EU-China News Brief - 21 March 2020

21 Mar

Written By GS

LISTEN TO OR READ THIS WEEK’S TOP EU-CHINA STORIES

This week’s TOP News:

Europe Becomes Coronavirus Epicentre as China Recovers
China's Support for Europe - Humanitarian Aid and Coronavirus Diplomacy
Global Response to Covid-19 Unlikely Amid Distrust
EU-China Summit Officially Postponed - CAI Negotiations Take a Hit?
EU Proposes New Strategy for Relations with Africa - China Mentioned
New Competition Law Will Likely Target China's SOEs

1. Europe Becomes Coronavirus Epicenter as China Recovers

Europe becomes the epicentre of the CO-VID19 outbreak, while China braces for phase two of its coronavirus struggle. The fact that Europe and the US are beefing up containment measures will undermine the recovery of China's economy.

Shifting Epicentre: Europe is now the world hotspot with Italy and Spain being the main countries affected by the outbreak.

Italy's Covid-19 death toll overtook China with 4,032 deaths against China's 3,240+ deaths (reported in official government statistics - some question their accuracy). Alarmingly, the death rate in the country is 10 times higher than it was in China.
Spain's number of confirmed cases (24,926) overtook that of Iran. Spain is now the third country in terms of number of confirmed cases.
WHO Director Dr. Tedros Adhanom Ghebreyesus:
"More cases are now being reported [in Europe] every day than were reported in China at the height of its epidemic"

EU's Measures: After the initial shock, the EU rolled up its sleeves and announced the following measures:

Deficit rules ‘escape clause’ (March 20) - EU Commission cleared the way for the member states to exercise state aid beyond limits set in EU regulations.
RescEU Stockpiling of Medical Equipment (March 19) - EU Commission will coordinate stockpiling of med equipment with €50 million available in grants to member states
Pandemic Emergency Purchase Programme (March 18) - European Central Bank's €750 billion programme to purchase new assets and bonds until the end of 2020 to stabilise the European economy
Closed Schengen (March 17) - European Commission closed the borders of the Schengen zone for at least 30 days
Coronavirus Response Investment Initiative (March 13) - European Commission proposed €37 billion stimulus package aimed at the healthcare sector, the labour market and SMEs to complement actions of the member states
Opposing medical equipment sales ban (March 6) - European Commission opposed restrictions on exports of medical equipment imposed by some of the member states (including Germany and France), which stood in way of a solidarity in response to Covid-19.

Still, there is some frustration in relation to EU's response and "European solidarity", as we discuss in the second news bite.

China Recovering: As of today, China has not reported any new locally transmitted cases for the second day in a row. But it is fighting the second wave as many Chinese nationals return to the country.

For example, initially, Beijing announced obligatory 14 days (self-funded) quarantine for anyone flying into the capital. Now international flights can no longer land in Beijing and have to arrive in Tianjin or in Hohhot.

At the same time, government sources report that China's domestic lockdown is being lifted. Out of 1,119 closed highway gates, now all but two are open again and 28 provinces restarted inter-provincial travel. Official data also state that around 78 million migrant workers have returned to work.

TAKEAWAY:
EU's lockdown = Challenge to China

The EU (and member states individually) is taking some of the pages from China's playbook on dealing with the Covid-19 outbreak - lockdowns being the primary example. Ironically, this may prove to be one of the greatest challenges for China.

After the SARS outbreak, China managed to reinvigorate its economy relatively quickly thanks to the demand in the West. With Europe and the US going into lockdown the global consumption is bound to go down making it more difficult for the Chinese economy to get back on its feet. And remember that by 2021 China was supposed to reach one of the two centenary goals - achieving a moderately prosperous society ("小康社会"). Tough time to achieve the necessary GDP targets...

2. China's Support for Europe - Humanitarian Aid and Coronavirus Diplomacy

China has launched multiple humanitarian and commercial initiatives related to the outbreak of Covid-19 in Europe. The messaging has been confusing as donations and commercial orders are often not distinguished. This - paired with the EU's inability to respond very rapidly - has made pro-Beijing messages more visible in Europe.

Support: Over the last days, China has been launching multiple "support" initiatives aimed at exporting medical equipment to Europe. Much of the reporting on the matter fails to distinguish different categories of support - donations and commercial offerings.

Criticism towards EU: China's rapid and visible response also prompted accusations towards the EU - e.g. by Italy or Serbia - of being passive or slow to respond.

It is hard to get a full and fact-based picture as of now, but here are some examples - we plan to return to the topic next week, but here are some of the most important developments.

EU Commission:

On March 18th President von der Leyen confirmed her call with Premier Li Keqiang. In a related video announcement, she stated:

"We're converting new production lines. But this needs several weeks. And, in the meantime, we are grateful for support from China. The premier announced that China is ready to provide 200,000 N95 masks, 2 million surgical masks and 50,000 testing kits. [...] These can be shipped to Europe immediately. Our commissioner and the Chinese trade minister are implementing this. This support is highly valued and we are grateful for it."

Remember that the EU sent 60 tonnes of medical equipment to China in Jan and Feb when it was in need (past news brief)

Italy:

On March 10th, Maurizio Massari Italian ambassador to the EU wrote an opinion piece stating:

"Italy has already asked to activate the European Union Mechanism of Civil Protection for the supply of medical equipment for individual protection. But, unfortunately, not a single EU country responded to the Commission’s call. Only China responded bilaterally. Certainly, this is not a good sign of European solidarity."

On March 15th, China announced that it is ready to send 5 million masks, 150 ventilators and two medical teams to Italy. This predominantly commercial arrangement was reported on social media by Italian Minister of Foreign Affairs Luigi Di Maio in a way that has been understood by many as a donation. The Italian government has since purchased further 100 million face masks from China.
The EU-coordinated mechanisms are starting to be implemented, as discussed in the first news bite.
On March 19th, seven tonnes of equipment arrived in Italy from Germany.

Serbia:

On March 16th Serbia received a batch of 1,000 rapid test kits donated by Chinese humanitarian organization Mammoth Foundation.
On the same day, Serbian President Aleksandar Vučić strongly criticised the EU for its lack of support and barriers for Serbia to purchase medical equipment from EU countries. He referred to the concept of "European solidarity” naming it “a fairy tale on paper” before assessing that "the only country that can help us is China.” He also directed a special letter to President Xi himself calling him a "friend and a brother of the Serbian people".
On March 19th, the EU announced a donation €7.5 million to Serbia and of medical equipment that is to arrive next week to support Serbia in the fight against Covid-19. The EU Ambassador to Serbia Sem Fabrizi also reminded that the EU has actively supported the Serbian healthcare with loans and donations over the last 20 years. Serbia is also a member of the EU Civil Protection Mechanism, so will be participating in the RescEU stockpiling.

17+1 Health Action:

One other issue that is worth noting is that China used the 17+1 mechanism to arrange a health-focused video conference on March 13th. During the conference, China's health officials instructed their CEE counterparts (and additionally joining Maltese officials) about best practices in the fight against Covid-19.

Donations:

Alibaba Foundation and Jack Ma pledged to donate two million masks for distribution in Europe (Reuters)
Members of the China Chamber of Commerce to the European Union - e.g. the Bank of China, COSCO Shipping, ICBC, China Telecom and Geely - have donated more than 250,000 medical-use masks to Europe (China.org.cn)

Coronavirus diplomacy: These activities naturally help China to improve its image in Europe, where it has been criticised for covering up the outbreak in Wuhan in December (past newsletter). And simultaneously with support initiatives, China started to promote specific narratives. As described by EEAS EUvsDisinfo, they include:

China and especially Xi Jinping have done an admirable job of containing the coronavirus;
A centralised state such as China’s is actually an asset in such a crisis because the processes (and citizens) can be more thoroughly controlled.
The West, and especially the United States, should be grateful to China for their quick reaction and containment of the virus – the West and especially the US worked too slowly and are now in total disarray over the virus.
The virus did not originate in China, it stems from somewhere else (most likely the US).
The West instrumentalised the virus in order to harm China and spread anti-Chinese sentiment, for which it owes China and the Chinese people an apology.

TAKEAWAY:

It is important to take note of China's support (as voiced by President von der Leyen) coming in the form of donations or eased commercial access to the medical equipment. But it is equally important to be mindful of diplomatic, PR powerplay that is going on.

It seems to be a two-way strategy: on one hand, solidifying China's position as a global leader in response to the coronavirus and on the other limiting the criticism related to mishandling the outbreak in Wuhan in December (even to the extent of promoting quasi-conspiracy theories through Chinese MFA and unofficial channels) paired with praising the efficiency of China's response to the crisis (ergo its political system). This - paired with the EU's inability to respond very rapidly - challenges the image of the European Union.

Within Europe, let's also not forget that governments can use pro-Chinese rhetoric as leverage in their talks with Brussels and other European actors. And in the context of China, let's remember the economic challenge mentioned in the first news bite - selling medical equipment that the Chinese economy focused on in last weeks surely won't hurt.

Overall, right now the situation is very dynamic and full of chatter with contradicting info.

3. Global Response to Covid-19 Unlikely Amid Distrust

Coronavirus diplomacy aside, the moves by the United States and limited involvement of China in global response shows the challenge of political divisions in combating the virus.

EU-US Setbacks:

The EU and the US have run into setbacks in cooperation on combating Covid-19. On March 12th, President Trump imposed a Transatlantic travel ban targetting EU countries. Importantly, Trump announced his decision before EU's change of stance on locking down the borders he has not notified the European leaders prior to the announcement - a surprising move.

On March 15th, reports emerged that President Trump offered "large sums of money" to German company CureVac for exclusive access to the coronavirus vaccine, which the company is working on. The information was later confirmed by Germany's Health Ministry.

Divided Global Response - Two Gs:

G7 - On March 16th, the leaders of G7 countries emphasised the need to “act together” to solve the “health and economic risks”. The 800-words communiqué from the meeting was a show of political will and not a proposed plan of action. Importantly, the G7 formation does not include China and it has not been mentioned in the communique despite its progress in combating the virus.
G20 - a virtual G20 summit has been called for by Saudi Arabia (current chair) and is set to take place next week. It will be an opportunity to discuss coordinated policies to respond to the challenge of Covid-19. China is part of this grouping. Still, the hopes for coordinated action remain low among mutual distrust.
Quotes from SCMP sources on the matter:
- European trade official in Asia: “Not surprisingly no-one seems to want to involve China at the moment on future economic policy”
- Adviser to the Chinese government: "Global coordination either through the G7 or G20 is needed. If we lose control, the pandemic will risk a new round of global economic crises and social turmoil. [...] So far there is no coordinated global action and we may not see one any time soon.”

TAKEAWAY:
Let's wait for the results of the virtual G20 summit, as it may offer more insights, for now, chances for a globally coordinated response to Covid-19 looks out of reach.

4. EU-China Summit Officially Postponed - CAI Negotiations Take a Hit?

After weeks of speculations, the EU-China Summit officially gets postponed amid Covid-19 outbreak. This means that chances for a meaningful agenda in Leipzig in September and progress with CAI negotiations become slim.

Postponed: On March 17th the EU and China jointly decided to postpone the EU-China Summit, as announced by an EU Commission's spokeswoman. No new date was set. It will be decided as the coronavirus situation normalises.

Context: The meeting between Premier Li Keqiang and President Ursula von der Leyen was supposed to take place in Beijing between 30th-31st of March, although the Chinese side never publicly confirmed those dates.

TAKEAWAY:
17+1 also postponed, Leipzig agenda and CAI likely will take a hit

17+1: Following the EU-China Summit, also the 17+1 Summit, which was set to take place in Beijing in April is also going to get postponed as we argued in the previous news brief.

Leipzig: The EU-China Summit was hoped to bring breakthrough in negotiations on Comprehensive Agreement on Investment, which could then be signed during the Leipzig Summit. Such progress was doubtful even before the Covid-19 outbreak and now - even if the Leipzig summit happens in September as planned - there will likely be too little time for such negotiations. This increases the chances that Leipzig Summit will not lead to any substantial announcements and may remain a political statement - potentially primarily useful for China.

CAI Negotiations: Still, it is worth noting that Chinese sources claim that on a phone call between von der Leyen and Li on March 18th the two sides agreed to "proactively advance the investment agreement negotiations" and Commissioner Hogan was assigned as responsible for dealing with the transfer of medical equipment from China.

5. EU Proposes New Strategy for Relations with Africa - China Mentioned

When announcing the proposal for a new strategy for relations with Africa, High Representative Borrell mentioned China highlighting the Sino-European competition for engagement with Africa.

Announcement: On March 9th EU Commission released joint communication "Towards a comprehensive Strategy with Africa". It will serve as a basis for discussion with African states and the African Union ahead of the AU-EU Summit set to take place in Brussels in October 2020. This approach has been contrasted with proposals from the Juncker Commission, which included limited consultations with African partners.

It remains to be seen if Covid-19 will not disrupt this summit as well, as many African countries (such as Ghana, Kenya, the Democratic Republic of Congo and others) are imposing travel restrictions for travellers coming from Europe.

Content: The EU proposes to focus the cooperation on 5 key areas

Green transition and energy access
Digital transformation
Sustainable growth and jobs
Peace and governance
Migration and mobility

China-angle: Joint communication only refers to China once - comparing the value of FDIs made across the African continent:

EU - €222 billion
US - €42 billion
China - €38 billion

But during the announcement, High Representative Borrell voiced the EU's concerns about China's engagement with Africa a bit more saying:

"We have no inferiority complex. We are involved, and we are going to continue to be and our presence will, without doubt, be accompanied by not just investment, but also the desire to be partners in the political, economic and cultural development [...] It’s about making progress in a shared partnership. I don’t know if that’s China’s point of view.”

TAKEAWAY:
I noticed one thing in the statistics quoted. The data quoted to show the EU as the largest investor in Africa (with China having "only" €38 billion of investments) come from 2017. Given the rapid growth of China's outward activity in the last few years, this feels a bit off... Certainly, Africa's development of relations with the EU and China is a topic to keep an eye on.

READ MORE:

EU paves the way for a stronger, more ambitious partnership with Africa - European Commission, Mar 9
What does Africa want from the EU? - International Politics and Society (Uzo Madu), Mar 20
African nations turn the tables, imposing travel restrictions against U.S., Europe, and China to stave off coronavirus - The Intercept, Mar 15

6. New Competition Law Will Likely Target China's SOEs

At the beginning of March, Commissioner Vestager revealed that her proposal for new competition law will come out in June. The proposal is likely going to be focussed on foreign subsidies and SOEs. So, well... China.

Context: Following her decision to block a super-merger between railway giants Siemens and Alstom last year, Commissioner Vastager has been under pressure from member states to propose her new competition law. We wrote about it in our past newsletters from Feb 21 and Feb 12.

China-angle: Vestager said she is going to release her proposal of competition law in June. Although the new regulations are unlikely to single out any specific players, the new measures are clearly going to be put in place with China in mind. It is still unclear what new powers exactly Vestager would want to see, but they will be used to tackle "the harm that foreign subsidies and state ownership can do to competition in Europe."

TAKEAWAY:
Thin line between private and public in China

The big challenge (or maybe a political choice) is how broadly will the EU define state-backed companies in the Chinese context. After all, in China, private-public/party relations are very different than in Europe. Many companies fall into the grey area or an in-between category being nominally private but enjoying a close relationship with the government or the Party.

EU-China News Brief - 21 March 2020

LISTEN TO OR READ THIS WEEK’S TOP EU-CHINA STORIES

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