[This article was first published on Young China Watcher’s blog]

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In March this year, Italy became the first G7 nation to sign an official MoU with China in the context of the Belt and Road Initiative (BRI). The move by the Italian government has been interpreted as a sign of increasing divisions within Europe over China; it has also been widely criticised as putting short-term national interests above a common European approach. But to what extent might the Italian example be an indication of a shift or rift in EU-China relations?

Shifting perceptions of China

The situation is complex, pitting national interests against community interests within a shifting geopolitical environment. Even when there is a demonstration of unity in the EU, individual countries still diverge from common positions. For instance, in summer 2018, 27 EU ambassadors signed a statement criticising BRI as mainly beneficial for China, lacking transparency and unsustainable in its debt policies, with Hungary being the only country to break ranks at the time.

News on EU-China relations is dominated by conflicts on specific issues such as trade disputes or human rights, which flare up from time to time. However, even though these have not substantially dampened the overall relationship, and EU-China trade and investment remains robust, the ways of engaging are changing and governments and businesses alike are struggling with the ambiguity of China. This is becoming particularly evident in Germany, China’s largest trade partner within Europe.

Since Donald Trump’s arrival to the Oval Office, the wider global context is shifting as well. With the ongoing trade dispute between the US and China, China has been markedly stepping up its charm offensive towards Europe. China’s investment volumes are now nine-times higher in Europe than in North America due to fewer regulatory hurdles, a predictable policy environment, and high-tech assets, with the largest share going to the UK, Germany and France.

Public perceptions are also shifting. Historically, the US has been the EU’s closest partner. Today, more and more Europeans feel they cannot rely on the US anymore. A recent survey found that over 40 per cent of Germans now place more trust in China than in the US.

Caution around investments and advanced technologies

At the same time the conversation in government and business circles has markedly shifted towards increasing wariness towards China. Foreign companies operating in China are less willing to tolerate the continuing lack of reciprocity and discrimination and are tired of repeated promises of economic reforms and a level playing field in the Chinese market, without substantial changes being put into practice. At the same time, they are torn between taking a more critical stance and their reliance on the Chinese market. For instance, a recent paper by the Federation of German Industries (BDI) acknowledges China as one of the most important markets for German companies but emphasises the challenge of reconciling partnership with systemic competition.

A similar picture is emerging on Chinese inbound investments in Europe. Voices are growing louder criticising technology transfers and China’s growing clout in certain industries, such as electric vehicles, robotics and 5G technology, but the main question remains how to deal with the potential national security implications of Chinese participation in critical European infrastructure.

This spurred the EU and national governments into action, translating these concerns into legislation hindering, if not outright blocking, Chinese investments in certain sectors. On the initiative of Germany, France and Italy, the EU developed a regulation on how to approach investments into critical infrastructure. Still, the European investment screening framework is much less invasive and comprehensive than existing legislation in many countries (such as the more muscular CFIUS mechanism in the US) and does not have any legally binding nature.

The focus of the EU’s investment screening is clear: sharing information among Member States on specific foreign investments that have potential national security impacts. In addition, the European Commission may issue opinions when several Member States may be affected, or it may be in the interest of the EU as a whole. In such a case, Member States are required to justify any divergence from the Commission’s opinion.

While the EU approach addresses the cross-border nature of investments its remit remains limited to creating incentives for Member States to put in place robust FDI monitoring mechanisms. Nevertheless, the first effects of a changing investment environment can already be felt: several Member States are modernising and enhancing their FDI screening regimes in anticipation of Chinese takeovers.

After a record high for Chinese investments in Europe in 2016, Chinese-initiated mergers and acquisitions in Europe slowly declined in 2017, dropping by 21 per cent in 2018; the number of investments in Germany even fell by 60 per cent. Despite this dip, the debate around Chinese influence, technology, and potential national security implications continues unabated.

In focus: Europe’s 5G networks

Risks are perceived as particularly high when it comes to telecommunications, with 5G set to be the new standard of connectivity and the ‘internet of things’. Huawei, one of the leading providers of 5G technology faces suspicion that its equipment may contain backdoors that enable state-backed spying.

The example of Huawei is exemplary of how governments struggle to balance risks and (economic) benefits. While Huawei technology has been recently banned in several countries, the US is putting pressure on Europe to follow suit. But countries such as Germany are looking for a third option that would keep the market open to Chinese companies while at the same time pre-empting concerns about spying. While the principle of engaging with China rather than plainly banning its companies is laudable, there are little indications that a “no spy agreement” such as floated by the German government could effectively address the risks.

These are also not significantly mitigated through the Commission’s approach towards security in Europe’s 5G network, which again focuses more on coordination and information sharing, leaving the onus on national legislation. While both the Commission initiative on investment screening as well as on communication infrastructure are examples of more European approaches, they also demonstrate the limits of the EU’s legislative remit.

Efforts to unify a European stance

Recently, several EU Member States have also increasingly exhibited efforts to take a common stance towards China. In March 2019, for the first time, a country (France) has invited an EU representative as well as another Member State (Germany) to join a meeting with Chinese President Xi Jinping. While sending the message that China needs to take the EU more seriously as an actor, even though it prefers a bilateral approach, it needs to be taken with a grain of salt as an European approach is not favored by all Member States to the same extent.

The meeting between the French president, German chancellor and Commission president took place against the backdrop of Italy’s official endorsement of the BRI. As such, these limited initiatives might also exacerbate pre-existing divisions between Member States. These divisions have become apparent between larger and smaller Member States, between the wealthier Member States in the north and the struggling countries in the south, and between those with a more or less balanced trade balance with China.

While Member States such as Germany are increasingly pushing the European China agenda and the EU bloc is getting a more prominent seat at the table, it is still premature to read these developments as a newfound European unity towards China. If the President-elect of the European Commission, Ursula von der Leyen, who is said to hold more critical views of China and to be diplomatic but assertive, will be able to bring the EU Member States closer together remains to be seen. The oscillation between national interests and clearly demonstrating the potential strengths of a regional approach, finding credible and effective ways of engagement with China that balances business and government interests at home and in the Chinese market, as well as addressing (economic) concerns of individual Member States, will remain challenges for a European China policy in the near future.

The EU’s approach towards China is evidently shifting and the EU and its Member States are willing to take more measures to protect their own interests, despite potential retaliation from China. But as a recent Joint Communication states, Europe’s approach towards China needs to be more realistic, assertive, and multi-faceted to adapt to shifting economic and geopolitical realities.

[This article was first published on Young China Watcher’s blog] __________________________________________________________________________________

Southeast Asia has become an important region for China’s global ambitions, with increasing economic support and investment provided to Southeast Asian countries under China’s Belt and Road Initiative (BRI). Chinese foreign direct investment (FDI) in Southeast Asia grew by nearly 7 percent from 2004 to 2010, with Malaysia as the fourth-largest recipient of China’s total FDI in 2017. For many economies in the region, China is their biggest trading partner.

Yet while the region as a whole is often perceived as heavily reliant on Chinese money—be it through traditional aid or other financing instruments—the reality among Southeast Asian countries is diverse, and recently several countries are re-evaluating their relationship with China.

Large international financial institutions such as the Asian Development Bank and the IMF have repeatedly voiced concerns over unsustainable debt in the context of the BRI, and several projects have attracted media scrutiny over delays in progress, financial corruption, or concerns over sovereignty.

At the same time, tensions over China’s expanding military presence in the South China Sea persist: Malaysia, Brunei, the Philippines, Taiwan, and Vietnam all have conflicting claims in the area, while Indonesia announced in 2017 that it would rename a part of the South China Sea falling under its claimed exclusive economic zone as the “North Natuna Sea“. Collective action towards China via the Association of Southeast Asian Nations (ASEAN) is often hampered due to these tensions.

Moods across the region

While many countries look towards China to accelerate infrastructure development, this does not mean that they are not wary of economic dependence or potential military conflicts with China. In some cases, particularly for smaller and less developed countries such as Laos, the picture might be rather grim due to a heavy reliance on Chinese financing; China is Laos’ biggest foreign donor, primary investor, and second-largest trade partner. By contrast, recent demonstrations in Vietnam reflect the deep-rooted distrust towards China and a common fear of economic dependence.

Such sentiments are also widespread in Indonesia, where the government, while welcoming Chinese investments in the country to upgrade patchy infrastructure, is cautious to engage in open courtship. The Indonesian government has repeatedly demonstrated its resolve to diversify its economic partners. For instance, while China has won the contract for the troubled Jakarta-Bandung high speed rail, Japan is building the Jakarta-Surabaya line as well as the Jakarta metro. Most recently, Indonesia has granted India access to its Sabang port in Aceh, along the sea route of China’s BRI.

The more economically developed countries are taking stock of their relationship with China and actively seeking alternatives. In Malaysia, recently re-elected Prime Minister Mahathir Mohamad has announced a review of Chinese projects in the country to assess their value and financial conduct in the country.  This review may extend to the strategic partnership formed between Malaysia and Chinese e-commerce company Alibaba, which opened its first Southeast Asia office in Kuala Lumpur in June 2018. Alibaba also established its first Electronic World Trade Platform outside China in Malaysia, functioning as a digital free trade zone for e-commerce.

Thailand, which has also experienced difficulties in the development of a Chinese-built high speed rail, has just announced plans for a regional investment fund managed jointly with Cambodia, Laos, Myanmar and Vietnam to lessen reliance on China and other large Asian powers, such as Japan, Korea, and India, in order to seek financing from sources within the region itself.

The upside of Chinese engagement

These examples demonstrate the differences between Southeast Asian countries in terms of attitudes towards Chinese funding and their ability to reject Chinese propositions. While China will remain a powerful partner and the focus of media on its growing financing in the region, Japan to date remains the largest investor in Southeast Asia.

Across the region, policymakers are increasingly making use of financing alternatives, as well as initiating their own funds. While these options will not be able to match the volume of Chinese funding, competition between Japan and China over infrastructure projects in the region could also have a positive impact on projects if governments expand assessment criteria to include project quality in addition to pricing, which is often perceived as more favorable from China.

While Beijing continues its outreach towards Southeast Asia, it may be increasingly met with resistance from domestic stakeholders in the region. This does not constrain China from trade, investment and the pursuit of its infrastructure drive, but could—in a best-case scenario—result in better and more sustainable projects for the countries involved.

Innerhalb von einer Woche hat sich das Blatt in der globalen Handelspolitik gewendet. Während der Chinesische Staatspräsident Xi Jinping auf dem Weltwirtschaftsforum in Davos den globalen Freihandel und ökonomische Globalisierung bewirbt, verspricht der neue US Präsident Donald Trump eine protektionistische Wirtschaftspolitik mit höheren Zöllen und dem Rückzug aus dem bereits ausgehandelten Freihandelsabkommen TPP.

Mit dieser Rhetorik gibt die USA ihren ideologischen und wirtschaftlichen Führungsanspruch zugunsten von „America First“ auf. Die chinesische Regierung hat bereits angedeutet, das entstehende Vakuum füllen zu wollen. Dabei kann auch Europa und insbesondere Deutschland eine Rolle spielen und die aktuelle G20 Präsidentschaft nutzen, um gemeinsam für globalen Freihandel einzutreten und das Investitionsklima zu verbessern.

Ob die aktuellen Anzeichen allerdings eine tatsächliche Kehrtwende in der Weltwirtschaftspolitik zur Folge haben werden, bleibt abzuwarten. Auf der einen Seite hat Trump zwar tatsächlich bereits einen Exekutiverlass unterzeichnet, mit dem die USA TPP den Rücken kehren und die Neuverhandlung des nordamerikanischen Freihandelsabkommens mit Kanada und Mexiko, NAFTA, angekündigt.

Auf der anderen Seite widersprechen einige Berater und Kabinettsmitglieder den Ansichten des Präsidenten und unterstützen stattdessen den bisherigen Freihandelskurs der USA. Ebenso äußern sich führende amerikanische Wirtschaftsvertreter besorgt über den neuen Kurs. Letztendlich unterliegt auch Trump einem politischen System, welches jahrzehntelang Globalisierung und Freihandel vorangetrieben hat. So bleibt abzuwarten, ob dieser vermeintlich großangelegte Rückzug aufgrund des politischen Machtgefüges der USA letztlich rhetorischer Natur bleibt.

Auch die chinesische Regierung versteht, dass die von Trump vorgeschlagenen protektionistischen Maßnahmen langfristig der USA wirtschaftlich schaden und amerikanische Unternehmen eng mit der globalen Wertschöpfungskette verknüpft sind. Xi kann jedoch diese Situation geschickt nutzen, um China als neue weltpolitische Führungsmacht in Handelsfragen zu positionieren.

Zeitgleich zu Xi’s glühender Werbung für Globalisierung und Freihandel in Davos, kündigte die Chinesische Regierung an, weitere Sektoren für internationale Investoren, insbesondere im Banken- und Finanzsektor, zu öffnen. Ähnlich wie Trump, scheint es Xi auf den ersten Blick ernst zu meinen. Aber auch im Fall Chinas spricht einiges gegen eine drastische Veränderung.

Ausländische Handelskammern in China, allen voran die der EU, bemängelt seit langem, dass den zahlreichen Ankündigungen Chinas die Wirtschaft zu öffnen und den Einfluss des Marktes zu erhöhen, selten spürbare Veränderungen folgen. Und auch aktuell ist Skepsis angebracht, denn wirtschaftliche Reformen sind für Chinas Machthaber ein sensibles Thema: Sie müssen eine Balance finden, bei der das Wirtschaftswachstum aufrechterhalten werden kann und das soziale Gefüge stabil bleibt. Im kommenden Jahr wird sich zeigen, ob die Regierung es schafft, Überkapazitäten, insbesondere im Kohle- und Stahlsektor, abzubauen, Umweltprobleme in den Griff zu bekommen und ökonomische Ungleichheiten zwischen dem Osten und Westen des Landes auszubalancieren.

Gleichzeitig wird für Xi der Fokus in der Innenpolitik liegen. Im Angang zu und während des 19. Parteikongress im Herbst, muss Xi seine Vertrauten in Schlüsselpositionen in Politik und Wirtschaft platzieren, um seine Machtposition langfristig auszubauen.

Das Momentum der aktuellen Rhetorik Chinas und der USA birgt jedoch auch für Europa eine Chance. So eröffnet sich die Gelegenheit für China und Europa ihre Verbindung zu stärken und ein Zeichen über die reine Rhetorik hinaus zu setzen. Das derzeit verhandelte Investitionsabkommen zwischen der EU und China kann hierzu als Vehikel dienen.

Im europäischen Kontext kann speziell Deutschland die aktuelle G20-Präsidentschaft nutzen, um für Stabilität, freien Handel und ein gesundes, globales Investitionsklima einzutreten – und damit einen weiteren Gegenpol gegen die rhetorische Abschottung der USA zu bilden. Die Bundesregierung kann hier Initiativen der chinesischen G20-Agenda des vergangenen Jahres aufnehmen und gleichzeitig an Lösungen für aktuelle Spannungen in den Beziehungen arbeiten. Im Zuge des G20 Vorsitzes kann Deutschland – in Kombination mit Chinas angekündigtem Willen zur Verbesserung der Investitionsbedingungen und Öffnung der Wirtschaft – Druck auf China ausüben und die Implementierung versprochener Veränderungen, insbesondere eine Verbesserung des Investitionsklimas in China, vorantreiben.

Die deutsch-chinesischen Beziehungen sind jedoch derzeit auch hierzulande angespannt. Unzufriedenheit und Skepsis gegenüber chinesischen Investitionen in Deutschland zeigen sich nicht nur hinter den Kulissen, sondern werden auch zunehmend in der Öffentlichkeit diskutiert.

Trotz ihres noch geringen Anteils an Direktinvestitionen in Deutschland, sind Chinesische Investitionen sprunghaft gestiegen. Insgesamt gaben chinesische Investoren über €35 Milliarden für deutsche Unternehmen aus – mehr als in allen Vorjahren zusammen. Kuka und Aixtron, bei dem die Bundesregierung ihre Unbedenklichkeitsbescheinigung kürzlich zurückzog, sind dabei nur die bekanntesten Fälle. Da nicht alle Transaktionen meldepflichtig sind oder vom BMWI überprüft werden, bleiben viele chinesische Investitionen unter dem Radar. Besorgnis besteht jedoch aufgrund der mangelnden Transparenz chinesischer Unternehmen, vor allem bei Investitionen in sensiblen technologischen Sektoren.

Das Investitionsklima zwischen Deutschland und China zu verbessern und eine Führungsrolle und Vorbildfunktion im internationalen Freihandel einzunehmen sollte daher Leitmotiv des deutschen Vorsitzes werden. Die G20 bieten dabei einen idealen Rahmen, um gemeinsam mit China dort Führung zu übernehmen, wo die Vereinigten Staaten unter Trump kürzer treten werden. Dank der G20 “Troika” wird Kontinuität in der G20-Agenda gewährleistet. Diese Kontinuität bietet gleichzeitig die Chance, gemeinsam globale Lösungen für Probleme zu erarbeiten, die sich auch in den bilateralen Beziehungen widerspiegeln. Mit Hamburg als Austragungsort des G20-Gipfels 2017, mit seiner besonderen Bedeutung für die bilateralen Beziehungen zwischen Deutschland und China, könnte die Kulisse dafür nicht besser sein.