CHINA: China-EU Trade Talks Get Heated over Imbalances in Eastern Europe

FAHAD ALSUDAIS WRITES– As China and the European Union (EU) started a new round of trade talks in early April in the EU capital of Brussels, Chinese Prime Minister Li Keqiang wrote in a column in the German business newspaper Handelsblatt that China is not attempting to weaken the developed Western European economies and divide the EU by investing more in the mostly formerly Communist or currently socialist developing economies of Eastern Europe, as reported by Reuters.

However, as seen in a map, China has already signed bilateral trade agreements with 16 Eastern European countries since the 2012 launch of its “One Belt, One Road” (OBOR) Initiative. Within the same time, though, only one in the fully industrialized Group of 7, Italy, has signed its own bilateral agreement with China, as pointed out by TheDiplomat. OBOR aims to position China as a formidable alternative to the USA and Western Europe in global trade leadership.

Given such a context, claims of China attempting to squeeze out the Western European economies away from its emerging market neighbors are not entirely unfounded.

For instance, bn Intellinews reports that a Chinese firm, Touchstone Capital Partners, provided €15 Billion of the €23 Billion needed for an Estonia-to-Finland high-speed rail tunnel project. When this project is completed, the travel time across the Gulf of Finland will be six times faster, from 120 minutes down to just 20 minutes. This in turn can profitably increase the tourism and freight transport trade activities between the former Soviet republic of Estonia and the industrialized economy of Finland.

China is also planning future major infrastructure investments in other former Soviet republics throughout the Baltic Sea region, like Lithuania and Latvia. Chinese tourist arrivals to various Baltic Sea-area former Soviet republics, as well as Chinese orders for these emerging Eastern European economies’ export products, have grown steadily over the past five years, according to the same report.

The Diplomat points out that these capital-intensive infrastructure projects will leave various EU governments heavily indebted to Chinese investors for years to come. Also, through the infrastructure which Chinese firms practically co-own, Chinese exporters can land their goods faster in Eastern European ports of entry, compared to Western European exporters.

Beyond the increasing Eastern European dependence on Chinese capital for physical infrastructure, the other simmering major trade imbalance issue relates to telecommunications. Reuters in December 2018 reports that the world’s largest telecommunications equipment supplier and second-largest smartphone maker is the Chinese conglomerate Huawei. It is globally known for undercutting rivals like Ericsson, Nokia, Cisco, and Motorola on price since its 1987 founding by a former Chinese military officer. Huawei’s rock-bottom pricing, coupled with its own growing research and development prowess, has made its products best-sellers in the emerging economies of Eastern Europe.

However, the South China Morning Post reported in January 2019 that the government of Poland arrested Huawei’s Sales Director for Central, Eastern, and Northern Europe, Mr. Wang Weijing. He is charged with using Huawei wares embedded in various public and private entities to spy on European troop movements. Reuters also notes that there is a 2018 Chinese law that requires Chinese firms to “assist the (Chinese) government when asked.”  In line with this, bn Intellinews notes that the governments of the Czech Republic and Romania, citing national security concerns, are considering banning Huawei from building 5G data networks in their countries.

Huawei may need to move fast in opening up another Cybersecurity Transparency Centre within Eastern Europe, where customers can review the source code used in network gear. It has already done so in Bonn, Germany last November 2018, as well as in the headquarters city of the EU, Brussels, last March 2019, according to APNews. The Chinese conglomerate has also even been funding a British government-run testing site for wireless and internet companies, the Huawei Cyber Security Evaluation Centre, since 2010.

APNews also reports that Huawei claims the firm has never been asked by the Chinese government for sensitive information, and will refuse to comply if asked to. It further claims that it will also never install secret backdoors to its software. Both Huawei’s Global Cybersecurity and Privacy Officer, John Suffolk, and its Vice-President for Western Europe, Vincent Pang, reiterated these points during the launch of the Brussels, Belgium branch of the Huawei Cyber Security Transparency Centre.

China may gradually earn the long-term trust of the entire EU if and/or when its investment firms and export goods manufacturers proactively set up transparency centres that employ EU talent, within both Western and Eastern Europe, as autonomous, country-specific, executives.  Trust, as President Ronald Reagan used to say so often, but verify!

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