• 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.

         Fig. 1 Source: E&Y | Martens Centre

    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

    Dimitar Lilkov

    China’s Digital Currency: Mao Would be Proud

    Blog

    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

    IN BRIEF

    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

    Janne Leino

    China’s 14th Five-Year Plan (2021-2025): Reshaping the EU-China relation

    Blog

    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

    IN BRIEF

    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

    Research Papers

    11 Feb 2020