Editor's Note: Greetings from Brussels. This edition of CCCEU Weekly Update keeps you updated on the most recent developments in the EU's fresh European Economic Security Package (EESP) and China-EU dynamics. Enjoy your read and have a nice weekend.

▶︎ Focus

The economic and trade agenda in Brussels this week has been dominated by the "European Economic Security Package." Despite the European Commission's hope that international cooperation is not viewed through a lens of "risk," this package, as part of the EU's "de-risking" effort, is set to create more barriers and obstacles in the EU's bilateral investment environment, exports, and scientific research cooperation, especially in areas deemed "risky" by the EU.

After the package was announced by European Commission Vice-Presidents Vestager and Dombrovskis, the EU's lawmakers quickly followed up. This week, the European Parliament's INTA committee held two discussions with officials from the Commission's DG Trade on the EESP as well as the revision of the FDI screening regulation. Next week, Ms. Vestager and Mr. Dombrovskis will head to Washington, D.C., to attend the EU-US Trade and Technology Council, including presenting the package.

People should not look at the rest of the world only through the lens of "risk," otherwise they lose the reward from international cooperation, Sabine Weyand, Director-General for Trade of the European Commission, told MEPs on January 24, hours after the commission unveiled the EESP, which consists of five initiatives on FDI screening, outbound investments, export control, dual use research, and research security. However, she inevitably addressed the fact that the package is part of the EU's "de-risking" efforts.

On Thursday, another DG-Trade official was dispatched to discuss with parliamentarians the revision of the FDI screening mechanism, a key element of EESP. The Commission side seemed surprised that media headlines around the EESP were almost all about China.

If you look at EESP's content and context, it involves other countries as well, as Weyand noted. Another official was more straightforward, stating that a new element in the FDI screening mechanism revision is to review investments in the EU by sanctioned individuals or entities, reflecting the "reality" after the Ukraine crisis.

This is one example of how geopolitical conflicts have profoundly changed the political and economic landscape of the 27-country bloc. The consciousness of "risk" looms over the EU's external economic and trade agenda, surpassing the importance of economic "growth" or recovery and accelerating the trend towards inward-lookingness and protectionism within the bloc.

Despite the EU's hopes that its various economic tools (FSR, FDI screening, anti-coercion instruments, etc.) "do not change the openness of the EU market and the competitiveness of EU industries," its policy shift—as ECB President Lagarde put it at the Davos Forum, emphasising "security" over "efficiency" in external relations—may in practice diverge from openness and development.

Returning to European Commission President von der Leyen's signature EESP, its five initiatives are closely interconnected. For instance, the critical revision of the FDI screening mechanism was proposed to extend to military and dual-use items, critical technologies, and critical entities in the financial sector. The subjects of screening include not only non-EU companies but also foreign-controlled European subsidiaries, encouraging coverage of greenfield investments. The package also fuels "pressure" on the remaining five countries yet to establish FDI screening mechanisms: Ireland, Greece, Cyprus, Croatia, and Bulgaria.

One aspect of the European Commission's revised FDI screening mechanism that brings significant uncertainty to investments is the post-closing review, which allows for scrutiny and prohibition of deals at least 15 months after completion.

The European Commission hopes to focus on high-risk investment deals in the future and lists "EU interests" and critical technologies in two annexes. It is foreseeable that, in addition to the key strategic industries previously focused on by the FDI screening mechanism, foreign investment in some "future-oriented" high-tech industries may now fall under regulatory oversight.

The fate of Brussels' EESP is also linked to the upcoming EU election. As analysed, the current presidency of Belgium is prioritising legislations that can be completed during its tenure. With the European Parliament's last formal discussion in April, it is expected that discussions may resume in September with the new Parliament and Committees. Even if the package gets through legal wrestling between the EP and member states, with implementation scheduled around 15 months later, overall, it seems unlikely that the new rules will apply before 2026.

Nevertheless, the EESP has attracted widespread attention for its significant and far-reaching impact on investment, trade, and technology, sparking controversy at the same time. The Chinese business community's concerns were loud. However, complaints about the Commission's EESP are not uncommon, such as the German machinery industry association stating that the new measures "make export controls more complex, create more bureaucracy, but do not promote development."

▶︎ Hot Topics

 >>Xi, Macron deliver video speeches to celebrate China-France ties

On January 25, Chinese President Xi Jinping delivered a video speech at a reception in Beijing celebrating the 60th anniversary of the establishment of diplomatic ties between China and France.

Over the past 60 years, China-France relations have always been at the forefront of China's relations with Western countries, bringing benefits to the two peoples and contributing to world peace, stability, and development, Xi said.

French President Emmanuel Macron sent his virtual congratulations as well. He said France and China have the responsibility to build on the ambitious goals set in 1964 and continue to work together to build a partnership that not only meets the needs of the two peoples but also contributes to world peace and stability.

 >>China, EU hold 15th China-EU Financial Dialogue in Beijing

According to the Chinese Ministry of Finance, on January 22, 2024, Vice Minister of Finance Liao Min, the European Commission's Directorate-General for Economic and Financial Affairs, the Director-General for Financial Stability, Financial Services, and Capital Markets Union, and the head of the EU Delegation to China co-chaired the 15th China-EU Financial Dialogue in Beijing.

The dialogue had in-depth discussions on the China-EU macroeconomic situation and policy responses, China-EU cooperation under the framework of the Group of Twenty (G20), financial stability and financial industry development cooperation, and sustainable finance. Relevant economic and financial officials from China and the EU attended the meeting.

 >>China, EU hold talks on social matters

According to the Chinese Ministry of Human Resources and Social Security, on January 18, 2024, Vice Minister of the Ministry of Human Resources and Social Security Li Zhong met with the EU Ambassador to China Jorge Toledo to exchange views on China-EU cooperation in the fields of employment and social matters, especially social protection.

They also witnessed the signing of the MOU for cooperation in the implementation of the Project on Improving China's Institutional Capacity towards Universal Social Protection (Phase 2).

  >>Brussels Reviews RED II Criteria for Chinese Biodiesel Imports

On January 24, 2024, European Commission Vice President Dombrovskis responded to the EU's relevant investigation into Chinese biodiesel in a written answer; he said that the European Commission is working with member states to examine whether the Renewable Energy Directive (RED II) sustainability and greenhouse gas savings criteria were met in cases of biodiesel imports from China into the EU.

As he said, "to help Member States mitigate the risk of irregularities and fraud in the supply chain related to the wrong labelling of fuels, increase transparency, and help prevent possible fraud cases,"  the European Commission is setting up an EU database that will trace the supply chains of feedstock and renewable fuels that are eventually consumed in the EU. The database will be operational in January 2024.

 >>German exports to China and US plummet

Exports to Germany's most important overseas trade partners, including the United States and China, fell significantly at the end of last year, according to statistics office data on Monday, Reuters reported.

In December, exports to countries outside the European Union fell 4.0% compared with November, on a calendar and seasonally adjusted basis, to 57.2 billion euros ($62.27 billion), it said.

Compared with December 2022, there was an even steeper decline in exports to non-EU countries of 9.2%, it added. According to the Kiel Institute for the World Economy, Germany's total exports may fall by 1.4% in 2023, remain stagnant in 2024, and may not grow significantly until 2025.

>>European Commission intends to block Amazon's acquisition of iRobot

The EU's antitrust regulators plan to block Amazon's $1.7 billion acquisition of Roomba maker iRobot, the insiders said, according to the Wall Street Journal report. European Commission officials recently met with Amazon representatives to discuss the deal, according to one of the insiders. Amazon was told that the acquisition was likely to be blocked during the talk.

▶︎ What are experts talking about？

"Sino-French Diplomacy: Pioneering Relations"

Author: Zhang Jinling, researcher at the Institute of European Studies, Chinese Academy of Social Sciences

Source: "World Knowledge"

China and France, which have always adhered to the concepts of independence and mutual benefit, have gone through 60 years together. During this period, one after another "firsts" jointly created by the two countries have become important milestones for the continued deepening of mutual cooperation and the continuous development of bilateral relations.

This paper reviews the interactions and negotiations before the establishment of diplomatic relations between China and France, the discussions and negotiations on the establishment of diplomatic relations, and the development of relations between the two countries in the first decade after the establishment of diplomatic relations, which is full of insights.

A sharp right turn: A forecast for the 2024 European Parliament elections

Author: Kevin Cunningham, Susi Dennison, Simon Hix, Imogen Learmonth

Source: European Council on Foreign Affairs

The 2024 European Parliament elections will see a major shift to the right in many countries, with populist radical right parties gaining votes and seats across the EU and centre-left and green parties losing votes and seats.

Anti-European populists are likely to top the polls in nine member states (Austria, Belgium, the Czech Republic, France, Hungary, Italy, the Netherlands, Poland, and Slovakia) and come second or third in a further nine countries (Bulgaria, Estonia, Finland, Germany, Latvia, Portugal, Romania, Spain, and Sweden).

According to our forecast, almost half the seats will be held by MEPs outside the "super grand coalition" of the three centrist groups. Inside the European Parliament, a populist right coalition of Christian Democrats, conservatives, and radical right MEPs could emerge with a majority for the first time.

This "sharp right turn" is likely to have significant consequences for European-level policies, which will affect the foreign policy choices that the EU can make, particularly on environmental issues, where the new majority is likely to oppose ambitious EU action to tackle climate change.

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.

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