Editor's Note: As the New Year's bell rang, the first major global political and economic events of 2025 unfolded this week. Starting January 1st, Ukraine officially shut down the pipeline transporting natural gas to Europe, prompting Slovakia to plan cuts to its aid for Ukraine. On New Year's Eve, President Xi Jinping delivered a New Year message emphasizing the unwavering advancement of reform and opening up, as well as the building of a community with a shared future for mankind. Romania and Bulgaria officially joined the Schengen Area, removing land border controls. Hungary lost €1 billion in EU funds for failing to implement the required reforms. Economists warned that a global trade war could pose significant threats to the Eurozone economy. Germany's far-right party received support from Elon Musk ahead of the national election, sparking widespread controversy.  Dive into this edition of the CCCEU Weekly Update for the latest insights on China-EU dynamics. Enjoy reading and have a fantastic weekend.

Focus

On January 1st, Gazprom announced in a statement that it had terminated gas transit through Ukraine to Europe as of 8am Moscow time, following the expiration of the transit agreement. This marked the official shutdown of a pipeline operating for over 40 years. On the same day, Ukraine's Ministry of Energy declared the cessation of Russian gas transit services through Ukraine. Energy Minister Herman Halushchenko stated in a declaration, "We have stopped the transit of Russian gas. This will be a historic event. Russia is losing its market and will soon suffer economic losses. Europe has decided to abandon Russian gas."

The severance of the Russo-Ukrainian gas pipeline raises pressing questions: how will it influence the destinies of European countries? What will the emerging European energy landscape look like, and how will it influence the interests of multiple parties?

Timeline of the Russo-Ukrainian Gas Dispute

1970s–1980s: The Soviet Union completed the construction of the "Union" and "Brotherhood" pipelines, transporting natural gas to different European countries via northern and southern routes.

Late 2004: As Ukraine gradually distanced itself from Russia and leaned toward the West, it unilaterally raised transit fees. Disputes over gas transit fees and pricing continued for years.

December 2019: Gazprom and Ukraine's Naftogaz signed an agreement on gas transit through Ukraine's territory. The agreement was valid for five years, expiring on December 31st, 2024.

2022: With the outbreak of the Russo-Ukrainian war, most gas pipelines were shut down. The pipeline through Ukraine remained among the last two operational routes for Russian gas exports.

July 2nd, 2024: Ukrainian President Volodymyr Zelensky stated that replacing Russian gas with Azerbaijani gas was one of the proposals under discussion.

December 19th, 2024: During the European Union summit, Zelensky declared that the enormous profits Russia had earned from the gas transit agreement supported its war efforts, thus Ukraine would not renew the deal.

December 26th, 2024: Russian President Putin stated that Russia had never refused to supply gas to Europe and was considering alternative transit routes. He claimed Ukraine's refusal to renew the agreement would punish other European countries.

December 29th, 2024: Slovak Prime Minister Robert Fico sent a letter to the EU, emphasizing that Ukraine's termination of Russian gas transit was "absolutely unreasonable and wrong," as it would exacerbate regional tensions.

December 31st, 2024: A European Commission spokesperson stated that Europe's gas infrastructure had sufficient flexibility to supply natural gas from non-Russian sources via alternative routes to Central and Eastern European countries. Thus, the European Commission would not participate in negotiations to extend the Russo-Ukrainian gas transit agreement.

EU's Tacit Approval and Central-Eastern Europe's Search for Alternatives

Since the Russo-Ukrainian conflict, Europe has been striving to reduce its dependency on Russian natural gas. Measures include purchasing liquefied natural gas (LNG) from Qatar and the United States, advancing the construction of LNG terminals, and importing pipeline gas from Norway. According to Reuters, by 2024, Russia's half-century effort to dominate the European gas market had seen its share drop from a peak of about 35% to approximately 8%.

A report from the Oxford Institute for Energy Studies reveals that countries with long-term contracts with Russia, including Slovakia, Austria, Hungary, Italy, and the Czech Republic, are seeking solutions suited to their circumstances.

For Hungary, most of its gas is supplied via the TurkStream pipeline, which bypasses Ukraine, limiting the impact of the pipeline shutdown. Italy has reduced its reliance on Russian gas thanks to expanded LNG reception facilities. The Czech Republic, after the Nord Stream pipeline was sabotaged, primarily imports gas from Germany, using the Ukrainian transit route only as a supplementary channel.

In contrast, Slovakia and Austria face more severe challenges. Data from the Oxford Institute for Energy Studies indicates that, in 2023, 60% of Slovakia's gas supply was imported via the "Ukrainian Corridor." As a landlocked country far from LNG terminals, Slovakia is particularly vulnerable. Austria, which imported 70% of its gas from Russia from 2022 to 2024, also faces a precarious situation.

The Austrian government has repeatedly ensured that it can supplement missing gas supplies through Germany and Italy. Slovakia, which has been strongly opposing the pipeline shutdown, announced on January 1st via its energy supplier SPP that it was prepared for the transition and would supply gas via alternative routes, primarily from Germany and Hungary. The Czech Republic has also offered to assist Slovakia with gas transportation.

Although Europe's internal gas network, along with increased demand for TurkStream gas and LNG, can secure replacement supplies, these countries will face additional transit fees, higher electricity and gas costs. Slovakia's Ministry of Economy estimates an additional €177 million in costs for alternative routes. Austria's energy regulators predict short-term price increases of €3 to €10 per megawatt-hour, negatively impacting residents' living standards.

Global Energy Landscape Shift: The US as a Beneficiary

The severance of Russo-European energy and economic ties is only the first step. The European Commission's Energy Commissioner, Dan Jørgensen, announced in November that the EU would propose a plan in early 2025 to completely cease Russian gas imports by 2027.

Analysis from Bruegel estimates that without new export routes, Russia could lose $6.5 billion annually, while Ukraine would lose around 0.5% of its GDP, potentially weakening its strategic role as Europe's energy partner. This shutdown will result in a lose-lose situation for Russia, Ukraine, and Europe alike.

The United States is poised to be the biggest beneficiary. According to Reuters, the US was the world's largest LNG exporter in 2024. According to data from the European Commission, the US share of EU gas imports rose from 6% in late 2021 to 16% by mid-2024. After Trump took office, Ukraine is likely to leverage this situation to seek additional military aid from the US, while Europe's acquiescence reflects its compromise under trade pressures.

For China, an expert believes the termination of the Russo-Ukrainian pipeline agreement will force Russia to pivot its energy strategy entirely toward East Asia, especially China. In addition to the fully operational Power of Siberia pipeline, two more gas pipelines are under negotiation. On December 30th, China's Ministry of Commerce cited Russian reports that gas supplies to China exceeded the contracted amount in 2024, and the pipeline's designed supply capacity was fully utilized, giving us reason to believe that gas supplies to China in 2025 will also surpass contractual obligations.

Hot Topics

President Xi Jinping Delivered 2025 New Year Message

Xinhua News Report:

On New Year's eve, Chinese President Xi Jinping delivered his 2025 New Year message through China Media Group and the Internet.

President Xi remarked，"In 2024, we have together journeyed through the four seasons. Together, we have experienced winds and rains and seen rainbows. Those touching and unforgettable moments have been like still frames showing how extraordinary a year we have had."

"Nurtured by our 5,000-plus years of continuous civilization, our country, China, is engraved not only on the bottom of the ancient bronze ritual wine vessel of He Zun, but also in the heart of every Chinese". "We will march forward in great strides to advance reform and opening up as the trend of our times. We will surely embrace even broader prospects in pursuing Chinese modernization in the course of reform and opening up."

Xi acknowledged, "The Chinese economy now faces some new conditions, including challenges of uncertainties in the external environment and pressure of transformation from old growth drivers into new ones. But we can prevail with our hard work. As always, we grow in the wind and rain, and we get stronger through hard times. We must be confident."

President Xi highlighted, "As changes unseen in a century accelerate across the world, it is important to rise above estrangement and conflict with a broad vision, and care for the future of humanity with great passion. China will work with all countries to promote friendship and cooperation, enhance mutual learning among different cultures, and build a community with a shared future for mankind. We must jointly create a better future for the world."

Eurozone growth threatened by global trade war, economists warn

A possible global trade war and regional political paralysis are the two biggest threats facing the Eurozone economy in 2025, according to a Financial Times poll of 72 economists.

Economists broadly agree that if Donald Trump implements the tariff plans he pledged during his campaign upon taking office, it will trigger a trade conflict: 69 per cent of respondents consider it likely, while 68 per cent warn that such a scenario is the biggest threat for the region in 2025. Additionally, 81 per cent said a second Trump term will weigh on Eurozone growth。

Most of the polled economists — 61 per cent — back ECB president Christine Lagarde's call to EU policymakers to engage in trade negotiations with Trump to avoid an all-out trade war.

Next to geopolitical risks, Europe's inability to fix its homemade

problems is seen as a key risk by close to a third of all polled. These issues include falling behind economically and technologically, bogged down by bureaucracy and dominated by "melancholic remembrance of its former greatness".

Paradoxically, a fifth of all economists hope the gloom could become a blessing in disguise as the situation might become so bad that Europe might eventually embark on necessary reforms.

Romania and Bulgaria become full members of EU's Schengen zone

By Reuters, Romania and Bulgaria scrapped land border controls to become full members of the European Union's Schengen free-travel area on Wednesday, joining an expanded bloc of countries whose residents can travel without passport checks.

Fireworks lit the sky at a crossing close to the Bulgarian border town of Ruse just after the stroke of midnight as the Bulgarian and Romanian interior ministers symbolically raised a barrier on the Friendship Bridge straddling the Danube River.

Checks on travelling by air and sea from Bulgaria and Romania were lifted in March 2024, but land checks continued until Austria last month dropped a veto it had maintained on the grounds that more was needed to stop irregular migration.

Border checks between France, Germany, Belgium, the Netherlands and Luxembourg were first dropped in 1985. The Schengen area now covers 25 of the 27 EU member states, as well as Iceland, Liechtenstein, Norway and Switzerland.

Ireland and Cyprus are not members of the Schengen zone.

EU denies Hungary a billion euros after reform failures

AFP Report,The European Commission on Wednesday said Hungary had lost its entitlement to European Union aid worth some €1 billion due to rule of law breaches.János Bóka, EU affairs minister for Hungary, said that it was "very difficult" not to interpret the withdrawal of funds as "political pressuring", adding that Budapest would take action to "remedy this discriminatory situation".

Musk to Host Live Interview with AfD Leader on X

According to a Reuters report, Elon Musk is likely to host a live interview with the leader of Germany's far-right party, Alternative for Germany (AfD), on his social media platform X ahead of Germany's national election on February 23.

Musk previously expressed his support for the AfD in an op-ed for Germany's Welt am Sonntag, describing the party as "Germany's last hope." In protest against the publication of Musk's article, the newspaper's opinion editor resigned. Leaders of other parties have condemned Musk's intervention in German politics. Scholz told voters in a New Year's address that the Feb. 23 election would be decided not by billionaires but by German voters

Ukraine Shuts Gas Pipeline; Slovakia May Cut Aid to Ukrainian Refugees

According to a BBC report, on January 1, Ukraine shut down a pipeline that had supplied Russian natural gas to Central European countries for decades. Slovakia, the main entry point for this pipeline, is expected to lose €500 million in transit fees due to the closure. Slovakia's Prime Minister Robert Fico said he would propose halting electricity exports to Ukraine and also "sharply reducing" financial support for Ukrainians who have found shelter in Slovakia. 

The Polish government has expressed readiness to support Ukraine if Slovakia cuts off its electricity exports.

What are experts talking about?

Three Major Conflict Zones, the Evolution of the International Order, and Strategic Adjustments by Major Powers

Source: The Paper

Author: Shi Yinhong

The devastating Russia-Ukraine conflict is about to mark its third anniversary. The United States and its Western allies have responded strongly to this tragic conflict, engaging deeply in its dynamics, thereby causing significant and lasting disruptions to the broader global order.

Although the Russia-Ukraine conflict has triggered new divisions within the transatlantic alliance system, overall, the alliance's unity has been strengthened, with notable progress in security cooperation and military coordination. The already fragile global governance system has suffered major setbacks due to the direct and indirect impacts of the conflict. The existing international order, with the United Nations Security Council as its main pillar, faces tremendous challenges, particularly in the field of security.

Meanwhile, the war in the Middle East has significantly escalated. The Korean Peninsula continues to be the most tense and volatile region in East Asia and the Western Pacific.

In today's world, national security concerns are growing, and the international economy is increasingly fragmented. Despite facing severe economic challenges and social divisions, major countries in Central and Western Europe remain determined to strengthen their military capabilities.

China, for its part, should take more proactive actions, choosing the timing, regions, dimensions, and methods on its own terms. Such creative initiatives are more crucial than reactive responses. Furthermore, in easing tensions and managing risks, proactive measures should also outweigh reactive responses.

Can von der Leyen Build an Inclusive Center?

Source: Project Syndicate

Author: Hugo Drochon

Italian philosopher Norberto Bobbio formulated the concept of an "inclusive" political center: one that transcends the left-right divide to create a new amalgamation. Achieving this will be a critical task for Ursula von der Leyen during her second mandate.

For centrism to flourish within the European Union, a new synthesis must be found, rather than merely combining old forces. Von der Leyen has taken a firm stance on immigration while supporting social rights. However, to counteract right-wing leader Giorgia Meloni, she has pledged to promote a "clean industrial deal" within the first 100 days of her second term, aiming to unite Green and EPP Members of the European Parliament (MEPs).

Former European Central Bank President Mario Draghi's call for an ambitious, investment-led industrial revival in the EU may serve as the very model of inclusive centrism that von der Leyen needs. She has promised to establish a task force to implement Draghi's plan, and her first major initiative of the new term is the "competitiveness compass," aimed at closing the innovation gap with the United States and China.

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.