European Tour 2023: Meeting with European Policy Centre (EPC)

2023-01-11 | All chapters

• JE thanked EPC for hosting the Chamber, and outlined challenges of being at a distance from Brussels for the past three years.
• FZ explained EPC has been doing a lot of work on China, particularly think tank exchanges, but recognised the value of getting an understanding from those on the ground, particularly with the negativity of the Ukraine war clouding the issue.
• JE gave an introduction to what is going on in China, outlining the feeling of uncertainty, but that China is expecting an economic rebound given it is coming from such a low base. He noted that the Koreans and Japanese being denied access to China sends a very poor signal. He outlined the issue of consumer uncertainty – and the real estate sector is not looking good. He also explained the level of debt and how government officials have been asked to pay back bonuses as local governments are broke. Debt assumed by China is close to 300% of GDP which is highest on record. JE also explained that China’s mercantilist trade model seems woven into the DNA of the government, so doesn’t seem likely this will go away. On the BRI, JE explained how the rail route from China to Europe was torpedoed by Russia’s aggression in Ukraine – European companies don’t want to use it. Maersk took EUR 700 million hit by withdrawing from it. Investment in BRI down 52% compared to 2015 – 2019. FDI into non-BRI countries twice as high as into BRI countries. He then introduced the main themes of the Chamber’s Position Paper. He noted that China isn’t going away and will retain some attractiveness, and indeed cannot be replaced. He also outlined that if China decreased exports to the US by 10%, ASEAN would need to increase its exports by 40% to compensate, which is just not going to happen. Despite all the challenges, JE stated that EU business still needs to be part of the story, but we need to be clear about what conditions China will allow us to operate under.
• FZ outlined the shift in perception over a number years in the EU, of China once being a partner and what had been expected over the long term. While China was once seen positively, and an international actor, it is now seen as a strategic or systemic rival, which culminated in sanctions and counter-sanctions and death of CAI. FZ noted that Chinese think tanks see the EPC as representing the EU and have tried to push ideas that they think will be escalated to the Commission.
• FZ said that after Russia’s invasion of Ukraine there was contact with the Chinese side (think tanks), and the reaction in Europe to the invasion was very much underestimated by China – for Europe, war and alliances trump economics. They underestimated how strongly the transatlantic alliance would re-establish itself. Wolf warrior rhetoric has been toned down considerably in recent months, and there has been more searching for EU-China cooperation. While not condemning Russia, it has taken a more conciliatory approach. China appears to have a fear that if the world divides into camps, that it will find itself in a group of countries that are economically less interesting. EU undergoing largest policy outlook seen so far – a shift from a system geared towards dealing with each other towards one that has to take into account security and vulnerabilities, and how to protect investment etc. Multilateral system basically on life support, largely as US abandoned it – Europe cannot hold up the system by itself. EU industrial policy is also changing a great deal which will clash with trade relationships as other countries take offence. There will be an increase in power politics. War in Ukraine and the alliance with the Biden administration will dominate the response to international developments. Big challenge that is getting lost is climate change – Europe cannot provide a solution by itself, but cooperation is becoming much more difficult with China.
• JE recognised EPC’s points, in particular the conciliatory tone from China. He noted that there is some slight optimism about Li Qiang, who pre-lockdown had a reputation as someone who listens to international business.
• AH noted that the climate agenda is crying out for international collaboration, and this is happening, which is positive. She also pointed to the fact that China does want to play a role in international climate negotiations, and is a front runner in many climate reduction technologies. She noted that sustainability is one of the main areas where Europe can still cooperate with China.
• VQ noted the Chinese government’s move towards ideological stance away from free market principles with the government interfering more in business, outlining the governments interference in freight rates as an example. VQ noted the positive role played by DG MOVE in supporting a correction here. He noted the lack of reciprocity with regard to international cargo relay, despite the introduction of the pilot in Shanghai in 2022. He noted his concern over vertical integration of Chinese SOEs and that port terminals are forming groups within provinces, which makes it difficult for carriers to negotiate. The vertical integration in the industry is anti-competition as Chinese companies have complete alignment along the whole supply chain and have created monopolies.
• JE sounded a note of caution over the purchase of European port infrastructure by Chinese companies, as Maersk has invested in terminals in China as many as China has in Europe – this is just business, not politics. He noted there are far more serious matters to consider – COSCO has a dedicated shipping line in Europe just for intra-Europe shipping; and China’s vertical integration from steel making, to ship making to running terminals, managing the financing and insurance, which makes it impossible for European companies to compete.
• FZ asked how China got it so wrong on COVID? He also noted that the Commission has recently put a lot more emphasis on trade enforcement, and asked if this has made a difference at the industry level.
• JE explained China’s reverse on zero covid was largely an economic decision, not prompted by protests. Looking at where the economy is going, and realising that you cannot fight Omicron, JE said it appears that a snap decision was made to lift the controls. On trade enforcement JE said there is a need to see examples put on the table. He said it is early days yet as the trade tools are only just emerging, so the system has not yet been tested – vertical integration is indeed something that could be tackled, but it is too early to say.
• RD outlined the difference in policy implementation regarding COVID management from central to local level.
• SG noted that with regard to climate change, in banking there is a positive feeling that the Chinese government is encouraging the development of the green transition and the financing products to facilitate it. She noted that this is an area that foreign banks are contributing to. However, as the Chinese market develops green financing SG said there is an increasing need to align with international standards.
• GR noted with regard to climate change, he felt slightly less pessimistic than FZ, believing that there is room for EU-China cooperation. Scholz visit to China may have been a message to US, he noted, just as much as it was to China. Regarding Chin’'s 300% debt to GDP ratio, he asked how the Chamber sees China’s economic stability going forward.
• JE said that is definitely a need for de-risking, but not decoupling. He noted that this seems to be a very reasonable position to take to understand the practical limitations of the EU-China relationship. JE concluded by noting that while China manages its stability well in general, its economic trajectory very much depends on whether it will pursue its current path of self-reliance or embark upon a programme of bold economic reform and opening, referring to the World Bank study featured in the Chamber’s Position Paper.