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Analysis

 The EU’s labeling of China as a simultaneous partner and “systemic rival” underscores Brussel’s bipolar approach to Beijing, at once calling for a narrowing of the EU’s trade deficit with China while chastising the CCP’s tightening grip on power, human rights abuses, and continuing support for Russia. Chinese leaders aimed to use the summit to ease discussions of “derisking” that have come to dominate discourse on China in the US and Europe and have spurred moves to relocate manufacturing of key industries out of China and restrict Chinese products in sensitive technologies from entering the EU. Questions of forced labor and China’s support for Putin, however, dominated the summit and proved a thorny issue for the Chinese side which hoped to keep discussions to “apolitical” economics.  

To keep the EU on the backfoot, Xi met the Belarusian president Aleksandr Lukashenko the week prior to the summit in an assurance to Russia that talks with the EU would not sway Beijing’s position in Europe. By contrast, and as a show of goodwill (and to try to slow calls in Europe to “derisk” from China), the Ministry of Foreign Affairs announced that it would introduce unilateral visa-free travel for Europe’s five largest economies (Germany, France, Italy, Spain, and the Netherlands). Some Chinese supporters of this proposal argued that China should unilaterally implement the EU investment accord as a way to undermine EU accusations of unfairness. However, this approach currently appears to have limited sway over the CCP leadership. In sum, both the EU and China appear to be walking a fine line with each other where they need mutual trade and investment but will continue to fundamentally disagree about almost everything else. Amid continuing distrust–despite China’s unilateral visa decision–and reports that the Chinese economy is not recovering from the pandemic as its leaders hoped, businesses in both the US and the EU will therefore need to closely monitor the economic and political risks of continued engagement with China.

Analysis

The DOC’s upcoming visit points to the complexity of controlling supply chains. At the same time, needing to travel to East Asia to explain US policy suggests that the policy is likely not particularly clear in the first place and that the Biden Administration is itself struggling to define the policy’s scope and implementation. This is exemplified by the use of both a “prohibited” list of exports to China and a loosely defined “gray zone” of components or products that can be exported but require US permission. 

Within the Biden Administration, DOC has championed a “tough-on-China” stance. US Secretary of Commerce, Gina Raimondo, recently spoke at the Reagan National Defense Forum, where she called for increased funding to her department to better combat China’s tech competition and closer cooperation between the Commerce and Defense departments. On competition over chips, Raimondo argued that “We can't let China get these chips. The US leads the world in AI and semi design...there’s no way we're going to let them catch up." In response, Representatives Mike Gallagher (R-WI) and Elise Stefanik (R-NY) of the House Select Committee on the CCP tried to undermine Secretary Raimondo’s remarks, saying that resources alone would not solve the problem, although they are broadly aligned with the Secretary’s targeting of export controls and restrictions on technology transfers. The trend on both sides of the aisle is therefore that Commerce and Defense should cooperate more closely on China and that the tech sector will continue to be a target of restrictions. Companies in tech, particularly in chips manufacturing or in sectors included on the Bureau of Industry and Security’s (BIS) ever-evolving list of restricted products, would do well to pay close attention to whether or how their products are entering the Chinese market in order to avoid either retribution from BIS or a public relations crisis regarding accusations of enabling China’s technology development.

Analysis

Facing down historically high youth unemployment rates (which China stopped reporting in August 2023), the collapse of the housing bubble, falling prices, and the Biden administration’s throttling of the Chinese advanced technology sector through export controls, Chinese assurances about economic stability are wishful thinking, and these wishes are unlikely to come true. Recent reports of China’s declining Purchasing Managers’ Index (PMI) only compounds problems. Due to global demand for products not recovering to pre-pandemic rates and expensive stockpiling during the pandemic for fear of supply chain issues, companies still find themselves unable to move existing stock in a timely manner. This has resulted in decreased purchasing of goods, generally, but is a trend that has taken a disproportionately large toll on China given its key role as a global producer and exporter. Moreover, as China is increasingly viewed as a liability rather than a partner, companies are also looking to diversify their supply chains and have scaled back their plans to continue purchasing Chinese goods even once demand recovers. To top off domestic woes, it is estimated that up to US$24B of foreign investment has been withdrawn between January and November of this year, as international investors become evermore skittish about the fickle nature of Chinese policy targeting their intellectual property and financial details. In short, the Chinese economy is cooling way down and shows no signs of heating up again anytime soon.

Analysis

This new plan by the Shanghai municipal government is only one part of the Chinese government’s broader efforts to take a leading role in the aerospace industry. With known plans for a crewed lunar landing, the (currently unresponsive) Zhurong mars explorer, and the development of the Chang’e 6 to collect the first-ever samples from the dark side of the moon, China is clearly trying to not only keep pace with but surpass NASA. Moreover, the streamlining of national and commercial interests in China means it is easier to access funding for research and development. 

This contrasts starkly with NASA, which continues to depend on a series of short-term continuing resolutions, and at best relies on a given year’s congressional budget. While NASA has begun awarding contracts to commercial companies, such as SpaceX or Blue Origin, financial constraints still limit the possibilities of such collaborations. Since 2011, moreover, the Wolf Amendment has prevented the United States from cooperating with China on aerospace technologies due to concerns about national security at home and human rights abroad. While this concern is far from unfounded, it now appears to have led to a different if equally concerning problem: China is developing new and advanced technologies, the capabilities of which the US cannot know. After shutting China out of the ISS, China has made a point of doing the same to potential US partners for China’s ILS in a tit-for-tat foreign policy that is becoming routine. The risk of letting China go it alone is a security threat in its own right and one that US officials and relevant commercial partners should prepare to mitigate

Analysis

An uptick in arrests for espionage on behalf of China highlights the seriousness with which Taiwanese security forces are taking the multiple threats from Beijing. Whether China’s attempts to interfere in Taiwan’s upcoming presidential election succeed, however, remains to be seen. Chinese pro-KMT disinformation may influence some voters, with polls showing a surge in support for KMT candidate Hou You-yi, although this is also partially a consequence of Terry Gou’s 郭台銘 withdrawal from the race and his voters switching to Hou. By contrast, Ko Wen-je, who has found more support from younger voters, is now even in the polls with Hou after support for the KMT recently rebounded. While Chinese espionage and disinformation attempts are therefore intense, their influence over Taiwanese voters remains questionable. 

Taiwan’s election–in which the ruling DPP candidate William Lai (Lai Ching-te) 賴清德 is favored to win the presidency, but lose the party’s majority in the Legislative Yuan–will remain a major thorn in China’s side as Xi seeks to assure the US that he will not invade the island. Support for Taiwan remains strong in Washington, mostly as a way for politicians from across the political spectrum to display their “tough on China” credentials. In the most recent Republican primary debate, for example, three out of four candidates argued that they would end the US’s policy of strategic ambiguity over Taiwan in favor of making it clear that the US would defend Taiwan against a potential invasion by China, with only Desantis saying that he would instead prioritize deterrence.

Analysis

For SCMP, the reason for its hard-line pro-CCP editorial may be the detention of their defense reporter, Minnie Chan, who disappeared last week while in Beijing. Chan’s disappearance is likely the result of her extensive knowledge of the People’s Liberation Army and China’s military, which the party considers threatening. The tone of the editorial, however, suggests a nervousness that the global finance sector has lost confidence in Hong Kong. For companies hoping that Hong Kong would remain unscathed by the CCP’s domestic crackdown against both dissenters and the corporate world, recent developments indicate otherwise.

Hong Kong Chief Executive John Lee 李家超 declared that any criticism of Hong Kong counted as “soft resistance” (軟對抗), a euphemism the CCP employs to describe any dissent. This hard line on speech is part of Hong Kong’’s new national security laws, signaling that Hong Kong’s leaders have committed to a Faustian bargain with Beijing at the expense of the city’s economy, law, and society. Companies with an extensive presence in Hong Kong should therefore explore alternative locations for their operations so as to avoid falling victim to the same unpredictable and dangerous business environment the CCP has created in the mainland.