China is increasingly decoupling from the global economy

Beijing, Berlin, Düsseldorf Mostly once a year, China’s head of state and party leader Xi Jinping gives a speech to high-ranking ministry and provincial leaders at the Central University of the Communist Party, which sets the course for the year. But this time it had a special meaning. Because the five-year plan is currently being finalized, which should set the course for the economy in the People’s Republic from March to 2025.

Foreign company representatives may not have liked what Xi said behind closed doors earlier this week. “The most essential feature of building a new development pattern is to achieve a high level of self-sufficiency and self-improvement,” says Xi. ”

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China versus USA: Europe is the loser in this tech war

IIn these days, things are quickly becoming political when it comes to technology, and not just when Twitter bans Donald Trump’s user account. The same thing happened to the EU officials who negotiated the EU-China investment agreement at the end of last year. They were only able to end the negotiations shortly before the turn of the year – and in the process had to clear a politically extremely delicate hurdle.

In one of the last drafts of the contract text, which Beijing sent to Brussels at the beginning of December, there was apparently a passage that the negotiators of the EU Commission were not prepared for. He intended to punish those EU countries that block their latest generation of 5G cellular networks for equipment from the Chinese provider Huawei, wrote the “South China Morning Post”, which has this draft contract.

For the EU states concerned, which block Huawei and other Chinese telecom equipment suppliers from accessing the 5G market, some of the Chinese contract commitments would have been blocked. The EU negotiators apparently did not agree to this. However, the episode illustrates how increasing tech nationalism is changing world politics.

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Europe wants to be at the forefront. In December, EU Industry Commissioner Thierry Breton and Vice-Commission President Margrethe Vestager presented their plans for comprehensive digital regulation. Brussels’s claim: The new rules for digital companies and markets should become a blueprint for tech regulation around the globe. No more and no less.

The reality is currently different. The episode from the EU-China negotiations clearly shows that China and the USA in particular are in the process of negotiating the digital sphere among themselves. As in the case of Huawei, the EU must be careful not to be ripped apart between the two tech great powers.

China and the USA are increasingly pursuing a tech nationalism that could harm European companies in the long term. The Chamber of Commerce of the European Union in China, which represents European companies that do business locally, is now warning of this.

Technologies are shared between China and the US

Together with the renowned China research institute Merics, she analyzed what the increasing economic unbundling of China and the rest of the world means for European companies. The result: In the digital industries in particular, there is a threat of considerable upheaval.

“The technologies that will shape our societies and economies and that are playing an increasingly important role in all areas of the economy will be divided between two of the three largest economic areas in the world,” write the authors of the report. China and the USA largely agreed on the development of future technologies and their application.

In fact, the technology world is rapidly deglobalizing. China and the USA are disentangling their technology sectors, increasingly isolating them from each other. The USA, for example, is banning Huawei and other Chinese suppliers from the latest generation of cellular networks and is looking for allies around the world to exclude Chinese suppliers from other networks and technologies.

Source: WORLD infographic

China has been relying on domestic tech companies for a long time. The internet there is largely independent of the rest of the world. Chinese consumers, for example, hardly or not at all use the services of the major US providers Google or Facebook.

“The US is moving into a world in which Chinese technology is to be wiped out of the supply chains, while China is creating state-sponsored national champions that dominate a largely independent ecosystem of domestic technology,” the analysts write.

This is becoming a dilemma for European companies. Their value chains are global and require inputs from both the US and China. But in a world where these two big markets lock out each other’s technology, companies doing business with both sides get a problem.

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In this world of increasing tech isolation, European companies have only two options if they want to continue doing business in both markets. On the one hand, you can offer products that specifically target the two markets. However, this is far more complex in the digital sector than in conventional industries.

If you wanted to sell cars in Great Britain, you had to build the cockpit upside down. Compared to the digital, this is still simple. Research and development and the logistics chains must be set up for each of the two markets. Thats expensive.

A second possibility would be to build hardware and software modularly: All those parts that can be used in both markets, for example because they come from Europe, could be developed and built for all customers, and only those parts that are critical could built specifically for the respective markets and exchanged depending on the customer. From the company’s point of view, this is also expensive.

European companies could be the losers

In digital globalization, European companies are in danger of becoming the big losers. “Every step towards more economic decoupling causes further damage to companies,” write the authors of the report. And they warn that affected companies must think this development through to the end.

“Techno-nationalism is increasing worldwide, and therefore one has to analyze what the possibility of a complete separation of the digital spheres would mean,” they write. In a survey by the Chamber of Commerce, some companies – especially those for whom China only accounts for a small part of international sales – stated that the digital unbundling would ultimately endanger their business in China.

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After years of negotiation, the investment agreement with China is in place.  However, EU politicians are demanding that Beijing now has to do more with sustainability and workers' rights.

Because economies of scale would not apply if they had to develop and produce separately for their Chinese customers, the China business would no longer be profitable, so they would have to give it up completely. Others with higher market share in China said they needed to restructure their businesses.

In both cases, this means less investment, fewer jobs and, for the end customer, higher costs and less choice, according to the report. Apparently, even the experts do not see any other way out of the dilemma.

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British companies criticize export barriers to Europe

London “There is no Irish maritime border,” said British Northern Ireland Minister Brandon Lewis on New Year’s Day when Brexit was over. This claim is now being refuted every day.

UK exporters are complaining about the additional formalities involved in trading with Northern Ireland, with many having suspended deliveries for the time being. Trucks are turned back at the ports because they do not have the correct papers with them.

The Irish Sea and the English Channel are the new hot spots in British foreign trade. Retailers, freight forwarders and fishermen all complain about the Brexit bureaucracy. Even large corporations seem surprised by the new rules. The duty-free agreement agreed with the EU does not apply to goods that are imported and then immediately exported again.

“Duty-free doesn’t feel like duty-free when you read the fine print,” said Steve Rowe, CEO of the UK department store chain Marks and Spencer (M&S). The conversion of the supply chains due to the rules of origin will “significantly burden” business in Ireland, the Czech Republic and France.

The M & S candy brand “Percy Pig”, for example, is made by Katjes in Germany. So far the fruit gums have only been imported to Great Britain and then sent on to Ireland. This operation will result in customs duties in the future. Marks and Spencer therefore has the choice of either paying the tariffs or rebuilding its supply chain so that Ireland is supplied directly from Germany. For the time being, the company no longer delivers the fruit gums to the EU.

Recently a case for customs

The fruit gum brand “Percy Pig” is sold by the British department store chain Marks and Spencer and manufactured by Katjes in Germany.

(Photo: Reuters)

The exit treaty and the free trade agreement, which have governed the relationship between the UK and the EU since the New Year, introduce a number of new trade barriers. They apply to the EU neighbors Ireland and France, but also to the British part of Northern Ireland, which continues to be part of the EU internal market.

“Deliveries to Northern Ireland are now no different from deliveries to France,” said Seamus Leheny of Logistics UK logistics association this week at a hearing in the UK House of Commons. Most British companies are not aware of this. “They don’t know what to do.”

Leheny said British trucks arrived in Belfast, Northern Ireland, with just “groceries” on their loading lists this week. “These trucks had to be checked.” That took up to eight hours. Normally they should have been sent back, but the authorities turned a blind eye and dealt with the formalities on the spot.

Ireland relaxes rules

“The EU and the UK need to get together and simplify the processes,” said Aodhan Connolly, Director of the Northern Irish Retail Federation. Some British companies would no longer serve the Northern Irish market because they did not understand the rules or did not want to deal with them. The supermarket chain Tesco has already warned of possible shortages in some foods. However, there is still no shortage, said Connolly.

At least deliveries to Ireland should be easier. Irish Customs announced on Thursday evening that all shippers will be allowed to provide a temporary customs code that will allow them access to the ferries. However, this is only a provisional measure, stressed the authority. The companies would have to find a long-term solution themselves.

“It is clear that many companies are not as prepared as they thought, or have significantly underestimated what it means to be ready for Brexit,” a spokesman for the Irish Customs Service told the Irish Times.

No traffic jams in Dover, but problems in camps

The feared truck traffic jams in front of the main ports of Holyhead and Dover have not yet materialized. However, this is only because the traffic volume is significantly lower than usual. Most companies wait and store their deliveries until they meet the new requirements. “While there are no queues at the ports, they are created in our depots,” Andrew Kinsella of Welsh freight forwarding company Gwynedd Shipping told BBC radio.

When traffic picks up again in the coming weeks, traffic jams are expected. Many of the trucks that are currently arriving at the ports do not have all the papers with them. “We register a large number of vehicles that are turned away in Calais, Dunkerque and Dover because of incorrect documents,” writes the ferry company DFDS on its website. She reminds companies that import and export declarations are required for French customs.

The parcel delivery service DPD UK has suspended its deliveries to the EU until the middle of next week in order to adjust its processes. A fifth of all parcels had been returned in the past few days due to incorrect papers.

Fishing harbor in Macduff, Scotland

“Perfect storm” for the industry.

(Photo: X06674)

Companies that rely on smooth exports react indignantly to the chaos. “Everything we sent out this week is lost,” said Jamie McMillan, head of Scottish seafood exporter Loch Fyne Seafarms, in an online video.

He lost thousands of pounds because his lobsters and crabs got stuck on the way to France. “We can no longer export to the EU until the problems are resolved.” That will probably drive his company into bankruptcy. “Thank you, Brexit!”

Donna Fordyce of the Seafood Scotland Fisheries Association spoke of the “perfect storm” for the industry. The end of the Brexit transition period caused “complete confusion”. Among other things, IT problems led to deliveries ending up in the wrong ports in France.

“These companies don’t transport toilet paper,” said Fordyce. “They export the highest quality perishable seafood. The time window to bring them to market in top condition is limited. “

More: British airline shareholders lose their rights through Brexit.

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US stock exchange NYSE does not block Chinese telecom companies after all

Trader an der New York Stock Exchange

The shares of the three initially excluded companies rose after the withdrawal of the NYSE on the Hong Kong stock exchange by up to 8.5 percent.

(Photo: Reuters)

New York The US stock exchange operator New York Stock Exchange (NYSE) has withdrawn its plans to exclude three state-owned Chinese telephone companies from stock trading. After further consultations with the relevant supervisory authorities, China Mobile, China Telecom and China Unicom are likely to stay, the NYSE announced on Monday. She did not give any further details.

The NYSE had only announced the lock on Thursday and referred to a US government decree from November. In November, the government banned investments in a total of 31 companies that they claim are controlled by the Chinese military.

After the decision in New York, the share prices of the three companies on the Hong Kong Stock Exchange rose by more than five percent each on Tuesday. Investors who sold the shares of the telecommunications company in the US on Monday were thus caught on the wrong foot.

A Jefferies Financial Group analyst called the turnaround “bizarre”. Jackson Wong, Director of Asset Management at Amber Hill Capital in Hong Kong, called the NYSE’s decision “quite unexpected”.

With the NYSE unclear as to why the NYSE changed course, investors speculated whether this was merely due to the stock market’s initial misinterpretation of the executive order or more general geopolitical implications.

US government officials accuse the Chinese Communist Party of exploiting US citizens’ access to US technology and investments to strengthen the country’s military. The Chinese government, on the other hand, accuses the US of using the national security argument as a pretext to discriminate against Chinese companies in competition.

More: Read here why the optimism remains unbroken on Wall Street.

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Canada rejects acquisition of Arctic gold mine

Gold

With the acquisition of TMAC Resources, Shandong Mining would have got a gold mine and a port in Hope Bay on the Northwest Passage, the shipping route through Canada’s Arctic Islands.

(Photo: Reuters)

Ottawa The Canadian government has rejected the takeover of a raw materials company in Canada’s Arctic by the Chinese company Shandong Gold Mining. Apparently, security concerns led Ottawa to make this decision.

With the acquisition of TMAC Resources, Shandong would have got a gold mine and port in Hope Bay on the Northwest Passage, the shipping route through Canada’s Arctic Islands. China’s interest in TMAC also underscores the Arctic’s growing global strategic importance.

Canadian junior company TMAC announced Prime Minister Justin Trudeau’s government decision ahead of the Christmas holidays. TMAC is “disappointed” with the government’s decision. The transaction will not take place now, said company boss Jason Neal.

The Ministry of Innovation, Science and Economic Development, which under the “Investment Canada Act” examines applications for takeover of Canadian companies by foreign countries, did not itself publish a press release and did not want to comment because of the confidentiality required by law. Shandong Mining Co. Ltd. wanted to acquire 100 percent of TMAC Resources Inc. for 1.75 Canadian dollars per share.

That would have a market value between 200 million and 230 million Canadian dollars, the equivalent of up to around 150 million euros. The TMAC shareholders approved the takeover on June 26th with an overwhelming majority of 97 percent.

Relationship between Canada and China strained

The Chinese embassy said in a statement that Canada should “offer fair, open and non-discriminatory market conditions for companies from all over the world including China”. TMAC mines the precious metal in Hope Bay not far from the community of Cambridge Bay in its Doris gold mine.

The value of the transaction is rather low compared to other acquisitions in the raw materials sector. But the deal was politically explosive for several reasons. Canada’s relations with China have been strained since the chief financial officer of the Chinese telecommunications group Huawei, Meng Wanzhou, was arrested at Vancouver airport in December 2018 on a US extradition request.

Extradition proceedings against Meng are pending in a Canadian court. Immediately after Meng Wanzhou’s arrest, Canadians Michael Kovrig and Michael Spavor were arrested in China on charges of espionage. Canada regards this as retaliation, while China rejects any link between the two proceedings.

In addition, Shandong, which the Canadian media describe as controlled by the Chinese state, would have received a base with the takeover of TMAC in the middle of the Northwest Passage. It is expected that with advancing climate change the Northwest Passage will become navigable and thus gain in importance for international shipping.

In the narrow shipping route through the Arctic archipelago of Canada, a base could be of great strategic importance for China. It could therefore also have international significance. For Canadians, whose claims to sovereignty over the waterways in the far north are repeatedly questioned – also by the European Union and the USA – sovereignty over the Northwest Passage is a very sensitive question.

Protest

Protesters demand the release of Michael Spavor and Michael Kovrig, in Vancouver.

(Photo: Reuters)

The USA is critical of China’s Arctic policy

Therefore, even without official confirmation by the government in Ottawa, it is plausible that security and sovereignty considerations have influenced the balance between economic and national interests. This balancing must be made in accordance with the “Investment Canada Act”.

The daily newspaper Globe and Mail also reports on “pressure from the US government”. The US embassy in Ottawa initially did not comment on Canada’s decision. The US has been warning for some time that China could use civil research in the Arctic, investments in raw materials and expanding shipping as vehicles to gain a strategic foothold in the Arctic and ultimately strengthen its military presence.

US Secretary of State Mike Pompeo pointed this out in a very confrontational speech on the sidelines of the Arctic Council’s deliberations in the spring of 2019 in Rovaniemi, Finland. Pompeo sees “a new age of strategic engagement in the Arctic, with new threats to the Arctic and to all of our interests in this region”

In 2013 the Arctic Council granted China observer status. In 2018, China formulated its Arctic policy and, despite the distance between China and the Arctic, referred to itself as the “near Arctic State”. The self-designation underlines China’s interest in the region.

China wants to use the shipping routes and is interested in the raw materials of the Arctic, which include not only oil and gas, but also precious metals and technology raw materials. China sees shipping through the Arctic as the “polar silk road”.

Northwest Passage

For Canadians, sovereignty over the Northwest Passage is a very sensitive issue.

(Photo: dpa)

China’s new role in the Arctic

It is intended to help diversify trade routes and create a possible alternative to the southern maritime Silk Road through the Strait of Malacca, the Indian Ocean, Suez Canal and the Mediterranean. In its “Arctic Strategy” from June 2019, the US Department of Defense speaks of an “era of strategic competition” in the Arctic.

While China was mentioned rather marginally in earlier Pentagon documents on the Arctic, the relationship between economic initiatives and the possible resulting military presence is now described. In March 2020, Russia also underlined the importance of the Arctic for the socio-economic development of the country with a decree signed by President Putin “On the basis of the state policy of the Russian Federation in the Arctic for the period up to 2035”.

The Russian government makes it clear that the Arctic is of central geo-economic and geo-political importance for the country. Russia relies on the energy resources, metals and minerals that lie in the Arctic floor and in the sea near the coast. Investments should be made in the economic infrastructure, which is becoming even more expensive due to the thawing permafrost soil. The expansion of the military infrastructure is also a high priority.

The Canadian political scientist Rob Huebert from the University of Calgary therefore speaks of a new “strategic triangle” that is formed by the USA, Russia and China and for which he has found a handy abbreviation: NASTE, which stands for “New Arctic Strategic Triangle Environment” stands. Tensions in the Arctic are not caused by conflicts over Arctic issues, but by the rivalries of the great powers.

He sees the strained relationship between the US and Russia with the simultaneous rise of China, which challenges the US and possibly also Russia on the world stage, as a reason for new strategic and military activities in the Arctic.

It is obvious to him that for the US and Russia, the Arctic is the best starting point to strike at each other. This is one of the reasons the Arctic became “a region of overwhelming strategic importance when the US and Russia began to challenge each other’s interests in the international system”.

China is complicating the situation in the Arctic

It is not about the conflict “over the Arctic, but the use of military power from the Arctic, which gave this region its geopolitical significance”. According to Huebert, the fact that China is now calling itself the “near-Arctic state” in this strategic field and is competing with the USA and, in the longer term, with Russia as well, makes the situation even more complicated.

The historical bipolar system is now shaped by the appearance of three powers, and this makes the region “more important and more dangerous”. For TMAC, after the broken China deal, it is about securing the continued existence of the Doris mine.

It went into production in 2017, but is struggling with technical and structural problems. TMAC needs cash inflow to continue operations and repay loans. “The Hope Bay Gold Belt has considerable value,” said TMAC President Neal.

In an interview with the Nunatsiaq News published in Iqaluit, the capital of the Arctic Territory of Nunavut, he assured that the mine would not be “mothballed”. He had hoped that with the takeover by Shandong he would be able to put the mine on a secure financial basis.

He did not want to speculate about the reasons for Canada’s government rejecting the transaction, but admitted that this shows “that relations between Canada and China are currently not at all good”. The region’s Inuit organization is also counting on the Doris mine to attract the interest of domestic investors and financial institutions in view of the gold price, so that the mine can continue operations and jobs are secured for the people of Nunavut.

More: EU and China agree on investment agreements

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How China shapes the whole world with its own technology standards

Beijing, Berlin The speech that then US President Bill Clinton gave in March 2000 to students at Johns Hopkins University on China politics was a product of its time: full of confidence, borne by the boom in the new economy and a firm belief in the inexorable advance of the liberal democracy. Clinton spoke about how the internet will change China. “In the new century, cell phones and modems will spread freedom,” he said.

The new century is now 20 years old, and it turned Clinton’s expectations upside down. The Internet has not changed China in terms of liberal values, but China is changing the Internet. The battle for supremacy in the digital world is in full swing.

China’s vision for future technologies is diametrically different from the democratic-liberal ideas that Clinton associated with the Internet. It is the vision of an authoritarian state that leaves no room for civil rights and claims control of private data. A state that forbids criticism and extols its repressive system of rule as a development model.

The Chinese government is working to spread its vision of the digital world internationally. The key word is standardization, i.e. the creation of technical standards that are used by companies.

“Five years ago China was still a standard user,” says Betty Xu, envoy for the European standardization organizations in Beijing. “But in the past five years, China has started to export its own standards.”

A recent report by the US Chamber of Commerce to Congress said that China is actively increasing its influence in international technical standardization and has identified standards as a key area for projecting economic power in the world.

It is only superficially about technical details such as the shape of power plugs, the compatibility of car charging stations or the communication between machines. In fact, it is about whose companies have advantages in the end: “Whoever determines the rules of the game ensures that he always wins,” says Tyson Barker, technology expert at the German Society for Foreign Policy (DGAP).

The geopolitical power struggle between the USA, China and Europe is therefore also carried out in the field of standard-setting. At the same time, there is competition between systems, because technologies are not value-neutral – they often spread a basic ethical-political orientation.

For a long time it was the libertarian-capitalist mix of values ​​in Silicon Valley that set the rules of the digital world. But China’s tech firms are increasingly able to take on the US giants. And become messengers of an alternative understanding of values.

For example with the automatic recognition of voices and faces. Chinese companies such as Hikvision or Dahua Technology are leaders in the field of real-time identification of people using artificial intelligence. They benefit from massive support from the communist leadership, which has already rolled out a close-knit network of surveillance cameras in the cities.

Face recognition on a smartphone

China has already largely created facts, especially when it comes to facial recognition.

(Photo: AP)

While strict rules or even a ban on technology are being discussed in Europe, Beijing is uninhibitedly using its possibilities for its own purposes. And promotes export to other countries: According to a study by the foreign trade agency Germany Trade and Invest, Chinese video surveillance systems are used at 34 Indian airports.

Beijing’s calculation: If the domestic manufacturers manage to occupy the market first, the management can also dictate the technical fundamentals together with them. “If you are a technological leader and define the standards first, you also anchor your values,” says Tim Rühlig, an expert at the Swedish Institute of International Affairs in Stockholm.

The Chinese government is more powerful than Europe and the USA. In contrast to the European and American systems, standard-setting in China is primarily state-controlled. With the “China Standards 2035” initiative launched in 2018, Beijing has set itself the goal of setting industry standards worldwide.

Experts see the plan as a continuation of the controversial “Made in China 2025” strategy. This should make Chinese companies global market leaders in ten key technologies. The standardization project has a very high priority for the Chinese government: According to the Chinese standardization authority National Standardization Administration, standardization is to become part of the 14th five-year plan. In the plan, China’s leadership sets the direction of the world’s second largest economy for the period from 2021 to 2025.

China’s influence on the 6G network

One step further on the way to its destination is China in the latest cellular technology. The proportion of Chinese patents that are necessary to comply with standards has risen from around ten percent for 4G to around a third for 5G, says Rühlig. “If this trend continues, China could have a greater impact on 6G technology than any country has ever had on cellular technology.”

The leadership in Beijing is proceeding very strategically: It has given domestic companies such as Huawei and ZTE massive financial support in order to become leaders in the new generation of mobile communications, and at the same time created a huge market for them: While in Europe only the existing 4G As networks are upgraded, the government is investing billions in building an entirely new 5G network in the country. At the same time, the technological position was cemented by means of patents and standards; Beijing is providing targeted financial incentives for this.

The leadership is using the growing economic weight of China and its financial strength to determine the international rules of the game. This approach is not new – China has copied it from the West.

Chinese factory

While Western standards have so far determined global production processes, China is attacking this supremacy.

(Photo: dpa)

So far, Europe and the USA in particular have set the global standards. Its representatives dominate the committees of the International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC). German experts in particular are disproportionately represented there, also because of the strength of the domestic industry. But China has significantly expanded its influence in recent years.

The EU and the USA now want to counter this together. The change in power in Washington opens up the opportunity for this. The EU has already proposed a Joint Council on Trade and Technology to US President-elect Joe Biden “to set regulations and standards that will be replicated around the world”. According to the Federal Ministry of Economics, transatlantic coordination is particularly important for a high-tech and export nation like Germany.

A project that has met with great interest in America. A group of experts led by foreign policy expert Nicholas Burns has just presented an agenda for cooperation with the EU on China policy. One of the most important projects: the establishment of a “transatlantic technology forum”, which aims to establish “global standards for the protection of privacy, competition, transparency and fairness”.

Economy builds on economies of scale through uniformity

The EU and the USA could therefore make a fresh attempt to coordinate more closely on the regulation and standard-setting of particularly new technologies. The first, extremely ambitious attempt to achieve this had failed with the TTIP free trade agreement. The approaches on both sides of the Atlantic were too different, the uneasiness in the population was too great – keyword chlorinated chickens. Ironically, it was only through the TTIP negotiations that Beijing fully realized the importance of standards, says Rühlig.

Uniform standards worldwide are important for the economy in order to achieve economies of scale. “Internationally uniform technological standards are of great importance for German machine and plant manufacturers,” says Claudia Barkowsky, representative of the Association of German Machine and Plant Manufacturers (VDMA) in Beijing. “They simplify the integration and dissemination of technologies, while configurations for individual markets are very expensive.”

Take smartphones, for example: It wasn’t long ago that European cell phones didn’t work in the US, American ones didn’t work in Europe. Today Apple can sell the same iPhone everywhere, whether in Denver, Düsseldorf or Delhi. That lowers the unit costs. In addition: The companies that have developed the standard also have a lead in time over those that have yet to adapt to the standard.

However, Beijing does not only want to enforce its standards in the world through technological progress. China also uses the controversial New Silk Road as the means of choice. With success, as can be seen from the example of trains. “Because China is exporting trains to countries in Africa as part of the Belt and Road strategy, these countries have adopted Chinese standards,” says EU expert Xu.

Beijing is working to further expand its influence along the former trade route. The Chinese government is currently discussing the establishment of a new regional standardization forum as part of the initiative with the participating countries, reports Rühlig. “This forum should challenge the existing international system and at the same time serve as a coordination platform to expand Beijing’s influence in the international standardization organizations.”

More: In five years’ time, all Bosch products should be equipped with artificial intelligence. The Stuttgart-based company is campaigning for ethical standards.

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USA announces further punitive tariffs on products from Germany

Lufthansa Airbus A320

The Franco-German aircraft manufacturer Airbus and its US competitor Boeing are said to have received subsidies from their governments.

(Photo: dpa)

Washington In the dispute over subsidies for the aviation industry between the USA and the EU, Washington has announced additional punitive tariffs on products from Germany and France. Aircraft components from both countries, certain wines as well as certain cognacs and other alcoholic beverages are affected, the US trade representative said on Wednesday (local time).

In response, the aircraft manufacturer Airbus called on the European Union to act. Airbus trusts that Europe will respond appropriately to the US initiative and defend its interests, the group announced on Thursday. This also concerns the interests of all companies and industries from Europe that are affected by the unjustified and counterproductive tariffs of the USA.

The EU Commission said it regretted the announcement from Washington. With the unilateral action, the United States disrupted the ongoing negotiations to settle the subsidy conflict, a spokesman said. The EU will contact the new US administration as soon as possible to continue negotiations and find a permanent solution to the dispute.

In November, the European Union announced additional taxes on certain US products. This was preceded by a decision by the arbitrators of the World Trade Organization, according to which the EU is allowed to impose punitive tariffs on US imports amounting to almost four billion dollars (3.4 billion euros) per year because of illegal subsidies for the aircraft manufacturer Boeing.

The US government has now accused Brussels of taking unfair decisions when imposing the tariffs, which is why its own measures have to be adjusted. For example, the EU based its decision on punitive tariffs on the trade volume of the 27 EU states excluding Great Britain, which has resulted in higher retaliatory measures against the USA. “The EU must take action to redress this injustice,” said the Trade Representative.

The EU hopes that Donald Trump’s successor in the White House, Democrat Joe Biden, will agree to talks about a settlement of the subsidy dispute that has been going on for years.

More: EU welcomes Joe Biden with new punitive tariffs.

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Investment deal with China is on the home stretch

China and the EU

The EU and China intend to announce their agreement this year.

(Photo: Reuters)

Brussels, Berlin After almost seven years of negotiations, the EU and China have agreed on the text of an investment agreement, according to Handelsblatt information. “A political agreement is possible before the end of the year,” said a confidante of Commission President Ursula von der Leyen the Handelsblatt. The agreement is expected to be announced by the EU leaders this Wednesday. Commission vice Valdis Dombrovskis had achieved the breakthrough in talks with Beijing.

The Comprehensive Agreement on Investment (CAI) is intended to create improved market access for European companies in China – and thus new business opportunities in the world’s second largest economy.

The automotive and telecommunications industries, among others, benefit from this, as do banks and insurance companies as well as investors from the health sector. “The result of the negotiations is the most ambitious result that China has ever agreed with a third country,” said the commission.

“Better competitive conditions in the state-run China are of great benefit to German, European and Chinese companies,” said Managing Director Joachim Lang from the Federation of German Industries (BDI) to the Handelsblatt. However, the ability to enforce the new rights is crucial. It will probably take several months for the agreement to enter into force. Among other things, the European Parliament still has to agree.

EU Commission Vice Valdis Dombrovskis had cleared the last obstacles out of the way with China’s Vice Prime Minister Liu He. A spokesman for the Chinese Foreign Ministry spoke of “great progress”. On Monday, the EU ambassadors gave the green light for the agreement. “The work on the technical level has been completed,” said MEP Bernd Lange (SPD), chairman of the trade committee.

According to information from the Commission, the decisive factor in the agreement between the EU and China was that Beijing made commitments in the area of ​​climate protection, including the implementation of the Paris Agreement.

There has also been progress on the subject of forced labor. China has agreed to undertake “continued and sustained efforts” to promote the ratification of the fundamental International Labor Organization (ILO) convention on forced labor.

graphic

However, there was already criticism of such compromises on Tuesday: “That Europe is satisfied with such a formulation, when the Chinese leadership has just demonstrated in Hong Kong that international agreements are worth nothing to them, is a strategic own goal,” said for example Thorsten Benner from the think tank Global Public Policy in Berlin. Beijing’s concessions in the area of ​​labor rights will also be central to the required approval of the EU Parliament.

The agreement opens up new market access for EU companies, for example for electric and hybrid cars, cloud and financial services, and for investments in private hospitals in cities with more than ten million inhabitants. The agreement aims to ensure that there is no discrimination against EU companies by Chinese state-owned companies. In addition, China will be prohibited from linking the approval of investments and other benefits to the transfer of technology.

The President of the EU Chamber of Commerce in Beijing, Jörg Wuttke, spoke of a “robust agreement” that one could live with: “There is never a perfect agreement.”

That is why it was good that the German Council Presidency put so much pressure on to get a deal. And MEP Lange also praised: “The progress that has been made will improve investment opportunities, level the playing field and, above all, create more legal certainty.”

“As the first actor, EU brings China to concessions”

Michael Hüther, Director of the Institut der Deutschen Wirtschaft (IW), on the other hand, warns: “Berlin and Brussels must not be fobbed off with commitments that do not change the actual business practices.” If this change succeeds, the investment agreement would send an important signal against them many protectionist tendencies in world politics.

In addition to the central agreement with Great Britain on a follow-up agreement after the final exit from the EU, the investment agreement could mean a second breakthrough at the end of the year. “The EU is the first actor in the world that has brought China to concessions on questions of social standards,” said BDI General Manager Lang. This is a decisive step towards a “Union that is also closed on investment issues and is a strong player in shaping global rules”.

Nevertheless, it is clear on the European side: The agreement is only one building block in relations with China. CAI does not offer comprehensive investment protection outside of the existing bilateral agreements. European companies can also continue to be excluded from public tenders – this point is also not covered by the investment agreement.

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Many business representatives, economists and politicians are calling for it to be further developed in close coordination with the new US administration under Joe Biden.

Beijing’s concessions on market access and on the subject of distortion of competition are of great economic importance, especially from a German perspective. Germany alone exported goods worth almost 100 billion euros to the People’s Republic this year up to and including November.

China ranks third among the largest German export destinations, just behind the USA and France. China is the EU’s most important trading partner after the USA. While trade with the US has declined significantly over the past 19 years, China’s share tripled in the same period to almost 16 percent of total EU trade.

Among other things, the conclusion of the “Regional, Comprehensive Economic Partnership” (RCEP) between 14 Asia-Pacific states, including China, gave momentum to the negotiations between the EU and Beijing. “With the conclusion of the RCEP, the USA and the EU are under pressure,” said Veronika Grimm.

Both sides have been negotiating since January 2014. Even after the political agreement, it will likely take a long time for the agreement to come into force. The translation and legal examination of the text alone should take six months to a year. The agreement then has to be discussed and adopted by the European Parliament.

EU parliamentarians criticize the haste in talks for the final deal

Above all, the sustainability chapter and employee rights are likely to be central. “The ratification of ILO core labor standards, especially against forced labor, must be binding and linked to specific steps,” calls for MEP Lange.

In Brussels, MEPs criticize the rush in reaching an agreement on the investment agreement. “For geostrategic reasons, I think it is unwise, now, shortly before Joe Biden becomes president, to implement the investment pact with China quickly,” said MEP Reinhard Bütikofer (Greens), chairman of the EU Parliament’s China delegation. “I thought we wanted to work on leaving the time of going it alone behind us.”

China will remain a system rival even after an investment agreement, said Bütikofer. He announced a detailed examination of the contract text. Non-binding promises on workers’ rights were not enough for approval: “I use our free trade agreement with Vietnam as a benchmark.” There, a step-by-step plan was agreed for the ratification of the ILO standards.

The relationship between the EU and China is anything but relaxed. Shortly before Christmas, the European Parliament brought sanctions against China because of the human rights violations there. Beijing’s attack on Hong Kong’s autonomy in particular had aroused outrage and criticism not only in the European Parliament but also in numerous member states.

More: The agreement could drive a wedge between Europe and the US.

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The investment agreement is “a gift for Xi”

Thorsten Benner

The external expert heads the Global Public Policy Institute in Berlin.

(Photo: Press photo)

Since Mr. Benner, is the emerging deal a success for the German EU Council Presidency – or a strategic coup for China’s President Xi Jinping?
The agreement is a gift on a silver platter for Xi. The Chinese government could not have wished for better timing. Your goal is to drive a wedge between Europe and the United States. It is a fatal signal for transatlantic cooperation to seal an investment deal right now when a new government comes into office in Washington.
Is the Chancellor jeopardizing the restart of the transatlantic partnership?
I would not go so far. The new US administration will continue to see opportunities for cooperation with Europe. In any case, we should not judge the agreement by what it means for relations with the USA, but by what it brings to Europe.

And what is the first assessment here?
Many details are still unclear, but what has leaked out so far sounds like a joke: China wants to make “sustainable efforts” to comply with international standards against forced labor. The fact that Europe is satisfied with such a formulation, when the Chinese leadership has just demonstrated in Hong Kong that they are worth nothing to international agreements, is a strategic own goal.

Proponents of the deal say Europe wrested concessions from Beijing on the playing field …
So far this is difficult to assess. But the promises that have become known do not suggest that a breakthrough has been achieved here that would justify a hasty conclusion of the agreement. And we cannot ignore the geopolitical context. Beijing has recently behaved extremely aggressively: with disinformation against Europe, with the harassment of Taiwan and Australia – at the end of such a year, to reward Xi Jinping with an agreement cannot be in the European interest.

Does the deal signal that the EU is striving for equidistance to Beijing and Washington?
No. Even if the agreement is ratified – which is anything but certain in view of the resistance from the EU Parliament – that would not mean that Europe will abandon a more critical approach towards China and the identification of Beijing as a system rival. The deal is a setback for the critical turn in China policy, but the long-term trend is unbroken.

More: The EU-China investment deal is on the home stretch.

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German exports: China is the only real bright spot

NAfter a catastrophic year, Germany’s export industry will have to prepare for a persistently difficult global economic situation in 2021. There is a huge amount at stake for this successful export nation. Because exports make up almost half of the gross domestic product (GDP). How the German economy comes out of the Corona crisis depends on foreign business.

According to calculations by the Federal Association of Wholesale and Foreign Trade (BGA), exports have shrunk by at least twelve percent this year. The US business even collapsed by 16 percent. Exports to Great Britain fell even more sharply, at 18.5 percent, because the companies “anticipated the consequences of Brexit,” as BGA President Anton Börner emphasized in his annual balance sheet. “The only bright spots are China and Asia, whose importance has increased further during the corona pandemic.”

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Even if the vaccination, which is now starting, gives reason to hope for an economic recovery, the association expects that exports will not reach the pre-crisis level again until the first or second quarter of 2022. For the next few months, however, companies still expect that business – starting from a very low level – will run increasingly better, as the BGA sentiment barometer shows.

Source: WORLD infographic

In any case, profound changes are imminent in 2021, especially since one of the most important players leaves the stage in January with the outgoing US President Donald Trump. However, the President of the Institute for the World Economy (IfW), Gabriel Felbermayr, expects the United States to remain a difficult partner for the Europeans even with the new Prime Minister Joe Biden.

German exports to the USA could even run worse in the next four years than during the Trump era. “The atmosphere in transatlantic relations will be much better because you can talk to Biden,” says Felbermayr. But while Trump had boosted the economy with tax cuts at the beginning of his term of office, from which European and especially German exports had benefited, Biden wanted to raise taxes.

“Trump sounded belligerent, but his growth-friendly policy was very useful to the Germans. With his successor, things could go the other way, ”warns the economist. After all, there will no longer be an explicit threat of tariffs on German cars.

Put pressure on China

Felbermayr is confident that the dispute over the aircraft manufacturers Airbus and Boeing will also be able to be repaired with Biden. Of course, the researcher does not expect a new attempt at a transatlantic free trade agreement (TTIP), as demanded by foreign trade chief Börner.

Explosive decisions are pending in relation to the People’s Republic of China. Because in future it will hardly be possible for Germany to continue to take a neutral position in the American-Chinese conflict – which will continue under the new President Biden.

“Europe, together with the USA and other western-oriented countries such as Japan and South Korea, must put pressure on China,” advises Felbermayr. With the new US administration, there is now an opportunity for such an alliance. New trade policy instruments are needed to deal with a state capitalist system.

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The legal system of the World Trade Organization (WTO) does not offer any suitable regulations for this. “Only with broad alliances and with massive pressure will you get concessions from China,” says the economist. If Beijing continues to restrict imports and investments at home, the EU should also threaten, and credibly, with market access restrictions.

Toughness is necessary to finally achieve fairer economic relations, according to Felbermayr: “It would be ideal to develop and show these instruments of torture, but never have to use them – like nuclear weapons in the Cold War.”

The reason for hope that China is moving is the investment protection agreement between the EU and the People’s Republic, which is apparently about to be concluded. “In view of the much better transatlantic cooperation in the next few years, China is now finally ready to make significant concessions to the EU in the long-term negotiations on the investment agreement,” says Felbermayr.

Source: WORLD infographic

Beijing is trying to drive a wedge between Brussels and Washington. Nevertheless, the EU should bring the negotiations to a conclusion now, advises the economist: “It would be risky to wait for the Biden administration.”

In addition, bilateral investment protection agreements also had a multilateral effect: the rules for state-owned companies and subsidies promised by Beijing improved the situation for companies in all countries that are in competition with China. Felbermayr criticized, however, that nothing was known about the concessions that the EU would have to make.

Dependent on open foreign markets

Another turning point is the British exit from the European single market, which will shrink by 16 percent as a result. The top economist emphasizes that Brexit is a disaster that fundamentally weakens the EU. Europe is losing weight, and the balance is shifting in favor of members like Italy or France, who rely more than Germany on state intervention and protectionism.

Source: WORLD infographic

The German government should have paid much more attention to the exit negotiations instead of leaving everything to the chief negotiator Michel Barnier, the scientist criticizes. BGA President Börner warns that it will take years for German trade with Great Britain to recover. Because despite the last-minute agreement, bureaucratic obstacles loomed.

The global trend towards protectionism, which has received a powerful boost from the Corona crisis, is a growing danger for the German export business. This is shown by the current “Global Trade Alert Report 2020”, which this year is devoted to the collateral damage that the various rescue measures of the individual nation states have inflicted on international economic relations.

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The interactive map further down the article shows the countries' debt levels and deteriorating ratings

According to a study by the Center for Economic Policy Research in London, British Prime Minister Boris Johnson and US President Trump in particular stood out as protectionists. But even in Germany, which with a total of 80 registered “harmful measures” ranks fourth just behind Canada in this ranking of the 20 largest economies, state interventions to protect the domestic economy from foreign competition are increasing sharply.

The exporting nation itself is dependent on open foreign markets and runs the risk that benefits granted by the state to local companies will provoke countermeasures abroad. An example of such an escalation spiral is the longstanding trade dispute between the USA and the EU over Boeing and Airbus, both of which receive state aid for research and development – with the result that the USA and the EU have imposed high punitive tariffs on each other.

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Worldwide, the report registered distorting interventions in the first ten months of this year in 2031 – an increase of 74 percent compared to the same period last year. The area of ​​medical goods is an exception to the trend towards the establishment of trade barriers.

Although Germany and other countries temporarily issued export restrictions, there were far more frequent easements for importing goods that are so important in times of pandemics. The bottom line, however, as the authors of the “Trade Report” criticize, was that a particularly large number of political measures were taken in this crisis year that were at the expense of other countries.

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