While everyone was busy tackling the Covid-19 numbers in their respective nations, the US-China trade war was taking a different turn and tune.
What started back in 2017, upon welcome of US President Trump to White House and intensified in July 2018, has just gone berserk now, but not without due reasons. This on-again off-again war has been an economic strategy of US and a now-famous element of the Trump, vows to prevent the US from being undercut by other countries, notably and apparently China, that had benefited from the US-allied European, market by running bilateral trade surpluses.
“2017 to Pre Pandemic” Squeeze
In the early 2000s, the Chinese government actively promoted outbound investment as part of its “Going Global”. Since then, Chinese private, state owned enterprises and most importantly state influenced enterprises were tasked by Communist Party of China (CPC) to acquire technologically advanced companies in. In addition, it has been revealed nefarious tendency to aggressively pursue opportunities to invest in poorer countries’ natural resource wealth and infrastructure.
By 2016, China had become a major outbound investor, with outward investments reaching over $200 billion, or almost 2 percent of Chinese GDP and since then, as if a clockwork, there was a restriction on imports. There is also a growing revelation in the United States and Europe, that China under President Xi Jinping has turned back toward authoritarianism. China’s rising economic power and lingering doubts abroad, about its long term political and economic intentions, prompted US and European governments to implement several new screening and evaluation measures for foreign investments, mostly targeted toward Chinese investors.
With Donald Trump’s tirade against China, saw 2018 congressional overhaul of the US government’s Committee on Foreign Investment in the United States (CFIUS) and export control processes and the introduction of the first common inward investment framework in the European Union in 2019. As a result, Chinese investment levels, especially in the United States, have declined dramatically steadily.
China was identified as the villain, and not just because it had the largest trade surplus with the US of all trade partners. The trade war officially started on July 6, 2018, when the US imposed a 25 percent tariff on Chinese imports worth $34 billion. This was just the first in a series of increases in tariffs over the subsequent year, and China also retaliated with tariffs on some US goods (albeit on lower values of imports).
Post COVID-19 strangulation Of the Dragon
In the early stages of the crisis, the theatrics of Chinese mask diplomacy, beguiled some outside observers into believing that Beijing was scoring a series of soft power victories in Europe. Praise and airport welcome parties for Chinese aid organised by the likes of the Serbian president, Aleksandar Vucic, and the Italian foreign minister, Luigi Di Maio, were widely cited as examples of a power shift in China’s favour.
In each case, politicians with already-friendly ties to the Chinese government sought to use its provision of medical supplies, to validate those linkages and to shame their European partners into doing more to help.
But, Beijing’s willingness to embrace and magnify those divisions and fissures, at such a sensitive juncture has brought about a backlash from the governments and institutions, on the receiving end of its brazen hostile political maneuvers.
China’s “17+1” meetings with central and eastern European states, and its efforts to push European countries to block joint statements on the South China Sea or human rights issues, was an expose on the dirty blood-politics played by China in Europe.
Initially, Europe continued to trust China, seeing a replay of modest assistance to EU during 2008 meltdown, while Beijing launched a counter to politically isolate Washington for its protectionist policies. At one point, it also seemed to gather some support.
All realised that, China has not fulfilled the lavish promises it made to the region for large-scale investments. Chinese foreign direct investment in the EU peaked in 2016 at US$43 billion, then plummeted back to 2012 levels in 2019, with the expectation that 2020 would be even lower.
After years of 17+1 summits, eastern European politicians realised that it was the photo opportunities rather than meaningful discussion that mattered more to their Chinese counterparts.
In addition, the pandemic and China’s brazen bid to acquire distress business and industrial base of the world, especially powerhouses in EU and the US, has fundamentally altered that picture. It has removed the political haziness on China, exposing the threat by China in terms of both security and reliability issues.
As a beginning of a concerted reply to China, On March 25, 2020, the European Commission issued guidance, that warned member states of increased risk of attempts to acquire healthcare capacities (e.g., for production of medical or protective equipment) or related industries such as research establishments (e.g., vaccine developers) via FDI.
Scope of the FDI Screening Regulation issued by the EU Commission said, “The Regulation applies to all sectors of the economy and is not subject to any thresholds. The need to screen a transaction may indeed be independent from the value of the transaction itself. Small start-ups, for instance, may have a relatively limited value but may be of strategic importance on issues like research or technology.”
Central and Eastern Europe countries have grown wary of the political risks associated with their bonhomie with China, amid growing criticism from the EU and US over the past few years. For some, this reassessment has been associated with the tech cold war between the US and China. Following pressure from the US and Russia, countries like Poland, the Czech Republic, Romania, and Estonia have indicated they will ban Chinese firm Huawei from the construction of their 5G networks.
In May 2020, Romania canceled a deal with a Chinese company to build a nuclear power plant. For Latvia, growing concerns over cyber-spying led its intelligence agency to declare China a threat to national security. Future is becoming clear to China now.
Chinese firms have been on a buying spree in the US and Europe, for the past few years. The lack of transparency in their financing has aroused the suspicion that they get more than a little help from their friends in the Chinese government. Yet when foreign companies want to invest in China, they still face many restrictions. This absence of reciprocity, along with the suspicion that Chinese investors get their orders from Beijing to target companies from systemically important industries abroad, has caused a backlash in Europe and the United States.
Similarly to the crisis in 2008, when within a year China’s official finance (mainly OOF) went up to almost US$70 billion from a level of less than US$15 billion, China has tried to benefit from the coronavirus pandemic, as if just waiting for this very pre-planned opportune goldem moment.
Governments in Europe fear an attack on their industrial base. Germany, Spain, Italy and France have all tightened their take-over rules and screening of foreign direct investment. Industrial policy is back on the global agenda, carrying the stick of protectionism to fend off foreign buyers.
European governments do not mention suspected predators by name, but their protective measures are clearly directed at Chinese investors. Experts confirm that, in particular, state owned enterprises from China are looking for a bargain in Europe. This only means, CPC is initiating a state owned predatory policy, wherein policy is not only a defensive measure to protect your golden eggs at home. It can also be an offensive attack to strengthen your domestic industries through merger and acquisitions abroad.
China’s has in last decade, has crushed and destroyed a quarter of local industrial base in much of Europe. Balance of it, it aims to acquire and make it unprofitable, by COVID-19 induced distress purchase.
Once the local industries, which are acquired by Chinese CPC state owned operation, also run into loss and disposed off by China, there will be no more competition left in this side of hemisphere.
US and EU have gone in protectionist mode themselves, where as they are consolidating Africa and South East Asia, preparing for any military rebuttal. Countries like Iran and Turkey are walking right into Chinese Trap, a readymade Chinese colony. Here India and Russia are together, where former has consolidated South East Asia and latter has specifically cordoned off Central Asia from Chinese hostile Economic interference.
The US, EU, Russia-Central Asia block, and India-South East Asia Block have stalled many of the Chinese ambitious plans for hostile takeovers. Also Debt-trap is backfiring on China as the US, Russia, and Quad are militarily pushing against China on all fronts, indirectly pacifying the Chinese Debt ridden under developed countries, of military support, against any form of Military hostility from China.
This puts China in a precarious position, as it stands off guard, while its infrastructure investments in third world countries unlikely to return substantial dividend in the form of a cheap plastic goods dumping markets. And its plans of destroying the US and Europe’s industrial base, by hostile COVID-19 induced takeover, seemed to be almost over.
25 Aug 20/Tuesday Written by : Fayaz