Editor's Note: Greetings! This week, the European Commission (EC) has launched a new FSR investigation targeting Chinese wind turbine suppliers across five European countries. This marks the fourth such probe into Chinese new energy companies within the last two months. Additionally, the EC has released an updated report on state-induced distortions in China's economy. Furthermore, recent data indicates a 6.5% decrease in EU-China trade during the first quarter of 2024. Stay updated on China-EU relations with the latest CCCEU Weekly Update. Enjoy your read and have a pleasant weekend!

Focus

On April 10th, the European Commission updated the report on state-induced distortions in China's economy. In addition to the traditional Chinese manufacturing industries—steel, electrolytic aluminum, chemicals, and ceramics—the report has added five emerging industries: Chinese telecommunications equipment, semiconductors, railways, renewable energy, and new energy vehicles, focusing on their development overview, industrial policies, and "market distortions."

The report states that the selection of the above nine industries is based on their frequent occurrence in the Commission's trade defence investigation practice or for their particular economic or strategic importance. The "14th Five-Year Plan" and "Made in China 2025" are the focus of policy analysis, along with a review of related early central and local government's subsidy policies. The report points out that the "market distortions" in these industries mainly stem from direct or indirect interventions by the Chinese government, thereby accusing China of "protecting its own companies at the expense of foreign companies."

Specifically, in the telecommunications equipment sector, the report states that Chinese companies have now achieved a significant position in the global market. For example, the rapid development of companies like Huawei and ZTE in the global market, especially in the construction of 5G infrastructure, has benefited from strong state support. The report accuses Chinese companies of providing cheaper and more competitive services overseas with the procurement preferences, below market lending, tax relief and subsidies and grants. Additionally, the Chinese government has enhanced its influence on international markets by setting industry standards and rules. Furthermore, the inconsistency in intellectual property protection enforcement has allowed Chinese companies to "reap" involuntary and uncompensated technology transfers from foreign companies.

In the semiconductor sector, the report notes that China has issued development plans and policy guidelines for the semiconductor industry at both national and regional levels, indicating "high intervention" by the government. The industry is primarily dominated by large state-owned enterprises or "nominally" private firms, with government-backed investment funds playing a significant role. In addition to an increase in the number of firms, Chinese semiconductor firms are also expanding in terms of the size and scope of their operations. Beyond development plans and government-backed investment funds, the government's intervention in the sector has taken shape, inter alia, through preferential lending programs, tax relief programs and other direct financial support measures. China also took trade-related measures to encourage the import of key technologies and equipment and provide support to other producers in the semiconductor supply chain.

In the railway sector, the report analyses China's years of development support for high-speed railways and their components, while "protecting" domestic enterprises from international competitors. Reforming how the industry is structured and regulated and has been instrumental in China's development of the sector. The report accuses that the China Railway also plays a role in government procurement, launching tenders for railway component purchases for the country's rail projects that are inaccessible to foreign companies. The totality of China's interventions in its domestic market have sheltered China's railway SOEs from foreign competition at home and enabled them to significantly undercut their European, Japanese, and the US competitors abroad. At the same time, China's projects through the BRI and other initiatives helped push Chinese overcapacity overseas.

In the renewable energy sector, solar cells, wind turbines, and GHPs are all environmental goods. The report believes that Chinese firms manufacturing these goods have become dominant players, reflecting a decades-long focus by China on using state support to foster domestic manufacturing capabilities. Moreover, these industries continue to benefit from the distortionary policies that apply horizontally across the Chinese economy. The report also claims that large grid-connected solar power plants and wind power industries in China account for over eighty percent and nearly forty percent of the market share, respectively, both with the potential to "impact the supply chain."

In the new energy vehicle sector, the report points out that China began developing the new energy vehicle industry as early as 2005, leveraging on comprehensive framework of support from the central and local Government throughout the value chain – from essential raw materials to batteries to the NEVs – China turned into the first producer and exporter of NEVs in the world. The introduction of measures such as Dual-Credit Policy, a purchase tax exemption, and other initiatives guide industry development. At the same time, the provinces and the main cities appear to be in competition amongst them to have NEV producers in their area, in order to attract employment, revenues and the attention of the central government.

Although the report itself claims to be used only to judge whether there are significant distortions in the products and industries involved in anti-dumping investigations against China, combined with the European Union's recent series of investigations in the new three areas against China, it is not difficult to foresee that many of the "disclosed" investigation results in the report are expected to directly affect other EU industry policy areas' decisions and ongoing investigations. Relevant analysts point out that the report provides factual information for ongoing and future EU anti-dumping-related trade protection investigations, "potentially opening the door to anti-dumping complaints from EU chip and clean-tech producers".

European Commission's subjective, one-sided and erroneous assessment of China's socialist market economy, creating an excuse for its discriminatory anti-dumping practices, which will have a negative impact on China-EU economic and trade cooperation. Combined with the recent frequent investigations initiated by the EU against China in the new three areas, it is expected to undermine the business confidence of Chinese firms in Europe, hindering greenfield investments, mergers and acquisitions, and expansion and development of Chinese enterprises in Europe.

Overall, the release of this report may bring significant challenges. We suggest maintaining comprehensive communication at the government level to bridge trust deficits; strengthening work at the member states level to constrain EU protectionist actions; and deeply integrating European enterprises with local businesses, tying interests with local enterprises to form a community. The European Union and China still have the opportunity to find common ground and push forward the economic and trade relations between the two sides in multiple areas.

Hot Topics

German Chancellor Scholz will visit China soon

According to CCTV, Federal Chancellor of Germany Olaf Scholz will pay an official visit to China from April 14 to 16 at the invitation of Chinese Premier Li Quang, Chinese foreign ministry spokesperson Mao Ning announced on Friday.

New Chinese trade data is out: EU-China slump continues

According to sources, Over the first quarter of 2024, EU-China trade was down 6.5%, led by plunging Chinese imports. Chinese imports from Germany fell by 16.6 %, while Chinese imports from the Netherlands rose by 36 %, with sources saying the growth was mainly in chip-making appliances.

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

According to Global Times, on April 12, Chinese Minister of Commerce Wang Wentao vowed to further cultivate China-Italy relationship and hopes Italy to play a role in calling EU a rational and open-minded attitude to new energy cooperation with China. Wang said that China is ready to work with Italy in promoting bilateral trade by inheriting the spirit of the Silk Road, as well as optimizing investment structure and fostering new quality productive forces.

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.

Global EV sales up 12% in March, down 9% in Europe

According to Reuters, the market research firm Rho Motion stated on Friday that the global sales of all-electric vehicles and plug-in hybrid electric vehicles (PHEVs) increased by 12% in March compared to the same period in 2023, reaching 1.23 million units. Sales in China and the United States increased by 27% and 15% respectively, but sales in Europe decreased by 9%. "Overall, sales growth has slowed but it's still somewhat positive," said the expert.

European Climate Envoys visited China

On the afternoon of April 10th, Liu Dechunks, Director of the Environmental Resources Department at the National Development and Reform Commission, met with the climate envoys from the European Union, Germany, France, the Netherlands, and Denmark. The parties engaged in deep exchanges on addressing climate change and the green, low-carbon transition, etc. They expressed intentions to strengthen cooperation in areas such as energy transformation and the circular economy, jointly contributing to the global response to climate change.

ECB holds rates at record highs, signals upcoming cut

According to Reuters, on April 11, the European Central Bank (ECB) announced that it would leave its three key interest rates unchanged, keeping the main refinancing rate, the deposit facility rate and the marginal lending rate at historically high levels of 4.5%, 4 % and 4.75 %, respectively. At the same time, the ECB clearly hinted at an imminent rate cut, saying that most of the underlying inflation indicators were slowing and that rates could fall if inflation was seen to reach 2%. Analysts pointed out that the ECB is likely to cut interest rates before the Fed in June, but it is expected that there is limited room for future cuts in eurozone interest rates.

French companies to step up investment in China

According to Xinhua, on April 9, leading French companies are set to invest more in China, it emerged at business talks held in Paris this week. Representatives from a dozen French companies, including Total Energies, Veolia, Sequins, Galeries Lafayette and Valued & Pistre, joined the round table, which was organized by the Chinese Ministry of Commerce.

Italian entrepreneurs upbeat about investing in China

According to Xinhua, on April 10, Italy's small- and medium-sized entrepreneurs (SMEs) and law experts attended a business talk in Milan on Wednesday. They have expressed confidence in investing in China, citing its dynamic and innovative society. Over 200 representatives of Chinese and Italian government agencies, enterprises, and business associations attended the event.

Hungary-China investment summit focuses on renewable energy collaboration

According to Xinhua, Industry leaders and government officials from Hungary and China convened on Tuesday at the 2024 Hungary Renewable Energy Business Investment Summit to discuss collaboration opportunities, showcasing the deepening economic ties between the two nations. More than 20 Shenzhen new energy enterprises and Hungary's local government and enterprises had reached investment intentions.

What are experts talking about?

The Development Experience of Cultural Finance in European Countries

Source: Institute of World Economics and Politics, Chinese Academy of Social Sciences
Author(s): Ni Zhuhai

In recent years, China's cultural industry has developed rapidly. In 2019, the growth rate of the cultural industry was 7.8%, accounting for 4.5% of GDP. However, since the outbreak of the pandemic in 2020, the cultural industry has faced multiple pressures such as shrinking demand, making it difficult to maintain growth. In the post-pandemic era, how to achieve the great goals set forth in the report of the 20th National Congress of the Communist Party of China, such as enriching the spiritual world of the people, building a strong cultural nation, and creating a new brilliance in socialist culture, has become a major issue facing Chinese cultural construction. Drawing on the mature experience of European countries and improving China's cultural financial system to provide diversified financial support for cultural construction is an effective way to address these issues.

I. The development experience of cultural finance has important value

II. Analysis of the development experience of cultural finance in European countries

III. Implications for the development of cultural finance in China

The European Economic Model Amid the Return of Geopolitics: Diagnosis and Proposals for Reform

Source: Elcano Royal Institute
Author(s): Judith Arenal, Enrique Feast, Agustín González-Agote, Miguel Otero Iglesias, Jorge Tagmemes, Federico Steinberg

In the current geopolitical scenario, interdependence has turned into a double-edged sword, and hard-to-quantify concepts such as strategic autonomy and economic security have emerged. How can the EU adapt to the challenge of a global economy beset by neomercantilism, neoprotectionism and state interventionism without losing its essence?

The global economy is not what it once was, and ensuring economic security, autonomy in energy, the resilience of supply chains and technological supremacy are often deemed to be more important objectives than the maintenance of open markets or enhancing efficiency. This has paved the way, especially in the US, for new instruments of trade policy, an insistence on domestic production and controls on exports and investments in technology, with supply chains examined to reduce dependencies on China. The EU resists such extremes, because while it agrees on the need to reduce its risks ('de-risking') with China, it does not wish to go so far as complete economic severance ('decoupling'). It is, however, obliged to reconfigure its economic strategy to align it with the new era.

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.