Zuleeg (Chief Executive and Chief Economist at the European Policy Centre)

Philipp Lausberg (Policy Analyst in the Europe's Political Economy programme at the European Policy Centre)

The EU is confronted with a conundrum: the industrial policy trilemma. European policy cannot achieve all goals at the same time: achieving the quadruple transition (sustainability, technology, security, and demography), maintaining the Single Market as well as national financing and control of industrial policy. Any two of these three elements can be combined but not all three. The EU will have to choose what must give in the end.

END

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.