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20th Oct 2021

Europe shifts gear to balance relations with China better

  • The plan will be discussed and endorsed at an EU summit in Brussels next week, ahead of the the EU-China summit in April. Photo from 2018 summit. (Photo: European Commission)

The European Commission shifted gears on Tuesday (12 March) in its relations with China, presenting a new strategic 10-point action plan for Europe's future relations with Beijing.

The plan comes less than a month before Chinese and EU leaders meet for a summit on 9 April and signals openly impatience in Brussels with Beijing's lack of openness towards European companies.

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"China changed its rhetoric two years ago. They started talking about free trade. And we were happy that China was using almost the same type of language as we did," said investment and competitiveness commissioner Jyrki Katainen, when presenting the plan.

"Since then, I must admit, very little has happened," he added. "We have not seen a major opening from the Chinese side towards our companies".

Meanwhile, trade in goods between the two blocs has grown to €1bn daily.

The plan marks a new approach in which Europe moves openly to protect itself better in trade relations with China, facing what Brussels sees as unfair competition from Chinese state-subsidised take-overs and state-subsidised companies.

Katainen admitted that the imbalance is partly due to absence of European rules, as European state aid rules do not apply to foreign companies operating in the European market.

"EU state aid rules limit strictly subsidies that member states can grant to private companies. However, they [the rules] do not apply to foreign subsidies," Katainen said.

He added that the commission would "identify before the end of 2019 how to more effectively address the distortive effects of foreign state ownership and state financing in Europe and fill the gap in the EU law".

G5 investment?

Another point in the plan relates to Chinese investment in G5 networks and other critical digital infrastructure in Europe.

"G5 networks will provide the future backbone of our societies and economies, connecting billions of objects and systems, including sensitive information," Katainen said and announced a recommendation for a common EU approach to 5G security networks.

Also, a new EU foreign investment screening system will enter into force in April this year.

It will allow for detecting and addressing risks to security that may be imposed by foreign takeovers of critical assets, technologies and infrastructures.

It comes as 13 EU member states have individually signed a memorandum of understanding with China's Belt and Road investment initiative, while Italy is also considering signing up.

"We see the Belt and Road initiative as potentially a positive initiative bringing EU and Asian countries closer to each other," Katainen said - warning, however, that member states must pay loans back that they get through the Belt and Road initiative.

"There are no free lunches," he said and reminded that EU transparency and competition rules must be respected and that Belt and Road supported projects must also be open to public tender.

One concrete recent example is from commissioner Katainen's home country, Finland.

China's Touchstone Capital Partners plans to invest €15bn in an undersea tunnel project linking the Estonian capital, Tallinn, and Finnish capital, Helsinki.

The funding of the project would come from private investors as well as from the Chinese infrastructure project Belt and Road for financing the tunnel.

Katainen said local authorities had been dealing with the tunnel project, and there were too many open issues for the EU "to take [a] firm position".

In a prelude to the EU plans, China's ambassador to the EU, Zhang Ming, already warned leaders in the EU not to draw "an Iron Curtain", which would "upset global economic and scientific innovation".

He recommended Europeans to take "a holistic view" on the issue of security risks.

"The Chinese government calls on Chinese companies operating overseas to strictly observe laws and regulations of the host country, has and will never ask Chinese companies to engage in illegal activities," Zhang Ming wrote in an op-ed in EUobserver.

While Brussels's has sharpened its approach on trade and security-related aspects, the plan invites for cooperation in foreign affairs, WTO reforms and in the fight against climate change.

The new 10 point strategy will be discussed and endorsed at an EU summit in Brussels on 21-22 March ahead of the the EU-China summit in April.

A spokesperson for the Chinese mission to the EU told EUobserver "I want to emphasise that cooperation between China and the EU, which is mutually beneficial, serves the interests of both sides.

"It is our hope that the EU could view China's development and fresh efforts to promote reform and opening-up in an objective, reasonable and fair light, and join forces with China for a sustained, healthy and steady growth of China-EU relations."

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