• 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

    Anna Nalyvayko

    Vaccinating Eastern Europe

    Blog

    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

    Dimitar Lilkov

    App Wars: The EU Must Prepare for the Digital Skirmish

    Blog

    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

    Marie-Anne Brouillon

    Roland Freudenstein

    The Case for a Blue Dragon: Facing China as a Confident Democracy

    Blog

    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

    Collaborative

    17 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

    Tomi Huhtanen

    China’s global ambitions will be hampered by its demographics

    Blog

    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

    Tomi Huhtanen

    While the EU searches for a stronger partnership, India’s future global role remains unclear

    Blog

    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.

         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

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    09 Nov 2020

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  • 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.​

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  • Theresa Fallon and Roland Freudenstein discuss EU – China relations, including Beijing’s espionage in Brussels, the Chinese Twitter trolls, or even Winnie the Pooh!

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  • 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.

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  • 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?

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  • Watch our surprise guest of the week answering Roland Freudenstein’s questions on teleworking, digital Education, robotics, Artificial Intelligence, tourism and China.

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  • 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.

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  • 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.

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  • Watch Jan Techau answering 7 questions about Germany, Angela Merkel, France, the EU, UK, Russia, China, COVID-10, and even Super Heroes!

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  • 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.

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  • 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.

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    Research Papers

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