European leaders get ready to ‘act now’ amid rising fears of ‘China shock 2.0’

European Commission leaders are preparing to harden the EU’s economic stance towards China at a pivotal debate on Friday, opening the door to a new wave of trade and industrial measures later this year. Sources indicated that a majority – though not all – of the 27 commissioners, including President Ursula von der Leyen, are supportive of a more robust trade and industrial policy, amid rising fears of de-industrialisation, in what is now widely described in Brussels as the “China shock 2.0”. Trade commissioner Maros Sefcovic is set to pitch a new “diversification instrument” which would insist that companies in some critical sectors ensure they have three or more suppliers in two or more countries, amid fears of overreliance on Chinese supply chains. Industry chief Stephane Sejourne, meanwhile, is set to advocate the broader use of the foreign subsidies regulation (FSR). The tool has been widely used against individual companies, but the French commissioner is said to support using the tool in a much broader, sector-focused way to combat perceived market distortions by subsidised Chinese firms. Both of those officials support the more widespread use of safeguard measures, seen as emergency tools that can place tariffs or quotas in the case of surges in imports. With an eye on the chemicals and machinery sectors, there is the view that time spent on anti-dumping and anti-subsidy probes could be halved to around six months through the use of safeguards. At the heart of their concerns is that Europe’s industrial base could be decimated within years due to the breakneck growth of Chinese competitors, which are out-competing their European rivals on price and often quality in China, Europe and in third markets around the world. Meanwhile, anxiety is rising that a hollowing out of European industry could open the door for far-right parties if the political centre does not move to protect jobs now. Senior commissioners will float these points on Friday morning, when they debate how far to go in shielding the single market from floods of Chinese goods. The meeting had previously been scheduled for early April, when commissioners were to be briefed on Chinese political affairs by former Australian prime minister Kevin Rudd. That event was postponed as they opted to discuss the energy crisis sparked by the Iran war instead. On Friday, they will now be briefed by Alfred Schipke, director of the East Asian Institute at the National University of Singapore. Schipke spent seven years as the International Monetary Fund’s mission chief for China, with his invitation perhaps a reflection of anxiety in Brussels over Beijing’s role in global economic imbalances. The EU believes that Chinese firms have had an unfair leg-up due to government subsidies and other forms of support. Beijing’s economic policies, it insists, have seen its share of global production predicted to rise from 30 per cent today to 45 per cent in 2030, even as its share of consumption hovers at around 13 per cent. “That is an imbalance that the world just can’t digest,” outgoing EU trade director Sabine Weyand said last month, adding that Brussels needed to use its existing trade weapons “in a manner that’s coherent and consistent”. Senior officials do not expect breakthroughs on Friday. There is unlikely to be any immediate decisions on new tools, but fresh legislation and a more strident approach on trade could be in place in the coming months. Some officials privately complain that the plans will not go far enough. They argue that the focus on industrial and trade concerns has crowded out broader discussions about national security, turning what could have been a holistic reassessment of China policy into a narrower debate driven by economic urgency. In some quarters, there is frustration that preparation for Friday has been lacking and that issues with Beijing remain an afterthought for many parts of the commission. Nonetheless, at the European Council summit in June, the bloc’s 27 national leaders will consider the commission’s recommendations as they grapple with the worsening industrial picture and China’s role in it. Already, they are jostling for position. Last Friday, four of the bloc’s five biggest member states circulated a paper calling for a much tougher trade regime aimed at combating Chinese-style industrial overcapacity, including faster emergency tariffs, broader safeguards and new anti-circumvention powers. The paper signed by Spain, Italy, the Netherlands, France and Lithuania days before the debate in Brussels said the bloc must respond more aggressively to “systemic and structural industrial overcapacity” – phrases often taken as shorthand for Beijing. Germany, the EU’s biggest economy whose government is riven with differences on China policy, did not sign the paper. Beijing has threatened to retaliate against any measures the EU may take, setting up the sides for a period of tension. It leaves Europe facing the dilemma of whether to incur Chinese blowback by protecting its market or risk de-industrialisation by allowing Chinese competition unfettered access to its single market. “The EU faces a choice between acting now and risking Beijing’s likely retaliation, or delaying until China’s economic pressure becomes overwhelming and forces action,” said Grzegorz Stec, head of the Brussels office at the Mercator Institute for China Studies, a think tank. Capitals are rarely on the same page on China policy. The threat of Chinese retaliation has had the pre-emptive effect of dividing them further, even before the debate has taken place. On Thursday, Politico reported that Spain was considering removing its name from last week’s paper after it was leaked to media. The suggestion was that it was worried about incurring the wrath of Beijing. On the same day, Bloomberg reported that Berlin and Madrid were pushing back against commission plans to force capitals to weed out Chinese firms Huawei and ZTE from telecoms networks as part of a cybersecurity act. On Wednesday, meanwhile, the German Economy Minister Katherina Reiche told reporters before departing for Beijing that any commission move to counter “unfair competition” must ensure it does not impede German exports. Stec, the analyst, warned that the cost of inaction could outweigh that of acting now. “But waiting carries a high price tag of large-scale industrial decline and job losses, gives China time to further fine-tune its coercive economic security toolbox, and may diminish the EU’s ability to respond collectively as more populist parties seem positioned to come into power,” he said. While member states have prevaricated – with China far from the top item on any council agenda over the past year – the commission has quietly been upping the ante in recent months. Its industrial accelerator act, set to be debated by capitals for the first time on Thursday, seeks to increase the EU’s share of global manufacturing to 20 per cent, in part by placing conditions on external investments in its hi-tech sector. Companies from China face the prospect of having to transfer technological know-how or establish joint ventures if they wish to set up inside the union. It has moved to ban the use of EU funds for projects using Chinese inverters, devices used in wind, solar and battery installations that control the flow of power from generation to grid. Chinese firms hold an estimated 80 per cent of the EU market. On Thursday, meanwhile, it is set to launch an FSR probe into the proposed takeover of German retailer Ceconomy by Chinese e-commerce giant JD.com, a deal mooted to be worth more than US$2.5 billion. The commission is concerned that the Beijing-headquartered company’s bid has been distorted by state subsidies.

European leaders get ready to ‘act now’ amid rising fears of ‘China shock 2.0’

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Ahead of a key debate on Friday, most commissioners said to support a more robust stance and broader use of safeguard measures

Ahead of a key debate on Friday, most commissioners said to support a more robust stance and broader use of safeguard measures