Editor's Note:  Greetings from Brussels. While elections are taking centre stage in European agendas, business barriers appear to be on the rise for Chinese companies operating in the EU. This edition of the CCCEU Weekly Update will keep you informed about the latest developments in China-EU dynamics. Enjoy your read and have a restful weekend.

Focus

On April 9th, the European Parliament's Foreign Affairs Committee is slated to deliberate on the report "EU-China relations: De-risking or de-coupling − the future of the EU strategy towards China" prior to a "mini-plenary" in Brussels. However, the trajectory of such discussion remains uncertain amidst imminent changes in the composition of MEPs in the coming months.

The EU elections in June has cast Brussels into the throes of political fervor. Just this Friday, Mr. Mr Bjoern Seibert, Head of Cabinet of the European Commission President von der Leyen, applied for unpaid leave to devote his attention to Ms. von der Leyen's campaign, a move underlining widespread expectations of her re-election.

A sense of departure also looms. On Friday, the EU-US Trade and Technology Council (TTC) gathered in Leuven, a town near Brussels. Speculation arises that this Belgian city, celebrated for its university and beer, could witness the last TTC meeting between thecurrent European Commission officials and their US counterparts. Despite its ambitious aims, TTC appears more about talk than action for both sides, except for its role in facilitating Brussels and Washington to synchronize their approach towards China.

While elections in both the EU and the U.S. have captured the attention of politicians, barriers to access and market entry in relation to China have notably intensified, indicating a persistent trend. Observers argue that China's dominance in manufacturing value and higher value-added sectors has positioned it competitively, triggering direct competition with the United States and Europe across various industries. This escalating rivalry is likened to an "industrial tsunami," forecasted to profoundly affect the underpinnings of Western manufacturing sectors.

Moreover, the EU, known for its prominent role in global rule-making, has leveraged its standards and regulatory advantages in recent years. It has continuously enhanced its economic arsenal, focusing on key areas such as investment, high-tech industries, low-carbon transition, and due diligence. This strategic approach has resulted in the establishment of novel market and business barriers. This week, the EU has demonstrated its commitment to testing the limits of protectionism by employing its latest tools.

On Wednesday, the EU announced two in-depth investigations under the Foreign Subsidies Regulation (FSR) in the solar  photovoltaic sector, both involving Chinese companies. The move came only around one week after China's CRRC Qingdao Sifang Locomotive Co., Ltd withdrew from a public procurement tender organised by the Bulgarian Ministry of Transport and Communications due to FSR investigation.

The EU's conventional trade defense measures also ramps up, with ongoing anti-subsidy investigations targeting Chinese electric vehicle imports taking center stage. Additionally, this week, the Commission has opted for a five-year extension of anti-dumping duties on Chinese polyethylene terephthalate (PET) imports.

Moreover, for both Chinese and European companies, EU trade barriers concerning climate change and due diligence are becoming increasingly stringent and urgent. The EU Deforestation Regulation (EUDR), for instance, mandates operators to conduct thorough due diligence on products and commodities within its scope, posing significant challenges for complex supply chains and small- to medium-sized traders. Additionally, European clients, driven by concerns over carbon emissions, are demanding that their Chinese suppliers establish factories in the EU, thus raising operational costs. Furthermore, the intricate provisions of the EU battery regulation present additional challenges for batteries manufactured in China.

The "small yard high wall" approach adopted by the west unquestionably presents challenges and barriers for Chinese manufacturing. Analysts suggest that enterprises may encounter export restrictions, elevated tariffs, and heightened market access requirements, directly impacting the competitiveness and profitability of their products within the EU market. Moreover, such measures amplify the uncertainty surrounding their operations in the global market, potentially necessitating adjustments to their global expansion strategies and increasing operating costs in the long term.

Brussels and Washington's economic and trade protectionism efforts are set to raise concerns for enterprises. The evolving international power dynamics and global governance landscape may introduce additional barriers. As the global economic structure continues to evolve, similar frictions and policy adjustments may become more common.

In response to these challenges, Chinese companies are encouraged to demonstrate greater flexibility in adapting their global strategies. Cooperation remains crucial for establishing fair and transparent trade rules. However, effective collaboration requires the participation of all parties involved. It takes two to tango.

Hot Topics

Bulgaria and Romania join Schengen area

According to the European Commission, as of March 31st, Bulgaria and Romania officially joined the Schengen area. This means that Schengen rules, including the issuance of Schengen visas and the removal of internal air and sea border controls, will now apply in both member states.

Top German CEOs join Scholz's China trip despite 'de-risking' push

Germany's top corporate brass will join Chancellor Olaf Scholz when he visits China later this month, reflecting an ongoing dependence on the world's second-biggest economy despite efforts to spread exposure more evenly across the globe, Reuters reported. The trip is Scholz's first to China since Berlin drew up a China strategy last summer that urged a "de-risking" to reduce economic exposure to the Asian powerhouse, but was vague on specific measures or binding targets.

Brussels imposes anti-dumping duties on Chinese PET imports

On Wednesday, the European Commission confirmed the implementation of duties on some Chinese PET imports, ranging from 6.6% to 24.2%, effective as of November 27, 2023, for a duration of five years. The Commission stated that these definitive anti-dumping duties are intended to safeguard EU businesses and over 1,500 jobs. The EU PET market is estimated to be valued at over €5.5 billion.

Breton outlines three strategies to reduce steel dependency on China and India

The EU's  Internal Market Commissioner Bredon has responded to questions from MEPs on how the EU can "reduce its steel dependence on countries such as China and India". He said that there are currently 68 trade defense measures relating to steel imports, most of which relate to China, and that the implementation of these measures could reduce traded imports by up to 80%. In addition, the EC has set up the Horizon European Green Steel Club (Clean Steel Partnership) and the EU Emissions Trading System (ETS) etc. to support affected regions and companies. At the same time, the EU has launched new steel projects in Sweden and France to strengthen staff skills and knowledge.  

Targeting Chinese chips, US to push Dutch on ASML service contracts

Reuters has reported that the Biden administration intends to urge the Netherlands next week to cease the servicing of certain chipmaking equipment by its leading manufacturer, ASML, in China. Additionally, discussions may involve Washington's consideration of adding Chinese chipmaking factories to a list of those restricted from acquiring Dutch equipment. In response, the Chinese Embassy in Washington expressed opposition, stating that Beijing rejects the U.S.'s broad interpretation of national security and its use of pretexts to pressure other countries into participating in a technological blockade against China.

China's Dunhuang, French museum to co-build database of Mogao Grottoes

As reported by Xinhua, China's Dunhuang Academy and France's Guimet National Museum of Asian Arts signed a memorandum of cooperation on Thursday. They aim to conduct systematic research, restoration, and protection of cultural relics in the Mogao Grottoes. Additionally, they plan to organize international academic seminars focusing on cultural relic research, protection, digital humanities, and related topics.

What are experts talking about?

Spend it at home: current account surpluses in the EU

Authors: Maria Demertzis

Source: Bruegel

The European Union faces huge investment gaps. For the climate and digital transitions alone, EU countries need to find or encourage annual investment of at least €481 billion each year, over and above what is already planned. This amount is much larger if one includes defence spending needs, the reconstruction of Ukraine, and spending to prepare for potential health crises in the future.

And yet, despite these huge investment gaps, the EU continues to send a large part of its savings outside its borders. It has huge savings but prefers to invest these abroad rather than within its own borders. The European Commission forecasts that nine EU countries will have current account imbalances in 2024. Of these, five will have current account surpluses that can be as large as 10% of GDP. The EU overall is forecast to have a surplus exceeding 2.5% of GDP by 2025.

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.