EU-China relations under investigation?

Kai-Uwe Kühn, Director and Chief Economist of DG “Competition” of the European Commission, Agnete Gersing, Director General of the Danish Competition and Consumer Authority, and Ren Zhengfei, CEO of the Huawei Technologies (from left to right) (EC Audiovisual Services).

Out of the last ten ongoing European Union’s Trade Defence Investigations, pending a decision by the European Commission or the Council of the European Union, six of them have as a target products originating from the Peoples’ Republic of China imported in the EU. Most important of them are the Stainless steel fittings, the Solar panels (Crystalline silicon photovoltaic modules and key components) and Peroxosulphates (persulphates).

Apart from that the European Commission has announced an investigation on alleged state subsidies, against two Chinese telecommunication equipment producers, Huawei and ZTE, for possibly having a competition advantage while operating in the EU (investments and sale of products).

The latest wave of ant-dumbing measures and threats of measures against Chinese products and companies, have prompted the reaction of Beijing. Last week imports into China of the widely used solvents ethylene glycol monobutyl and diethylene glycol monobutyl ethers, produced by a number of European and American firms were penalised with anti-dumping duties ranging from 9.3% to 18.8%. The levies are imposed as from 1 February.

Brussels meeting

According to Brussels sources representatives of the Chinese Ministry of Commerce and their EU counterparts had a meeting in Brussels on Friday, 1 February, to discuss those issues. No official announcements were made afterwards, seemingly because there wasn’t anything close to an agreement to be officially published. The same sources say that of all those cases, plaguing the Chinese-EU trade relations, Huawei and ZTE are the more important.

Of the two companies Huawei is the largest by far. The European Sting has being following this issue for quite some time. Two weeks ago the Sting wrote: “Incidentally, this Chinese mobile telephony equipment and services provider (Huawei) is so deeply implicated in the entire European telecommunications market, cooperating with the largest device providers and network operators to such an extent, that seems impossible for the European Union, to follow the Americans in molesting it. Only recently Clearwire confirmed to the daily newsletter ‘FierceWireless’, that Huawei is one of two firms which are chosen to build its planned TD-LTE network.

A British market analyst went as far as to say that, “UK’s digital future, as well as economic wellbeing are at stake, depending on whether the government deems telecoms giant Huawei Technologies, a cybersecurity threat and blacklists the company, following an investigation”.

The Chinese company is also a linchpin in France’s digital markets. Huawei and France Telecom’s Orange have signed an agreement, to develop jointly smartphones, mobile broadband devices and tablets. The deal covers more projects and aims to merge Orange technology and marketing abilities, with Huawei’s excellent device development and integration qualities”.

Huawei

Huawei has been investing in the European market for a long time now, despite the impediments that Chines firms usually encounter, when they want to build a presence in the EU. Incidentally the European Union Chamber of Commerce in China published recently a study on the problems that Chinese companies encounter, when they want to invest in the European Union. The Chamber is an independent voice of European business in China, seeking greater market access and improved operating conditions for European companies in China. However the study had as its main object the inverse, that is Chines companies wanting to operate in the EU.

It was entitled: “Chinese Outbound Investment in the European Union”. According to the Chamber, “Chinese companies operating in the EU report that they plan to increase their investments and further engage in Mergers & Acquisitions activities to serve the European market and improve competitiveness. Chinese investors view Europe as a safe, stable destination. However, the European operating environment is not regarded as easy to navigate”.

The basic findings of this research work are the following:

•    The biggest obstacles reported relate to obtaining visas and work permits for Chinese employees, dealing with European labour laws, HR costs and cultural differences in management style.

•    78% of respondents report encountering operational difficulties in the EU, mostly related to bureaucracy and high costs.

•    97% of respondents indicate that they will make additional investments in the EU, with the majority planning increases over their current investments.

•    85% of respondents are in Europe with the intent to sell their goods and services in the EU market.

This paper compiled input from over 74 Chinese companies operating in Europe, and was produced in partnership with Roland Berger Strategy Consultants and KPMG, both members of the Chamber.

In view of all that one could have expected that the European authorities would have longed to facilitate the Chinese investments in the EU, mainly for two reasons. First, because all those Chinese projects in the EU tend to concentrate in the technology sector, mainly ICT, where Europe needs urgently to build a stronger world presence. Secondly because the prospect of more direct foreign investments in the EU will obviously help create more jobs the EU needs badly.

There is no doubt that the EU-Chinese economic relations are not only multifaceted, but play a vital growth role in both economic entities. Apart the huge bilateral commerce between the two sides, that sets every year a new world record, the two entities have supported for a long time large direct investment flows, going both ways to the tune of tens of billions.

Obviously in such a dynamic environment like the EU-China economic universe, there might be some points of friction. However existing mutual grievances do not account for more than 2% of the total economic relations. Consequently the two sides appear determined not to disturb those huge wealth building exchanges. Unfortunately some major English language media try to inflate the EU-China differences and make them look like threats to the entire Euro-Chinese economic construction.

It is more than evident the two sides will definitely continue to “play the game”, with rules they have both accepted and will not jeopardise such a crucial edifice.