Economic cooperation between Russia and China is widely seen as the backbone of an emerging global alliance between Moscow and Beijing. Since 2014 and the emergence of the current rift with the West over Russia’s aggression against Ukraine, the Kremlin has been eager to promote the idea of strengthening economic ties with China as a viable alternative to strained relations with the West, and as a sign that a new, less West-centred global economic order is emerging. Concerns about this growing Sino-Russian economic activity have scared many Western politicians, who have rushed to appease Moscow to prevent its further integration with China. However, a cross-check of the implementation of the ambitious economic agenda set out in 2014 by Russian President Vladimir Putin and Chinese President Xi Jinping shows that no real integration is happening and that fundamental problems lie behind this failure. This paper explains why Russia and China’s economic cooperation plans have failed since 2014 and are not likely to succeed in the future.China Economy EU-Russia
Ambitions Dashed: Why Sino-Russian Economic Cooperation Is Not Working
26 Nov 2021
Federico Ottavio Reho China COVID-19 European Union Future of Europe Transatlantic relations
[Europe Out Loud] Doom: a chat with Niall Ferguson about the history and politics of catastrophe
Europe out Loud - Multimedia
04 Nov 2021
The excitement of in-person diplomacy ahead of the G20 summit in Rome (30-31 October) may put geopolitical tensions, epitomised by the US–China clash, on hold. However, a few days later (8 November), things may be different at the Asia-Pacific Economic Cooperation (APEC) summit.
In order to understand the reasons for this guess, let us make an overview of this intergovernmental forum that, though many miles from rond-point Schuman, is relevant for the Old Continent.
The majority of countries bordering the Pacific Ocean meet regularly at the APEC since 1989, with the aim to ease trade in the region. APEC countries, of which there are currently 21, represent nearly 62% of world GDP thanks to the participation of heavy-weights like the United States, China, Japan, and Canada, which together represent 80% of APEC’s economy.
The efficacy of APEC is attested to by the decisions made during the COVID-19 emergency (e.g., members pledged to facilitate trade of vaccines and other essential medical devices), but also by the progress achieved towards reaching broader agreements.
In November 2020, 15 countries signed the Regional Comprehensive Economic Partnership (RCEP), with China as the reference country. The RCEP was born in response to the Trans-Pacific Partnership (TPP), the agreement endorsed by President Barack Obama to stem Beijing’s economic growth and political influence. The TPP was then abandoned by Obama’s successor, Donald Trump, but relaunched by Japan and enriched with the must-have adjectives “Comprehensive” and “Progressive”, to become CPTPP in March 2018.
The two agreements – RCEP and CPTPP – share the objective of liberalising trade in the region; six APEC members are signatories to both (see Table 1). The RCEP is larger than the CPTPP (Cambodia, Laos, and Myanmar participate in the agreement alongside 11 APEC countries) and is the first regional agreement that includes China, Japan, and South Korea. Compared to the RCEP, the CPTTP is more ambitious on tariffs and investments, on State-Owned Enterprises (SOEs), especially with regard to public subsidies, on workers’ rights, on privacy, and on data transfer between member countries.
The UK, China, and Taiwan all recently applied to join the CPTPP. Existing members of the agreement decided to open negotiations with the UK, for whom ‘Pacific’ is the manifestation of a certain post-Brexit horror vacui regarding trade agreements. Taiwan applied on 22 September, six days after China did, probably hoping to join the partnership before Beijing, thus avoiding its likely veto as a member.
China’s candidacy to the CPTPP raised some eyebrows as the country remains far from the agreement’s objectives, such as in the field of SOEs and state interventionism. It is unlikely that CPTPP members will welcome China, as the nation was welcomed 20 years ago when it joined the World Trade Organization: the expected transition to a market economy has proven to have been wishful thinking.
China being granted membership is rendered even more unlikely considering the position of some CPTPP members, especially Australia. The already tense relations between those countries have certainly not improved after the AUKUS agreement (where collaboration with the UK and US will equip Australia with nuclear-powered submarines), after President Xi Jinping’s commitment to a reunification with Taiwan, and after the test of a Chinese nuclear-capable hypersonic missile. The US, even if it is not a member of the CPTTP, can exert its anti-China influence in the Pacific area. However, American influence in the Pacific as it existed in 2008, when the TPP was launched, is now fading as Pacific countries have intensified economic relations with China, conversely reducing links with the United States.
Table 1: APEC members and their participation in CPTPP and RCEP
How might the APEC summit turn sour?
The rich agenda of the forthcoming APEC summit, to be discussed across eleven time zones, may cool American and Chinese hearts. In addition to issues directly related to the COVID-19 pandemic, it will actually be necessary to discuss how to strengthen value chains and how to make trade more sustainable.
However, unlike the G20 in Rome, the APEC summit will see the empathy of in-person meetings replaced by physical distancing: being in one’s stronghold, connected through high-quality video, may increase one’s ease to lift the drawbridge in case of a clash. Moreover, since physical geography cannot be altered, European countries won’t participate to the APEC summit.
The EU has found itself equidistant between China and the US and could have stood in the way of a direct confrontation. The EU and China reciprocated bilateral sanctions after a European Parliament resolution condemning China’s policy in Xinjiang and in Hong Kong, thus freezing the Comprehensive Agreement on Investment. As far as transatlantic relations are concerned, President Joe Biden has barely improved the legacy of his outspoken predecessor, as demonstrated by the nominal progress on tariffs on EU steel and aluminium and the AUKUS agreement. It is an odd coincidence that, after months of patience, the Commission and the High Representative publish the new strategy for the Indo-Pacific the day after the announcement of the AUKUS agreement, which does not include any EU nation.Stefano Riela China Trade Transatlantic relations
The APEC Summit and the Global Reflection of Pacific Issues
26 Oct 2021
AUKUS was an agreement high on symbolism but low on substance.
It symbolised the continuity of the “Pivot to Asia” policy through three successive Presidencies, from Obama, to Trump, to Biden. In terms of strategic substance, however, it did not add much to existent collective security arrangements. The US and Australia were already formally bound together, along with New Zealand in a tripartite collective defense agreement (ANZUS). The signatories of AUKUS are also members of other security arrangements, such as the “Five Eyes” agreement on sharing intelligence, that includes Canada and New Zealand.
Furthermore, AUKUS is not an alliance in the strict sense of the term, in that it does not include a collective defence commitment like NATO’s Article 5 does. Accordingly, it does not provide for automatic collective action in the event, let us say, of a Chinese provocation in Taiwan. All this may have amounted, in strategic terms, to a storm in a teacup, if the Biden administration had not infuriated the French and annoyed the Europeans with the way it handled the whole issue.
The French were infuriated because the largest arms export deal in French history (roughly 56 billion euros) was “stolen” from them, and to add insult to injury to Macron, it happened less than a year from the French elections. The deal was struck in secrecy, with the Americans and the Australians failing to inform the French that they were involved in parallel negotiations. This is not supposed to happen among allies and friends, and the French struck back accusing the parties involved of lies, duplicity, and a major breach of trust. The agreement was also a real blow to France’s Indo-Pacific strategy, meticulously developed over the last several years, along the Paris-New Delhi-Canberra axis.
Finally, there was the ghost of Nassau. The French felt, once again in their history, slighted by the Anglo-Saxons. In December 1962, it was the Kennedy administration that tried to appease the Macmillan government over the cancellation of the Skybolt missile project that was supposed to provide the basis of the UK’s independent nuclear deterrence. In order to appease the British, the Kennedy administration conceded to provide them with the Polaris missiles that represented a much more technologically advanced missile system. De Gaulle became outraged over the special treatment of the British by the Americans and the fact that a similar deal wasn’t extended to the French. He castigated this “Anglo-Saxon collusion” and, months later, blocked Britain’s entry into the EEC. It would be the beginning of de Gaulle’s independent foreign policy. The force de frappe, the “all azimuth strategy”, and the eventual French withdrawal from NATO’s military structure would become de Gaulle’s heretical actions within the Western camp during the apex of the Cold War.
The AUKUS agreement felt like déjà vu to the French political elite. It was no accident that the French opposition revived the Gaullist rhetoric, while the official French communiqué talked about “the need to raise loud and clear the issue of European strategic autonomy”.
If the French felt betrayed by AUKUS, the Europeans felt that the honeymoon between the European Union and the Biden administration came to an abrupt end. First, it was America’s hasty withdrawal from Afghanistan that did not give the Europeans enough time to withdraw their own people. Second, it was the troubling aspect of AUKUS that included Britain at the expense of a European member state, giving Brexiters the pretext to boast that they have delivered on their promises on a post-Brexit “Global Britain”.
AUKUS reminded Europeans that Europe’s geopolitical significance to American policymakers has declined after the dissolution of the Soviet Union and the rise of China. More importantly, it was a sad reminder that Europe is not viewed by the US as a global power with whom America needs to deepen cooperation to face common challenges.
Suddenly, Europeans realised that Trump might be gone, but his policies remain, and Biden’s comforting words on the value of transatlantic ties did not amount to much more than words. It is no coincidence that besides the offended French, the Germans, the staunchest transatlanticists of the continent, argued that AUKUS “ought to be a wake-up call for all Europeans”.
No one in Europe would argue against America’s urgent priority to focus on China’s rise and the need to deal with the challenges of China’s global agenda. The “Pivot to Asia”, however, together with the American withdrawal from other regions, send the wrong signals to other revisionist authoritarian powers such as Russia. They signal that America is receding from its role as a global hegemon, abdicating its global responsibilities. Furthermore, while America may be pivoting to Asia, China is pivoting everywhere, as its globally ambitious “Belt and Road” strategy suggests. Whereas China is emerging as a global power, America is perceived to be posturing as a regional Pacific power.
The United States needs to address the rising Chinese challenge across the globe and in every relevant policy area. In this effort, “Pivoting to Asia” will not suffice. To effectively meet the Chinese challenge, America will need to resume its global reach. Doing so will require the cooperation of the European Union, and the unity of the Transatlantic Alliance. A united West “Pivoting to Eurasia” is a much more geopolitically sensible strategy to effectively counter China’s growing challenge.Constantine Arvanitopoulos China NATO Transatlantic relations
Transatlantic Relations After AUKUS
21 Oct 2021
Common festivities cancelled, French ambassadors recalled from Washington and Canberra, and an EU-Australia trade deal on ice: France’s righteous wrath is understandable, but only partly justified. Moreover, coming on the heels of the Transatlantic spat over the Afghanistan withdrawal, this latest crisis among allies not only reconfirms the urgent question many Europeans asked themselves after the last US election: What if the Republicans return to power in 2024? It actually produces an even more urgent question: How Trumpist is Joe Biden? And is this the final wake-up call for the EU’s strategic autonomy?
The art of (cancelling) the deal
The submarine deal was fraught with problems from its beginning in 2016. That refers not only to the predictable delays and cost blowouts on the side of the French contractor, Naval Group, but also to changing strategic requirements in the Indo-Pacific, and above all, the French inability to come to grips with the propulsion system – on top of data hacks on their side. The problem (and the ineptitude in Washington) was that the announcement of the cancellation came together with the formation of AUKUS, the Australia-UK-US cooperation agreement on sharing state-of-the-art military technology (including on submarines, replacing the French contract) and strategic cooperation in the Indo-Pacific – vis-à-vis an increasingly aggressive China, of course. (By the way, to call this a military alliance is a bit of an exaggeration. NATO is an alliance; this here is a cooperation agreement with geopolitical implications). The fact that France, like other European allies of the US, had not known about this agreement in the making in past months, was the real ‘stab in the back’, to use French Foreign Minister Le Drian’s words. To unnecessarily alienate an ally with ambitions and presence in the Indo-Pacific is indeed counterproductive, especially if the priority of priorities for the US, and one of the last remaining bipartisan points of consensus along the Potomac, is countering the rising Chinese influence.
When US strategic disinterest meets with European strategic ineptitude
The picture would, however, be incomplete without the Biden administration’s frustration, actually a bipartisan exasperation, with European allies who keep postulating their ‘strategic autonomy’ from the US while still bringing very little to the table in terms of real military capabilities. A strategic autonomy that so far mainly manifests itself in pushing projects such as Nord Stream 2 and telling the world that Europe refuses to ‘take sides’ in the ‘Cold War 2.0’ between the US and China. And to underscore this, the EU concluded an investment deal with China without even consulting with the US, despite Washington’s very kind request to do so before signing. This is happening in a situation in which the Biden administration clearly and repeatedly said that the overriding conflict of the future is the one between liberal democracy and a new authoritarianism, whose cheerleader is now the Chinese Communist Party. American strategic disinterest in Europe meets with European strategic impotence and irresponsibility: Two mutually reinforcing trends. And a toxic combination for the West, and for democrats worldwide.
Breaking the vicious circle
Ending the Transatlantic vicious circle begins with European strategic responsibility, not autonomy. The latter is not on the cards, full stop. To spell it out: Even if we had an ‘entry force’ and several battlegroups combat-ready for interventions in emergencies like the one in Kabul, or contingencies in the neighbourhood (which is a worthy goal), there is no way such a Europe without the US could defend itself, or deter an aggressive authoritarian power such as Russia on all levels, from hybrid to conventional, to tactical nuclear and strategic nuclear. Rather than strategic autonomy, which is anathema to Eastern flank countries in EU and NATO, strategic responsibility should be our ambition. And that means spending more on defence, developing intervention capacities in the EU’s neighbourhood, strengthening the European pillar in NATO, and ceasing to ostentatiously sit on the fence between China and the US. Instead, while recognising that EU and US approaches to China will never be identical, we need to seek common ground and identify areas of strategic consensus, for example on supply chains, export of key technologies, a common pushback against Beijing’s abuse of our open markets, its political blackmail and human rights violations, as well as a concerted effort to support democratic governments and movements across the world. Some willingness to compromise with the US on trade and technology would also help.
If the EU is to demonstrate real added value to the US as allies, two nations in particular have to grow up on this side of the Pond: France needs to let go of delusions of grandeur, and Germany needs to get real about contributing to Europe’s security with more hard power – which is always necessary for soft power to work.Roland Freudenstein China Defence EU-US Foreign Policy
Donald J. Biden? How Europe’s Indignation Reveals as Much About Us as About America
21 Sep 2021
European Commission President Ursula von der Leyen’s State of the Union speech has become an established news item, resonating across European media. The 2021 speech had a strong focus on recovery and the last remaining steps to overcome the COVID-19 pandemic.
Structurally, her State of the Union speech was very similar to last year’s, starting with a short reference to the ‘Big Picture’, followed by a list of various Commission initiatives, often with the promise of creating new tools, with budgetary backing. This year’s speech even ended on a similar note as last year, with a ‘human dimension story’. 2020 referenced young girls playing tennis in Liguria, while this year it was an Italian Paralympic gold medallist.
Rather than a speech on the State of the Union, the EU, its long-term vision and its upcoming challenges, the speech became an opportunity for the Commission President to market ongoing initiatives and launch new ones, focusing on the EU’s internal policies.
But although the speech’s focus was mostly internal, it reflects a desire for the European Union to become (yes, really) a true global player.
Since external strength comes from within, and no doubt driven by the momentum created by the situation in Afghanistan, von der Leyen logically followed up by underlining the importance of being ambitious in security and defence cooperation, discussing the plan to convene a Summit on European Defence under the French EU Council Presidency.
However, there is currently no lack of different cooperation mechanisms in the area of security. Instead, the challenge is a lack of motivation on the part of EU member states to engage and invest in their own defence capacity, without even thinking about cooperation at the European level. On the one hand, replacing existing progress by launching a new process with fresh expectations to be fulfilled can be counterproductive. Still, a Summit can create political momentum for further development.
Another initiative mentioned in the State of the Union speech, although perhaps surprising, is the idea of a Global Gateway strategy, a kind of response to China’s New Silk Road, also known as the Belt and Road Initiative (BRI). The strategy seeks to create partnerships with countries around the world, creating investments in quality infrastructure, connecting goods, peoples, and services around the world to build a worldwide brand. It sounds big and ambitious, but the obvious question is, where is the money?
China’s BRI is estimated to involve around $2.5 trillion at the moment. Undoubtedly, the EU will aim to use similar financial leverage as with the ‘Juncker Plan’, but securing funding for massive global infrastructure projects outside the EU’s territory and matching China will prove to be a challenge. However, a key difference between both projects is that the EU’s Global Gateway effort should be based on important EU values and aim to build genuine, mutually beneficial partnerships, as opposed to China’s strategy of debt trapping and subsequent diplomatic coercion, which are the backbone of the New Silk Road.
Currently, the EU’s external force leans heavily on its economic force and its trade ties. The “Brussels effect” makes the EU a leading regulatory force, and the current woes of the US and China put the EU in a unique position to become a promoter of global trade. It is therefore almost surprising that the State of the Union speech did not allow room for a more elaborate discussion on the EU’s role within the global economic patterns and EU trade.
Naturally, one could claim that due to COVID-19, global trade is still shellshocked. However, global trade and business are recovering much faster than expected. During the COVID crisis, the prognosis was that supply chains would be radically changed after the pandemic. As it turns out, we’ve instead witnessed increasing demand and prices, with many companies basically returning to the same production models. Globalisation as a trend will bounce back.
The European Union will not be able to project its power in the same way as big, global sovereign states. It originated in multilateralism and cooperation, holding weaknesses other global entities do not – but also possessing strengths others are lacking.
While the defence and security pillars are essential for a strong EU in the future, development is slow, and thus its primary strength remains centred on its economy. As we wait for next year’s State of the Union speech and its own human story ending, there are equal expectations on how the EU will aim to claim its place and, through its multilateral dimensions, shape the future of the global economy and trade.
Photo Credits: EPP Group in the European ParliamentTomi Huhtanen China Defence European Union Globalisation
Searching for the EU’s Global Role – State of the Union Speech
15 Sep 2021
Roland Freudenstein Roberta Metsola China EU-Russia European Union Transatlantic Transatlantic relations
EIF 21 Panel 2 – Europe’s Role in the Great Power Competition
Live-streams - Multimedia
29 Jun 2021
Though bound by a strong relationship and a shared history, New Zealand (NZ) and Australia are demonstrating a different approach towards a critical economic partner. Australia and China have recently reached high levels of diplomatic friction. In April 2020 came the casus belli: the Australian Foreign Minister calling for an international investigation into the origins of the COVID-19 pandemic and China’s handling of the initial Wuhan outbreak.
The response came a few weeks after when Chinese authorities imposed tariffs on Australian barley, meat, and wine. In the following months, the list of products affected extended to cotton, coal, sugar, lobster, copper, and lumber. In addition to anti-dumping duties, the Chinese tools also included non-tariff barriers and calls to boycott Australian products. Adding to commercial retaliation, some Australian journalists were expelled from China, another journalist was placed under house arrest on espionage charges, and a tweet by a China’s Foreign Minister’s spokesperson showed a forged photo of an Australian soldier with a pointed knife to an Afghan child’s throat.
Even before the request for the COVID investigation, relations between the two countries turned sour soon after the declaration of friendship by China’s President Xi Jinping to the Parliament in Canberra in 2014. Australia, in fact, expressed mounting concerns about Chinese authorities’ interference in the both political and academic institutions, and about risks posed by Huawei’s and ZTE’s 5G and Victoria State’s participation in the Belt and Road Initiative. These are some of the 14 grievances against Australia drawn up last November by China’s ambassador in Canberra. And this list can be updated to include the revision, by the Australian government, of the concession given in 2015 to the Chinese company Shandong Landbridge Group for the management of the port of Darwin.
Not short of having demonstrated its fearlessness, Australia has nevertheless preferred not to escalate the confrontation by labelling as ‘genocide’ the discrimination against Uyghurs in the Xinjiang region, as done previously by other strategic partner of the ‘Five Eyes’ alliance.
Even NZ has been wary of including ‘genocide’ in its official documents when referring to Uyghurs in China. On 5 May 2021, the Parliament in Wellington approved a motion “concerning the serious violations of human rights taking place against Uyghurs and other ethnic and religious minorities in the autonomous region of Xinjiang” and, during the debate, the Foreign Minister recalled that NZ had not previously made an independent determination of genocide, since only international courts can prove a genocide is taking place following a rigorous assessment. China rejected the allegations as unfounded and – in Pavlovian style – threatened, but did not adopt, sanctions. NZ, in fact, is less vocal in criticising China’s authorities. The Foreign Minister herself explained that NZ is not willing to give up an independent foreign policy, and wants to develop a more mature relationship with China.
Notwithstanding the ability of Australian exporters to find alternative markets to a now-harder-to-penetrate China (except for a few products such as the hard-hit wine), the resentment against New Zealanders has become palpable. NZ is accused of going soft on China to avoid retaliations and to profit from relatively better economic relations. For both Oceanian countries, in fact, China is a significant partner for the export of products, but also for the export of non-tradable services such as tourism and education.
This trans-Tasman clash is the subject of an Australian documentary titled “Dollars VS Decency: Is China taking over New Zealand?”, released on the day Australia’s Prime Minister met New Zealand’s peer (30 May 2021). The summit was meant to reaffirm the solidity of the alliance with a joint statement expressing serious concern over developments in the South China Sea, in Hong Kong, and in the Xinjiang region.
In November, NZ will sit China’s and Australia’s leaders down around the same (virtual) table, during its Presidency of the Asia-Pacific Economic Cooperation (APEC). Bilateral economic links are too strong to be handled in a tug-of-war game. China is the largest trading partner for both Australia and NZ; however, even the gigantic China is not self-sufficient, as shown by its insatiable appetite for Australian iron ore, a key ingredient for steel, at the base of many planned infrastructures.
Considering the outcome of the last G7 and NATO summits – where China has been regarded as a challenge to the rules-based international order – Australia and NZ cannot be left alone in playing what looks like a ‘good cop / bad cop’ strategy. The European Union can help the two like-minded countries by speeding up the negotiations of EU-Australia and EU-NZ free trade agreements launched in 2018. If Australia and NZ develop stronger economic ties with the EU that, among others, offer a potential diversification of trade, they may reduce their unilateral dependency with China and gain bargaining power in a negotiation whose repercussion will go beyond the Asia-Pacific region.Stefano Riela China Globalisation Trade
Australia, New Zealand, and China: a Bumpy Ride Towards a Dialogue
29 Jun 2021
It is by now conventional wisdom that the question of relations with Russia is a major obstacle to the unification of the ‘democratic Right’ that Viktor Orbán, Matteo Salvini, and Mateusz Morawiecki like to talk about as of late. Indeed, Russia is one of the main issues making Germany’s AfD, Austria’s FPÖ, and France’s Rassemblement National unlikely partners for a larger right-wing formation. Moreover, even the tripartite alliance between Italy’s Lega, Hungary’s Fidesz, and Poland’s Law and Justice (PiS), which might soon end up in a joint group in the European Parliament, has already experienced stormy conflicts over Russia. And although the previously notoriously pro-Putin Lega has made efforts to distance themselves from the Kremlin, the varying responses from Warsaw and Budapest to recent Kremlin aggression is certainly one of the stumbling blocks.
But those differences may well pale next to the foreseeable infighting over China. This has several roots. For one thing, Russia in its current state is obviously on the losing side of history, and is hopelessly lagging behind the West and China, both economically and technologically. China, in contrast, is set to become the world’s premier economic power within the current decade. Technologically, it will likely overtake the West in a number of fields, such as artificial intelligence. As its power has grown, so have its interests across the globe, so much so that there is now a ‘China angle’ to most policy questions worldwide, and an imperative for the Chinese Communist Party (CCP) to support or obstruct domestic forces in most countries around the world, depending on whether they are considered helpful or not to its interests.
In fact, the stances of the European illiberal right on China are even more amorphous and fickle than those on Russia. Their differing attitudes towards Moscow can at least be traced to their respective nation-state’s historical experiences and strategic culture towards Russia. Put simply, it is as normal for a Polish or an Estonian nationalist to oppose Russia as it is for a French or a German one to court it.
China is both a much more important long-term issue than Russia and a topic that populists have few existing cues to draw on to make sense of. Contrary to Russia, with China, the economic dimension complicates political and ideological calculations. Should China be seen as a welcome Eurasian partner in creating an illiberal counterweight to Euro-Atlantic liberalism, as Viktor Orbán seems to bet on? Or does it represent the mortal danger of de-industrialisation of the nation’s ‘heartlands’, as Marine Le Pen seems to think, following Trump’s ideas? Is Beijing an alternative partner that can be a leverage against Brussels, an idea PiS appeared to entertain in its first months in office? Or is it a Soviet-style adversary to a Christian West, which is the Polish government’s current stance?
No one has faced these dilemmas more than Matteo Salvini. The populist coalition of his Lega party with the Five Star Movement created waves when it decided to join China’s Belt and Road Initiative, making Italy the first European country to do so. Yet Salvini declined to attend his government’s meeting with Xi Jinping, knowing that Lega’s core electorate of Northern Italian small businesses is very suspicious of Chinese ‘state capitalist’ competition.
We know that, in their foreign policy thinking, populists value sovereignty first and foremost, even more so those on the right, who are also strongly nationalistic. Yet the lack of a deeper ideological bond between them means that this basic agreement is the source of division rather than unity. Without a deeper elaboration of what ‘sovereignty’ means in the modern world, beyond knee-jerk Euroscepticism, anti-Americanism, and fear of globalisation, it is impossible to come up with a common, fairly consistent position on a strategic challenge like China.
To be sure, the established European party families such as the centre-right EPP have their own share of internal divisions over Russia and, now, China. But the EPP knows that these different viewpoints can only be reconciled, and European citizens can only enjoy the right balance of economic gains through engagement with China and protection from Beijing’s increasingly hostile practices, within a partly supranational EU and in the framework of liberal democracy.
The pro-European, rule-of-law based centre-right departs from a positive vision of European unity, which helps it make sense of the Chinese problem in all its complexity. The illiberal sovereignist right embarks from a negative vision of national sovereignty that does not resolve, but instead strengthens, the contradictions which the Chinese question poses to Europe.Roland Freudenstein Angelos Chryssogelos China EU-Russia Values
If You Thought Russia Was the Spoiler for Europe’s Illiberals, Wait for China!
26 May 2021
The People’s Republic of China, under the leadership of the Chinese Communist Party (CCP), is an unprecedented challenge to the European Union and to liberal democracy. The COVID-19 pandemic has dramatically underscored this fact. China is now in an open rivalry with the West, not only about which political and economic system has better responded to the pandemic, but also about which system will dominate the 21st century.
• In the EU, our knowledge about China is painfully insufficient. Expertise on China within the Union has further diminished with Brexit.
• The little China expertise we have is increasingly dependent on Chinese funding, and its guiding narratives are therefore shaped by the Chinese Communist Party (CCP) and its front organisations.
• The EU should therefore create a budget line to finance China-related research and language training in the EU, within the 2021-2027 MFF budget for “External Instruments”.China Foreign Policy Values
Researching the Dragon – The EU Needs to Build up its Independent China Expertise
28 Apr 2021
Re-Evaluating Cooperation Between China and Central and Eastern European Countries
In 2012 the ‘16+1’ initiative was officially launched with the aim of formalising a cooperation mechanism between Central and Eastern Europe (CEE) and China. The goal of the partnership is to promote cooperation in infrastructure projects, trade, investment, and tourism, which would be beneficial to both sides. The launch came about in the aftermath of the 2008 financial crisis and the subsequent economic downturn in Europe, which brought rising unemployment in a number of EU countries and put severe strains on national budgets. China saw this as an opportunity to step up and engage with both EU and non-EU countries in order to increase its presence and open up additional export avenues. In 2019 Greece officially joined the initiative, which has since been dubbed the ‘17+1’. China’s efforts were strategic as this framework set the scene for Beijing to expand its Belt and Road Initiative (BRI) onto European soil. In essence, the 17+1 mechanism should be seen as an effective conduit between CEE countries and BRI projects.Central and Eastern Europe China Foreign Policy
The 17+1 Mechanism: Something Doesn’t Add Up
27 Apr 2021
EPP and EPP Group VP answered questions on the recent #SofaGate, EU-Turkey relations, China, and other EU-related issues.Roland Freudenstein China European People's Party
The Week in 7 Questions with Esther de Lange
Multimedia - The Week in 7 Questions
16 Apr 2021
In early 2020, the EU was criticised for lagging behind in providing COVID-related support, while China and Russia were delivering medical aid equipment and masks to EU Member States. We still remember the “From Russia with Love” COVID aid operation to Italy in March 2020, or the plane full of medical supplies from China. A year later, both countries are promoting their vaccines in the Eastern Partnership region (EaP). This time however, the EU is part of the action as well. Through its contributions to the World Health Organization’s COVID-19 Vaccines Global Access (COVAX) and extra financial support earmarked for deployment of COVID-19 vaccines to the region, it is important for the EU to show its support and reliability to its Eastern neighbours and position itself as a respectable player in the Russian and Chinese game of bilateral vaccine diplomacy. In the age of disinformation and fake news, it is also extremely important for Europe to better communicate its work and not allow its efforts to go unnoticed.
Unlike with the distribution of Russian and Chinese vaccines, there are no airport press conferences, nor flashy inauguration events to promote the European contribution.
Besides their shared Soviet past, there’s another characteristic that unites the six Eastern Partnership countries at the moment – the high level of scepticism among the population towards COVID-19 vaccines. Many citizens of Armenia, Azerbaijan, Belarus and Moldova state they do not trust the vaccine, with apprehension towards the jab reaching 41% in Georgia and 53%, one of the highest percentages, in Ukraine.
Despite the third wave of infections hitting most of the EaP counties and forcing their governments to impose lockdowns of varying strictness, the respect for anti-COVID measures remains low, leading to a rise in positive cases. Adding this to a general mistrust towards vaccines does not look promising for achieving herd immunity anytime soon.
The reasons for scepticism are multifold. Populations in many post-Soviet republics are traditionally wary of vaccines, fearing side effects from poor quality drugs. The mistrust has also been amplified by allegations from politicians about low-quality vaccines, corruption scandals, and misinformation spread through social media. Even worse, in some countries like Ukraine, the reluctance to get vaccinated appears even among medical workers.
The low levels of confidence in vaccination campaigns have been fuelled by political struggles and information wars. Conspiracy theories and misinformation over social media have also contributed to creating a massive distrust within society. However, the principal cause of scepticism remains distrust towards state institutions and the quality of purchased vaccines.
Most of the six countries started the vaccine rollout between January and March 2021, unfortunately with quite scarce results. Azerbaijan kicked off its vaccination program on January 18, making it the first country in the Caucasus or Central Asia to do so. Belarus began its vaccination drive by distributing the country’s first round of the Sputnik jab already in December 2020. Ukraine, Georgia, Armenia and Moldova caught up with the first vaccines in February and March. But where are the vaccines coming from?
All of the EaP States, besides Belarus, joined the COVAX scheme, which aims to ensure parity in distribution and access to the vaccine for all interested countries. However, the waiting list is quite a long one. Belarus took a different path, becoming the first country outside Russia to approve Sputnik V and has recently received a batch of vaccines from China, providing a gesture of good strategic partnership between the two countries.
On the contrary, when offered Sputnik V, Ukrainian president Zelensky refused it. The country received its first shipment of AstraZeneca doses produced by India’s Serum Institute and signed a contract with the Chinese Sinovac. Azerbaijan has also been relying on the Chinese CoronaVac vaccine and, similarly to Georgia and Armenia, is on the list to receive the British-Swedish AstraZeneca-Oxford vaccine through COVAX.
On 11 February, the European Union, in partnership with the WHO, launched a new regional programme of over €40 million, aimed at providing critical assistance to ensure local readiness and preparedness for safe and effective vaccination of the population in each of the six Eastern Partnership countries. Commissioner OlivérVárhelyi, responsible for European Neighbourhood Policy and Enlargement Negotiations, stated, “With this new programme that we launch today in partnership with the WHO, the EU shows that it delivers on its commitment to support our Eastern Partners to fight the health crisis.” This extra support could not be more timely.
Let’s not forget that vaccination campaigns in these countries are being carried out amidst internal political instabilities, such as anti-government protests in Belarus, slow-paced reforms in Ukraine and the ongoing conflict in Donbass, a crackdown on the opposition in Georgia, a recent armed conflict in Nagorno-Karabakh, and a fierce but difficult fight against corruption in Moldova led by its President Maia Sandu.
Through its contribution to the COVAX programme and the recent approval of over €40 million of aid, the EU has been providing much support and assistance to deliver the vaccines. However, unlike with the distribution of Russian and Chinese vaccines, there are no airport press conferences, nor flashy inauguration events to promote the European contribution. A better communication of the EU’s support to supplying vaccines to the region along with firm commitments to the EaP countries are strongly needed, as especially now, the EU’s assistance is, quite literally, vital.Anna Nalyvayko China COVID-19 Eastern Europe EU-Russia
Vaccinating Eastern Europe
30 Mar 2021
In mid-2020, a lethal clash occurred between Indian and Chinese troops in the border region of Ladakh. Soon after, India opened fire on the digital front by banning dozens of Chinese mobile applications and declaring them harmful to Indian sovereignty and security. In a similar fashion, the US digital hawk brought its gaze on a technological prey. On national security grounds, the Trump administration initiated a crusade against the likes of TikTok, WeChat and Alipay.
The US’ handling of the TikTok saga has been a messy affair, with the new presidential administration appearing to backtrack on the ban. There are legitimate concerns that foreign businesses shouldn’t be in the crosshairs of politicians, nor should users be collateral damage in the technological rivalry between the US and China.
The national security rationale applied by India and the US in this digital skirmish might appear overblown, but there is an important case to be made. How should our governments respond to online businesses acting in a nefarious way? How should our institutions treat digital platforms which can be conduits for authoritarian influence?
Let’s quickly look under the hood of two of the most popular Chinese platforms. The ‘super-app’ WeChat offers a bundle of services, with more than a billion active users and around 100 million downloads outside of China. WeChat is not only heavily surveilled within China, but also monitored abroad, with strong political censorship of user conversations. The Chinese Communist Party has been using this platform to target the Chinese diaspora in other countries, apply information control, and spread disinformation.
International superstar TikTok also favours content moderation and applies censorship to politically sensitive topics. Both WeChat and TikTok have been embroiled in controversies about the storage and transfer of personal data. Don’t forget that these businesses have to comply with draconian Chinese legislation that requires companies to support national intelligence work.
Some readers might consider such alarm about cute videos or chat platforms a bit premature. But this is just the tip of the iceberg and the problem is not limited to apps. Cheap Chinese Internet of Things (IoT) devices are quickly expanding their share of European markets where standards for such technology are still wobbly. Interconnected home speakers or smart devices remain extremely vulnerable to cybersecurity breaches and are likely to leak user data. It is a matter of time before Chinese AI-driven hardware and software starts raising serious ethical, cybersecurity, and espionage concerns.
The EU must develop stringent standards for the access of advanced digital hardware and software from third countries.
While all of this unfolds, the European dove sits and waits. Much of the EU’s recent efforts have been aimed at Silicon Valley companies and their dirty business when it comes to monopolistic behaviour, monetisation of personal data, and stifling competition. This is a laudable effort but the EU should not underestimate the threats coming from the digital juggernauts to the East. European commitment to online privacy should not be our only line of defence against the ongoing onslaught from China. This is no longer solely a question about bureaucratic personal data management, it’s a question of national security.
The EU must develop stringent standards for the access of advanced digital hardware and software from third countries. The same way we have common rules for consumer goods safety or health requirements for imported foods. The same way we blocked the entry of cheaper Chinese cars which didn`t cover European safety requirements a decade ago.
This should come in parallel with other comprehensive measures to boost our defensive digital capabilities in cyber security and the protection of critical infrastructure, not to mention the need to decisively boost our export controls on selling advanced technology to countries with appalling human rights records. The EU has imposed an arms embargo on China since 1989, but why are we still supplying them with surveillance and dual-use technologies?
Our commitment to free trade and global supply chains don’t mean that we provide unconditional access to our markets and networks. It is unnerving that we are debating whether it’s fair to scrutinise the market access of Chinese digital platforms, while Beijing unscrupulously maintains a wide-ranging ban on hundreds of US and European apps and digital services. In a similar act of techno-nationalism, Russia is trying to limit the exposure of its population to Western digital platforms by obligating phone providers to pre-load all new smartphones with specific Russian-made social networks, payment apps, and voice assistants.
There is the optimistic tale that the Internet will always remain open and that international actors will inevitably embrace the digital domain as a tool for empowerment and joint cooperation. This belief is as noble as it is erroneous. The global system of Internet governance resembles the characteristics of the ‘analogue’ international system – ruthlessly competitive, and prone to regionalisation and conflict. We must finally acknowledge that the likes of China and Russia are not benign actors – Europe is dealing with aggressive authoritarian regimes both online and offline.
The US President Theodore Roosevelt liked to recite the West African proverb: ‘Speak softly and carry a big stick’. On the digital front, Europe speaks softly but often comes empty-handed.
This needs to change.Dimitar Lilkov China Digital
App Wars: The EU Must Prepare for the Digital Skirmish
25 Mar 2021
“The day we stop believing democracy can work is the day we lose it” said Queen Jamilia as the Galactic Republic faced enemies both internal and external during the Clone Wars. Today, democracies face populist and authoritarian challenges both domestically and globally. Among the latter, the Chinese Communist Party (CCP) is increasingly positioning itself as the leading revisionist force, seeking to change international norms and values and the current world order to become a global hegemon. It is promoting an alternative autocratic model to Western democracies and views them as adversaries and existential threats. Benefitting from economic difficulties and Western disunity, as well as the COVID-19 pandemic, China under the CCP has seized the opportunity to challenge Western powers, amongst them the European Union (EU), in a power competition in which values are at the heart of the conflict.
This competition is taking place in the economic, information, technological, political and diplomatic arenas. The Chinese government is leading disinformation campaigns and does not hesitate to bully countries into submission. This political interference is combined with intensive cyber-attacks and large-scale technological espionage, restricted market access, and aggressive investments in national industries, infrastructures, and resources. As a result of its economic and political interests, the CCP is challenging international rules, institutions, and political norms, including human rights – all of which it has committed to in international agreements. The COVID-19 pandemic has increased awareness of the threat the Chinese government poses and of the EU’s dependency on China, both as a provider of goods but also as a market. This has been reflected in public opinion polls that show largely negative views of China in EU countries, especially in Western and Northern European states.
With this growing awareness, the 2019 Joint Communication of the European Commission and the High Representative highlighted the mounting tensions and competition between the EU and China. It offered a compartmentalised model of the EU-China relationship in different policy areas, from “cooperation partner” and “negotiation partner” in domains where interests can be aligned or balanced, to “economic competitor” and “systemic rival promoting alternative models of governance”.
The differentiated approach adopted by the EU might maintain economically fruitful relations on both sides but is unlikely to incite China to end its political, economic, informational, and technological attacks, affecting the national security of EU member states.
Subsequently, in December 2020, China and the EU agreed in principle on a Comprehensive Agreement on Investment. China committed to ensure a “greater level of market access for the EU”, “fair treatment for EU companies”, and “ambitious provisions on sustainable development, including commitments on forced labour and the ratification of the relevant ILO fundamental Conventions”. This agreement would be an important step in obtaining equitable treatment and access for EU companies and businesses; however, it solely focuses on market access, leaving a number of other issues such as human rights abuses and investment protection to negotiate at a later stage. In addition, this agreement will still not open the Chinese market on a reciprocal level. Finally, the EU side-tracked the United States on this negotiation despite an open call from the then incoming Biden administration to consult and cooperate on this “common concern”. This plays directly into the hands of the CCP and its divide and rule strategy, and is a missed opportunity for the EU to have a reinforced bargaining position with a like-minded power (the US) to obtain stronger commitments.
Furthermore, the CCP has demonstrated a lack of respect for rules, and employs tools and strategies to increase its dominance, leading to political instability and risks for EU countries. This calls for stronger engagement against the CCP’s disrupting behaviour on all fronts, in order to protect European interests, values, and political independence. As China’s second largest trading partner, the EU has leverage to negotiate stronger commitments and concessions. The differentiated approach adopted by the EU might maintain economically fruitful relations on both sides but is unlikely to incite China to end its political, economic, informational, and technological attacks, affecting the national security of EU member states.
In addition, the Union should develop stronger ties with countries who view China under the CCP as a mounting threat in the Asia region, such as Australia and Japan, and especially the United States. The Biden administration intends to maintain the country’s hard stance on China; however, it aims to do so in close cooperation with its allies and partners. Despite a decrease of Europe’s trust in the United States this past decade as the relationship became more competitive, critical, and less reliable, they closely share essential values as well as political and economic interests. This is a unique opportunity for the EU to have a stronger bargaining position in negotiations with China. It must seize it and identify how the transatlantic partners can cooperate on China.
All this does not mean Europe should decouple from China, or that there are no remaining paths for cooperation. But the old juxtaposition of nouns – partner, competitor, rival – should be replaced by a hierarchy of a noun and verbs: China is a systemic rival with whom we should compete and cooperate with a balanced inclusive approach incorporating relevant fields, depending on the respective behaviour of the CCP. This difference in syntax precisely indicates that the systemic rivalry is the framework, and competition and cooperation are the variables within it.
The defence of liberal values and democratic principles is essential to the health of our democracies. To protect them from the influence of authoritarianism, the EU has to ensure its actions meet all the challenges ahead, because believing democracy can work is the first step to defending it. The European Union has to be more proactive, resolute, and bold in its relationship with China. We need to become a blue dragon.Marie-Anne Brouillon Roland Freudenstein China Foreign Policy Values
The Case for a Blue Dragon: Facing China as a Confident Democracy
17 Mar 2021
The broader Black Sea region is the scene of increasing tensions amid renewed great power competition and conflicting geopolitical and geo-economic interests. The rise of China and its solidifying regional footprint requires a better understanding of how this influence is capitalised at national and regional level, what type of challenges it creates for respective countries, and what choices decision-makers have at their disposal in this new complex and complicated geopolitical setting.Balkans China Foreign Policy
China in the Broader Black Sea Region
16 Mar 2021
While the vast majority of developed countries are struggling to manage the COVID-19 epidemic, China has been able to control the situation domestically through strict measures. Today, China’s economy has returned to the path of growth in comparison to other global economic powers. The moment when China will truly become the leading global economic power seems to be closer once again.
But while many predict this century will be dominated by China, it will most likely also be the century of the beginning of China’s relative decline. The reason is that China’s population is ageing rapidly and China’s demographic problem is getting increasingly serious.
China’s population, according to current projections, will peak in 2030, with a shrinking labour force and an elderly population (65+) of 240 million. Only Japan has aged faster than China. But while Japan and other developed countries face similar demographic challenges, “China will become old before it becomes rich.” It also does not enjoy the same structures as a developed country – or the necessary infrastructure to tackle the challenge.
Evidently, one of the main causes of China’s demographic situation is its one-child policy, which has created low replacement rates. So-called ‘4-2-1 families’, 4 grandparents with 2 parents having one child, create a situation where the young generation faces a huge economic burden in a country where the social security system, medical care and pensions are very weak – and the expectation remains that children will take care of their parents in old age.
In many countries, immigrants help the demographic situation, but in China the demographic problem is magnified by emigration out of China.
As the working-age population will decrease, robust economic growth will be a challenge to maintain.
In addition, urbanisation is emptying the rural areas with young people moving to the cities, leading to regional economic differences and social tensions. A side effect of the one-child policy is that a preference for boys did lead to sex-selective abortions, having created a situation that for every 100 girls, there are 120 boys. It’s estimated that the percentage of men in their late 30’s who have never married will be five times higher by 2030, and obviously these unmarried young men will have an increasingly negative impact on population growth, not to mention the frustration and negative psychological impact for young males.
While in the Western world, demographic change will have a great impact, in China the projected impact is even larger when compared to its share of total global population. For example, the EU-27’s share of global population is projected to decline by 2,1 percentage points, from 5,9 % to 3,8 % between 2018 to 2100. Conversely, China’s share is projected to fall by 8,9 points, from 18,7 % to 9,8 % in the same time period.
Decline of working age population
According to the United Nations Department of Economic and Social Affairs (2019) in 2060, China’s elderly population will be 400 million people, while the working age population (20–64) will be around 675 million people. For comparison, the working age population is currently 950 million and the elderly population is 175 million. The ratio of working to elderly will go from 0,18 elderly person per working age person now, to 0,59 elderly person per working age person in 2060. This kind of demographic demands a total reconstruction of the Chinese system and huge investments.
As the working-age population will decrease, robust economic growth will be a challenge to maintain, becoming a problem for Chinese leadership, which has managed to legitimise its position and facilitate societal transition by using the benefits of high economic growth. In addition, Chinese debt levels have been increasing at a worrying rate, and managing the debt will not be any easier in the future.
Limiting births with the one-child policy created a ‘demographic dividend’ and gave more time and mobility for people without children to work. Reversing the policy and asking the working-age population to have more children will slow down economic growth until the new generation reaches working age.
China as awoken to its demographic problem and dropped the one-child policy in 2016, asking couples today to ‘have children for the country’, and discouraging women to delay marriage for their career, and setting controls on abortions. However, trying to change societal behaviour set by decades of the one-child policy and countering declining birth rates are not even close to yielding the necessary results.
China is not the only country in the world to tackle demographic trends. However, in China, the problem is exacerbated by the one child-policy, which has created behavioural, cultural, and social patterns that are difficult to be erased overnight.
As China is ageing rapidly, a large part of its male population will never marry and its ageing population will burden the nation’s very weak pension and healthcare system. China will have a smaller workforce and more fiscal constraints. While China has well defined global ambitions, those aspirations will be severely hampered by its demographic problems.
For Europe’s global strategy, the consequence is that while maintaining its crucial transatlantic relations and focusing on the challenge of China, Europe needs to keep developing its relations with other global actors such as India and African countries, players which today seem less relevant but can have a much stronger global role in the coming decades.Tomi Huhtanen China Society
China’s global ambitions will be hampered by its demographics
10 Mar 2021
Our colleague Dimitar Lilkov was the surprise guest this week and discussed fake news on social media, Covid-19 vaccines, Europe’s digital sovereignty, China’s digital authoritarianism, and many other key topics.Roland Freudenstein Dimitar Lilkov China COVID-19 Digital Technology
The Week in 7 Questions with Dimitar Lilkov
Multimedia - The Week in 7 Questions
12 Feb 2021
The EU is right to boost its relationship with India, who might be the world’s strongest economic power by the end of the century. However, many hurdles remain for India to take on a leading global role.
With the Western world struggling with the COVID-19 pandemic and China strengthening its position, bolstered by a good management of the epidemic, there is a temptation to view the world’s geopolitical future as a game of three players: the United States, China, and the European Union. However, it is clear that in future decades, other continents and countries will increase their role. India especially has the potential to change the global balance in the coming decades.
The ongoing Portuguese EU Council Presidency has set out a priority to enhance EU-India relations, and for good reasons. While India remains in many respects a developing country, it has great potential. Importantly, a strong India can have a stabilising impact in Asia, especially vis-à-vis China. For the West, India’s main attraction comes from its potential future role in the global economy.
For the EU, India can offer great economic opportunities. India has an increasing interest in finding global allies, not least because of China.
While India is fully conscious that China has, for decades, overtaken India in economic and technological development, India has done very well from a global perspective. Though China’s advantage over India is still increasing in many fields, there are factors that strongly play in India’s favour.
India’s advantages over China
Firstly, contrarily to China, India has demographic development on its side. China will peak just below 1.5 billion people in the next decade, before decreasing to 1.3 billion people by 2050. As a result of this development, China’s dependency ratio will challenge the country’s development, similarly to what we’ve seen in Europe and the West more generally. In opposition to this, by 2050, India will be home to an estimated 1.7 billion people, and its dependency ratio is actually declining. While India will remain young, China will become old. Secondly, while India’s infrastructure is much weaker, its potential for growth is greater as a result. Thirdly, despite its political problems, India is a democratic nation, and fostering relationships with the US and Europe will be much easier.
India, however, must deal with several hurdles before truly becoming a global player. India’s domestic political developments are worrying. India’s Prime Minister Narendra Modi overwhelmingly won the May 2019 elections, ensuring control over the country’s future. Modi has been accused of boosting his popularity by implementing Hindu nationalist policies in a multireligious and multicultural country, which already has a history of ethnic conflicts. Moreover, his illiberal inclinations are concerning. Political instability in spite of Modi’s rule is a factor of Indian politics, directing the policy focus inwards.
At the same time, his nationalistic attitude is reflected in India’s approach to foreign relations, and in global governance and the development of global trade. India has high tariffs and a strongly nationalistic industrialisation strategy, and trade negotiations between the EU and India have been delayed several times.
India’s foreign policy has a strong focus on neighbouring countries, especially on China’s rise. Furthermore, India is in many ways still a developing country, with undeniable potential, but far behind China. The demographic advantage India will hold in the future will also serve as a challenge with the increasing environmental problems and pressure on basic infrastructure and agriculture. China’s influence concerns India, limits its agenda, and has a strong impact on India’s self-confidence as a global player.
For the EU, India can offer great economic opportunities. India has an increasing interest in finding global allies, not least because of China. The EU and India have already set a pragmatic agenda to boost EU-India relations in their roadmap to 2025. While India’s future global role is unclear, both the EU and its individual member states have a lot to gain in enhancing cooperation with India and moving Indian relations higher in their political agenda. India might be, in future decades, the “next big thing” after China. Europeans should be ready for it.Tomi Huhtanen China Foreign Policy India Leadership
While the EU searches for a stronger partnership, India’s future global role remains unclear
27 Jan 2021
You’ve got to hand it to the Chinese authorities – there`s never a dull moment. In late 2020, a lottery was organised in the city of Suzhou for the allocation of thousands of online wallets, each containing 200 digital yuan (25 euro). The lottery was one of the many pilot experiments organised by the People’s Bank of China (PBOC) to test how China’s central bank digital currency would perform both online and offline.
On the face of it, this is a noble pursuit by a government providing essential services to its citizens. The World Bank estimates that China has one of the highest number of people who lack access to a bank account. The PBOC wants to provide a state-backed digital equivalent of the yuan which will be fully operational in late 2021 or early 2022. However, the government isn’t actually opening new opportunities – it’s desperately trying to catch up with the private sector.
In the last decade, the Asian country made a silent transition to a near cashless society. Payment systems designed by digital giants Alibaba and Tencent essentially leapfrogged the card-based services and started a revolution in financial transfers and retail. China currently tops the global ranking of financial technology (FinTech) adoption globally, with 87 % of its mobile users having access to innovative services. FinTech refers to all kinds of technology-enabled innovation in the financial sector. Plastic cards are not in vogue anymore – QR codes and FinTech apps make the money go round in China.
Widespread mobile applications Alipay and WeChat Pay dominate the mobile payments market in the country, with trillions of euro worth in annual transactions. When it comes to personal data, the reputation of these private apps is murky. In early 2021, the US President signed an executive order banning transactions with eight Chinese software applications (Alipay and We Chat Pay included) due to potential snooping of sensitive data.
The Chinese Communist Party isn’t too happy with the fact that private companies operate the bulk of transactions within the country and that so much money is transferred from traditional banking accounts to electronic wallets. The PBOC is also eager to cut the costs of maintaining traditional banknotes, and also being able to efficiently track money flows within China.
An additional aim for Beijing is increasing the international appeal of its currency. The yuan’s annual share of global payments cleared on SWIFT hovers around 2%, which is meagre compared to the sway of the dollar, euro, and pound sterling. If China is the first country to launch a digital currency, it will make the headlines, but that doesn’t mean the yuan’s inherent problems will go away. Foreign investors are subject to specific financial restrictions, while Chinese authorities have often intervened in capital markets and been criticised for currency manipulation. Global investors are not going to judge a currency only by its shiny new cover. Still, Chinese leadership hopes that in the long run, a digital yuan might pressure the dominance of the US dollar and become the currency of choice for partner countries in Asia.
Fig. 2 Source: SWIFT
USD = US dollar, EUR = Euro, GBP = British pound, JPY = Japanese yen, CNY = Chinese yuan
Interestingly, the biggest prize here may not be the currency’s strength. Recent investigations report that Chinese regulators have persistently bullied Ant Group (parent to the Alipay app) to share their valuable troves of consumer-credit data they have been accumulating from their customers. The recent public disappearance of Jack Ma, founder of Alibaba, certainly raises additional eyebrows. A few months ago, Ma publicly stated that traditional Chinese banks operate with a ‘pawn shop’ mentality.
Obviously, Chinese pawnbrokers and their political overlords are in a hurry. The state wants to reduce the dominance of private actors in the digital payment space. Policymakers in Beijing are also concerned that cryptocurrencies like Bitcoin or Ethereum will grow in appeal for Chinese users, who may migrate funds towards decentralised and anonymous digital tokens. In essence, with its digital yuan, the Chinese state aims to develop the perfect anti-thesis to cryptocurrencies – highly centralised and completely prone to state surveillance.
It seems that China’s digital currency would tick all the right boxes – reining in private companies, tracing financial flows, and boosting the international appeal of its national currency.
The mass adoption of the digital yuan will make every transaction in the country potentially transparent and traceable. This would be an additional step in Xi Jinping’s blueprint for societal management through state-backed digital tools. Monitoring of digital financial flows can also be bundled with China’s nascent social credit system as a mechanism for rewarding and penalising individual behaviour. It seems that China’s digital currency would tick all the right boxes – reining in private companies, tracing financial flows, and boosting the international appeal of its national currency. Indeed, Chairman Mao would have been proud.
European policymakers shouldn’t underestimate these developments. Within the EU, Sweden is one of the few experimenting with the creation of a digital currency, while this topic isn’t even on the agenda in many European capitals. The European Central Bank (ECB) has launched a public consultation on the idea of creating a digital euro, but Frankfurt is years behind on an actual project. Europe doesn’t need to race ahead to beat China in creating a digital currency, but we should be wary of yet another domain in which the Chinese are taking the lead.
An in-depth Martens Centre research study shows that the EU is currently lagging behind when it comes to FinTech services and innovative financial products – all the hot developments are happening in Asia or the US. Add in AI research, telecommunications patents, or development of various technological standards internationally, and you’ll see the EU being dwarfed by China in many of these domains.
The EU is best positioned to pioneer a global standard for a secure digital currency, which will be complementary to euro banknotes. The ECB has the resources and technical capacity to develop a privacy-proof digital euro equivalent, which will be a natural next step in the digitalisation of the European economy. An ECB-designed digital euro should not be launched overnight, and should go through rigorous tests for its durability and state of the art privacy design. It could serve as a tool for financial inclusion of citizens who are operating outside conventional banking services and also increase personal convenience when dealing with financial transactions. Moreover, unregulated payment solutions or third-country financial applications are already mushrooming, which creates specific long-term risks and vulnerabilities. Like it or not, fundamental change is coming within retail, e-commerce and finance across Europe, and EU policymakers must be prepared to provide trustworthy alternatives.
In the coming years, we will witness increasing cyber warfare globally and a relentless race for technological leadership. The European Union simply cannot let digital authoritarians from the East dominate technological standards, or become unrivalled to pioneer new tools for monetary policy which carry the stamp of the Chinese Communist Party.Dimitar Lilkov China Digital Economy
China’s Digital Currency: Mao Would be Proud
14 Jan 2021
China has paid dearly for its geopolitical rise. The Corona crisis is the latest example of the risks involved with massive investment in the Silk Road. The megaproject, which is also known as the Belt and Road Initiative (BRI), was launched in 2013 to underpin the rapid expansion of China’s economy by outbound investment beyond its own national borders. It encompasses infrastructure investments, development policies, investment and trade relations, and financial cooperation with the BRI partner countries. Moreover, it represents a crucial policy to foster China’s geopolitical rise, i.e., by internationalising China’s financial system and its currency, enabling a strong export-driven economy.
The recent pandemic has caused substantial economic downturn and led to an outflow of capital in many BRI countries. The outbreak adds a new hurdle to the trade and infrastructure programme by prompting delays and disruptions, e.g., through labour shortages caused by quarantine measures. This amplifies risks attached to financing investment projects in less politically and economically stable developing countries. However, not only are many countries caught in a Chinese debt-trap, but China itself needs a strategy for managing non-performing loans amid the crisis. Loan defaults on the Silk Road could jeopardise the Chinese mega-project.China Globalisation Industry Macroeconomics
The Chinese Nightmare: Debt Risks Along the Silk Road
19 Nov 2020
While the world is focused on the aftermath of the US elections and its consequences, China is currently discussing its Five-Year Plan, the most important guiding policy document at national, regional, and local levels, which will define its policies and direction for the foreseeable future.
As a result of the successful containment of the Coronavirus, China will be the only major economy to grow this year, which makes engaging with China very attractive for governments, companies, and their shareholders.
Simultaneously, recent political developments in and around China have taken a heavy toll on China’s image in most European countries. Beijing’s deteriorating image and the lack of reciprocity for market access and intellectual property rights have also hardened positions in Brussels – a planned comprehensive investment agreement might not be achieved this year. So, how and in which areas could the strained EU-China relationship move forward?
Like in any international relationship, cooperation is built on trust, perceptions, and policies.
Perception of the EU and its member states in China
The rapidly deteriorating relationship between the People’s Republic and the United States does not (yet) seem to have had a negative effect on the image of European countries in China. Most EU countries, and the EU itself, seem to have a neutral or positive image within the Chinese population.
An example: a high-ranking Chinese government official pointed out that, while previously the USA, Japan, and Germany were all valued and trusted cooperation partners, Germany has remained the only one. The reasoning is that the current international situation makes cooperation programs with the USA impossible and the relationship with Japan is (again) burdened by history. Meanwhile, Germany and most European countries are seen as neutral and developed countries.
Europe’s generally positive image should be used when dealing with China. Nevertheless, without supporting national Chinese policies, any entity dealing with China will encounter difficulties in cross-border cooperation.
China’s Five-Year Plan is the country’s most important guiding policy document
Anyone who has a political or economic agenda in China attempts to influence the drafting of the Five-Year Plan (FYP). After the next FYP will be formally approved by the Chinese National People’s Congress in the spring of 2021, provincial and local governments, as well as state-owned companies, will follow its guidelines and turn them into concrete projects and cooperation.
The outlines for the next five-year plan were formulated in the fifth plenum of the Chinese Communist Party’s Central Committee in late October 2020. Like its predecessors, the next FYP will focus on increasing innovation and manufacturing, developing a sustainable society, raising the general living standard, and bridging the development gap between the wealthy coastal and the less wealthy rural areas. The most notable new developments will include:
-A long-term vision reaching until 2035, thus also laying the ground for the next three five-year plans;
-A push for higher technological innovation and self-sufficiency, influenced by the deteriorating US-China relationship; and
-The introduction of a new “dual circulation” model that aims to create growth based on domestic consumption, while not cutting ties to international markets.
Next steps in the EU-China relation: focus on reaching global goals and tackling megatrends on commonly agreed terms
Looking from China, Europe is already a battleground for narratives in an increasingly polarised world. The ‘damage control’ tour by Chinese Foreign Minister Wang Yi, his first trip abroad after the pandemic began, illustrates the importance of Europe in Beijing’s plans. As the relationship between China and North America deteriorates, China will be looking to other countries for foreign policy successes.
In line with the European Commission’s strategic outlook on relations with China, the EU and its member states should build on their positive image and strengthen cooperation with China in mutually beneficial areas. This does not mean giving in or selling out your own values. As demonstrated by the European Union Chamber of Commerce in China in its latest position paper, one can and should be frank while negotiating with China, but this shouldn’t be done through aggressive Twiplomacy, where the negotiating partner risks losing face.
One also cannot expect China to do the EU´s homework. It is up to Europe itself to form and show unity on how it wants to cooperate with China.
In conclusion, looking at the proposed goals of China´s next five-year plan and the EU’s strategic outlook, two cooperation areas seem especially mutually beneficial. Firstly, the implementation of the Agenda 2030 and the Paris Agreement within an already existing UN framework. Both the EU and China have pledged to become climate neutral by 2050/2060. Both plan to invest billions into green technologies, green finance, and in new solutions promoting sustainability. Cooperation in this area will foster innovation that will benefit both partners and third countries. Secondly, both China and most EU members need to curb megatrends like population aging and the sustainable development of rural areas, with the goal of forming equitable living conditions. In these areas, China and the EU can change best practices and create new solutions that also benefit vulnerable groups.Janne Leino China Globalisation Innovation
China’s 14th Five-Year Plan (2021-2025): Reshaping the EU-China relation
09 Nov 2020
Roland Freudenstein Anna Nalyvayko Žiga Turk China Technology
EIF 2020 – Panel 4: Artificial Intelligence
Live-streams - Multimedia
28 Oct 2020
China is no longer only a partner, but increasingly also a systemic competitor, due to the continued enforcement of state capitalism under Xi Jinping. The hope for change through trade has not been fulfilled, as the growing influence of the Chinese Communist Party shows. Trust in the Chinese leadership has been eroded in recent years due to an aggressive global raw materials strategy, expansive moves in Southeast Asia, the Belt and Road Initiative, the 17+1 initiative, and the interference with Hong Kong most recently.China Economy Foreign Policy Trade
For a More Robust Approach Towards China in European Trade and Investment Policy
28 Sep 2020
Theresa Fallon and Roland Freudenstein discuss EU – China relations, including Beijing’s espionage in Brussels, the Chinese Twitter trolls, or even Winnie the Pooh!Roland Freudenstein China
The Week in 7 Questions with Theresa Fallon
Multimedia - The Week in 7 Questions
25 Sep 2020
You cannot miss this week’s surprise guest, Monika Richter, the woman at the heart of the China disinformation incident at the European External Action Service. She answered 7 questions on Chinese and Russian propaganda and agendas during COVID-19, the European lack of preparation to tackle them, and why is she leaving her job.Roland Freudenstein China EU-Russia
The Week in 7 Questions with Monika Richter
Multimedia - The Week in 7 Questions
17 Jul 2020
This week’s surprise guest is Miriam Lexmann, EPP Group MEP. She and Roland discussed about China during and after COVID-19, its pressure over Hong Kong, the Chinese Communist Party, and Human Rights.Miriam Lexmann Roland Freudenstein China COVID-19
The Week in 7 Questions with Miriam Lexmann
Multimedia - The Week in 7 Questions
03 Jul 2020
In clear violation of the ‘one country, two systems’ principle of the Sino-British Joint Declaration, China has now passed legislation directly curtailing the freedoms once granted to the citizens of Hong Kong. We can expect tough resistance from Hong Kong’s democracy movement, and further attempts by the Chinese Communist Party to strengthen its power over the autonomous area. How should the EU and European civil society react? Will this crisis affect Sino-European relations? What form will the response of other international actors take if China continues to apply such pressure to Hong Kong?Mikuláš Dzurinda Miriam Lexmann Dimitar Lilkov China
Online Event ‘Hong Kong Under the Dragon’s Breath: How Should Europe Respond?’
Live-streams - Multimedia
26 Jun 2020
Watch our surprise guest of the week answering Roland Freudenstein’s questions on teleworking, digital Education, robotics, Artificial Intelligence, tourism and China.Žiga Turk Roland Freudenstein China COVID-19 Education Technology
The Week in 7 Questions with Žiga Turk
Multimedia - The Week in 7 Questions
05 Jun 2020
Watch here the 7 answers that Lidia Pereira gives to our host Roland Freudenstein on topics such as the new way of work of the MEPs, changing traveling to books, Digital Technology, or China, among others.Roland Freudenstein China COVID-19 European People's Party Technology
The Week In 7 Questions with Lídia Pereira
Multimedia - The Week in 7 Questions
24 Apr 2020
Disinformation and misinformation around COVID-19 continue to proliferate around the world, with potentially harmful consequences for public health and effective crisis communication. In the EU and elsewhere, coordinated disinformation messaging seeks to frame vulnerable minorities as the cause of the pandemic and to fuel distrust in the ability of democratic institutions to deliver effective responses.
The World Health Organization (WHO) said false claims “are spreading faster than the virus” and has already termed it an “infodemic of planetary proportions”. How can we beat misinformation? How to recognise disinformation and help stop it from spreading? What is the EU doing about it? Join our online debate to find out answers to those questions.Anna van Oeveren China COVID-19 EU-Russia
Online Event ‘Can the EU gear up against Covid-19 disinformation?’
Live-streams - Multimedia
23 Apr 2020
Watch Jan Techau answering 7 questions about Germany, Angela Merkel, France, the EU, UK, Russia, China, COVID-10, and even Super Heroes!Roland Freudenstein Brexit China COVID-19 EU Member States EU-Russia
The Week In 7 Questions with Jan Techau
Multimedia - The Week in 7 Questions
17 Apr 2020
Digital authoritarianism is no future prospect. It is already here. The People’s Republic of China has institutionalised draconian measures for citizen surveillance and censorship, as well as gaining almost full control of online political discourse.
Download the Research Paper here.Dimitar Lilkov China Technology
Teaser Video ‘Made in China: Tackling Digital Authoritarianism’
Multimedia - Other videos
26 Mar 2020
Digital authoritarianism is no future prospect. It is already here. The People’s Republic of China has institutionalised draconian measures for citizen surveillance and censorship, as well as gaining almost full control of online political discourse. The Chinese Social Credit System is an intricate extension of this tactic. A coordinated administrative system which feeds on data from different governmental sources and has the ability to sanction and publicly shame individuals would be a powerful tool in the hands of the Chinese Politburo. In parallel, China is pursuing an aggressive agenda of techno-nationalism which aims to move the country closer to technological self-sufficiency and to maximise the penetration of its technological giants on the global stage. The majority of these digital champions have been nurtured by generous public subsidies and successfully shielded from international competition.
This research paper analyses the unique features of the Chinese model of digital authoritarianism and its international spill-overs. China’s oppressive model is no longer just applied domestically but is successfully being exported to other countries across different continents. As a new decade begins, the EU must make sure that its citizens have the necessary institutional and legal protection from abuses of modern technology such as facial-recognition software and the advanced application of AI. Europe must remain a global influence when it comes to ensuring a coherent regulatory approach to technology and stand ready to oppose the spread of digital authoritarianism.China Democracy Economy European Union Innovation Technology
Made in China: Tackling Digital Authoritarianism
11 Feb 2020