Editor's Note: Europe experienced a bustling week: Sweden joined NATO, the EU made legislative strides, MEPs approved the AI Act, and the EC intensified investigations into Chinese companies. Meanwhile, Washington set its sights on TikTok, while Brussels began scrutinising AliExpress. Stay abreast of Chinese companies' overseas challenges and the evolving China-EU relationship with this CCCEU Weekly Update. Enjoy your reading and have a relaxing weekend.

Focus

Throughout this week, Chinese digital technology firms have encountered numerous hurdles in their international endeavours.

On March 13, the United States House of Representatives overwhelmingly passed a bill that presents a significant challenge to TikTok, owned by Chinese company ByteDance. The bill stipulates that ByteDance must divest TikTok's US assets within a 165-day period from the enactment date. Failure to do so will lead to TikTok being banned in the United States. This legislation represents the most substantial threat to the app since the Trump administration's actions against it.

On March 14, the European Commission initiated formal proceedings to investigate potential breaches of the Digital Services Act (DSA) by AliExpress. The investigation focuses on various aspects, including risk management, content moderation, complaint handling mechanisms, advertising transparency, recommender systems, trader traceability, and data access for researchers.

Indeed, the international policy landscape has consistently influenced the global expansion efforts of Chinese companies.

Reflecting on 2023, in March, the U.S. Congress conducted a hearing on TikTok lasting over 5 hours, raising concerns about the possibility of banning the globally popular app. Concurrently, Shein underwent multiple investigations by the U.S. Congress. Starting August 1, Brazil's Compliance Plan (Remessa Conforme) went into effect, regulating purchases of imported goods through platforms like Shopee, AliExpress, and SHEIN. On September 27, the Indonesian Ministry of Trade issued a statement prohibiting e-commerce transactions on social media platforms to safeguard local offline markets and SMEs. Subsequently, on October 4, TikTok Shop officially announced the closure of its Indonesian site.

Chinese companies navigating the path to globalisation contend with the uncertainties posed by international economic alliances' manoeuvres, local regulations, and concerns regarding security and privacy protection.

The U.S.'s policies, such as the divestiture bill targeting TikTok, highlight its rough approach to handling foreign technology companies. While these measures ostensibly address national security concerns, they also underscore its ambition to assert dominance in global data governance. Utilising policies and legal mechanisms, the U.S. aims to restrict and stifle Chinese tech firms, compelling them to make concessions in the U.S. market or even divest their operations. This not only presents immediate operational hurdles for Chinese enterprises but also profoundly impacts the competitive dynamics of the global tech sector.

"Abusing the pretext of national security to unjustly suppress related companies is the crux of the issue on the U.S. side," remarked Wang Wenbin during a routine press briefing at the Ministry of Foreign Affairs. He added, "Adopting an opportunistic approach to appropriate others' achievements resembles the logic of bandits."

Meanwhile, challenges stemming from the EU market predominantly revolve around its rigorous compliance standards regarding digital security, privacy rights, and ethical considerations. Regulations such as the Digital Services Act (DSA) and the General Data Protection Regulation (GDPR) mandate companies to adhere to elevated levels of transparency and accountability in managing user data, content moderation, and advertising practices. This necessitates Chinese digital technology firms allocating significant resources to ensure alignment with the EU's stringent criteria, thereby escalating operational expenses and complicating market entry strategies. Moreover, it heightens the compliance risk for businesses, as any breaches of these regulations could incur substantial penalties, not only resulting in financial ramifications but also potentially tarnishing the company's reputation and market standing.

Moreover, uncertainties in the international economic arena are on the rise, particularly with the rapid evolution of the global economic governance system, escalating tensions in U.S.-China trade relations, and the intensification of technology conflicts. Consequently, companies may find themselves caught in political maneuvers. For example, in the realm of the digital economy and governance regulations, the Indo-Pacific Economic Framework (IPEF) seeks to establish common ground on digital governance rules. However, by excluding China, a key player in digital economic advancement, this framework somewhat diminishes China's influence and authority in global digital governance, thereby constraining China's digital economic progress under the sway of others.

Significant disparities in political, economic, and cultural landscapes across countries worldwide significantly influence the integration of Chinese companies into local societies. Factors such as protectionist tendencies, varying entry policies for foreign entities, and stringent review processes in certain regions pose challenges. Additionally, limited domestic operational capabilities hinder a thorough understanding of local political economies, cultural norms, and consumer preferences. Furthermore, inadequate talent pools for localized operations result in unfamiliarity with business processes, leading to implementation hurdles, as exemplified by TikTok's struggles in the UK market.

The journey for Chinese digital technology firms with overseas operations remains arduous and protracted. Despite encountering numerous obstacles, including complex political and economic environments, increasingly stringent legal frameworks, and heightened risks in network data security, strategic adjustments, adherence to legal requirements, technological advancements, and active international collaborations offer avenues for progress. Despite being metaphorically "dancing with shackles," Chinese enterprises retain the potential to overcome challenges and realise long-term globalisation objectives.

Hot Topics

EU lawmakers greenlight AI Act

The European Parliament endorsed the Artificial Intelligence (AI) Act in Strasbourg, as reported by Xinhua. The act garnered overwhelming support, with 523 lawmakers voting in favour, 46 against, and 49 abstentions.

Thierry Breton, European Commissioner for the Internal Market, hailed the outcome, asserting that "Europe now sets the globalstandard in AI."

Following completion of all approval procedures, the actwill be published in the Official Journal of the European Union and take effect after 20 days. The implementation of relevant provisions will occur gradually.

New China-Europe freight train links the Chinese border province to Netherlands

As reported by Xinhua, a new international freight trainroute connecting Harbin, the capital of northeast China's Heilongjiang Province, with Tilburg in the Netherlands, commenced operations on March 14th.This marks the first China-Europe freight train service linking the border province with a city in the Netherlands.

A cargo train carrying 1,300 tonnes of amino acid in 55 containers, departed from the Harbin International Container Centre station on Thursday, signifying the inauguration of the service, according to ChinaRailway Harbin Group Co., Ltd.

The train is set to traverse 10,257 km via the port ofManzhouli and is expected to reach Tilburg in 15 days.

Hainan Airlines to Restart "Brussels-Shanghai" Direct Flights on June 18

According to China Civil Aviation Online (CCAonline), Hainan Airlines intends to resume its direct flight service from Shanghai, Pudong, to Brussels starting June 18. This marks the third resumption of a China-Belgium direct flight route by Hainan Airlines, following Beijing-Brussels and Shenzhen-Brussels. The Shanghai Pudong to Brussels round-trip international flight route is scheduled to operate four round-tripflights per week, with flights available on Monday, Tuesday, Thursday, and Saturday.

China conducts military staff dialogue with NATO

China's Defence Ministry announced that on March 13, Chinaand NATO engaged in their eighth military staff dialogue on security policy in Beijing. The dialogue was co-chaired by the Office of International Military Cooperation of China's Central Military Commission and the leadership of the Cooperative Security Department of NATO's International Military Staff.

During the meeting, both sides discussed defence mattersbetween China and NATO, as well as the international and regional situation.However, specific details were not provided in the ministry's statement.

EU approves a €5 billion boost for the Ukraine Military Aid fund

On March 13th, EU nations reached an agreement to allocate €5 billion in military assistance to Ukraine. Following the conclusion of ameeting among the permanent representatives of EU member states on the 14th, Belgium, currently holding the presidency, announced that consensus was reached"in principle," as reported by AFP.

This decision by the EU is seenas providing Kyiv with the necessary impetus to progress further.

The European Council mandates solar manufacturers for module recycling in EU

According to PV-Tech, the European Council has affirmed that solar module manufacturers will be accountable for the recycling and wastedisposal of modules within the EU. This decision, under an amendment to the Waste from Electrical and Electronic Equipment (WEEE) Directive, stipulates that producers of solar modules placed on the market after August 13, 2012,will bear the costs associated with recycling and disposal.

Beijing voices concern over EU EV tariffs

China will closely monitor the EU's subsequent actions and firmly safeguard the legitimate rights and interests of its companies after the European Commission implemented a special customs registration process targeting Chinese-made electric vehicles, said the Ministry of Commerce on Thursday.

What are experts talking about?

How Chinese and European Businesses View 'De-risking' - CCG Munich Roundtable

Source: Centre for China and Globalisation (CCG)

On February 19th, the Centre for China and Globalisation (CCG) and the German Federal Association for Economic Development and Foreign Trade (BWA) jointly held a special roundtable meeting at the Bayerischer Hof Hotel, just after the Munich Security Conference. The theme was "China, Europe, and Globalisation in 2024: How Can International Business Communities Cooperate Next?" It invited leaders from European and Chinese business communities, commercial organisations, and think tanks to discuss, from the perspectives of economy, trade, investment, diplomacy, and broader international geopolitical issues, the bilateral business relations between China and Europe and how to cooperate in the future. The discussions also aimed to precisely define "de-risking," how to avoid the misuse of "de-risking" sending mixed signals to bilateral enterprises, and how to promote more mutually beneficial cooperation between Chinese and European businesses in the coming Year of the Loong 2024.

The European Central Bank's timid operational framework update

Source: Bruegel
Author: Maria Demertzis, Francesco Papadia

Much ado about nothing. The Shakespearean expression conveys the message that great expectations often presage disappointment. This applies well to the European Central Bank's review of its monetary policy operational framework – the set of tools through which the ECB transforms words into market facts. The review was announced in December 2022, but when published finally by the ECB Governing Council on 13 March left more issues undecided than concluded. ECB executive board member Isabel Schnabel on 14 March clarified many analytical points but could obviously not go beyond the substantive decisions taken by the Governing Council.

The review gives no indication of the desired amount of excess liquidity to be left in the system, nor any indication of the parameters for establishing the desired amount. No information is given about the conditions applying to the ECB's new longer-term lending facilities – for instance their maturity or whether variable or fixed rates will apply. Similarly, no indication is given about the duration, composition and size of the so-called structural portfolio of securities that the ECB will hold for monetary policy purposes.

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.