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Chinese ‘take over’ threat looms over Europe?

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by June 24, 2016 General
 China was allowed a period of fifteen years for adapting its institutions to market systems and processes. (Reuters) China was allowed a period of fifteen years for adapting its institutions to market systems and processes. (Reuters)

It was a rather rude shock to China to learn about the legislation passed by the European Parliament last month on not allowing ‘market economy’ status to China. According to its terms of annexation at the time of joining the WTO, China was considered a ‘non-market economy’ as its institutions and systems were not geared to market principles. While this was the official reason put out by the WTO, the real reason was the fear on part of most WTO members about cheap Chinese exports flooding their markets following China being granted the most favoured nation (MFN) status. By not allowing China to be treated a ‘market economy’, WTO members retained the liberty to impose punitive measures on Chinese exports, particularly anti-dumping measures, far more easily than it could be done against other WTO members. China was allowed a period of fifteen years for adapting its institutions to market systems and processes. The implicit expectation was China would eventually stop ‘implicit’ subsidies on its exports, particularly providing interest-free credit to exporters, and would enable its exports to reach parity with global prices.

The Europe-China trade relationship has grown from strength to strength since China’s joining the WTO in 2001. EU is China’s top trading partner, accounting for around 13.5% of its total trade, higher than 12.5% for the US. On the other hand, China is the second largest trade partner of the EU after the US, with about 12.5% share of the EU’s total trade. Goods trade forms the bulk of the bilateral trade with services trade yet to assume significant proportions. Like its trade with most of the developed world, China enjoys a healthy surplus in the bilateral goods trade with EU. The European Union, while holding a surplus in the much smaller bilateral services trade, nonetheless is a large investor in China. For most observers, apart from the large amount of bilateral trade and investment, the Europe-China ties have also been on an upswing in recent years because of Europe’s noticeable enthusiasm for a couple of China’s major initiatives. The Asian Infrastructure Investment Bank (AIIB) and the One-Belt-One-Road (OBOR) connectivity project have both witnessed enthusiastic responses from European countries. Many European countries joined the AIIB notwithstanding the US’s open call for staying away from it. And the OBOR, particularly the maritime component of it, has been receiving strongly positive responses from European businesses.

China, therefore, could hardly be blamed for being taken by surprise at the large majority by which the European lawmakers voted against allowing China ‘market economy’ status from the end of the year. By passing the resolution, the European Parliament pre-empted a possible move by the European Commission later during the year for changing China’s status. It is now clear that the political sentiment in Europe is united against granting China greater market access in Europe. The move was possibly precipitated by the European steel industry’s demand to block cheap Chinese steel imports at a time when the former is trying desperately to revive, and when the latter is being vilified almost all across the world for dumping.

But it is not only cheap steel that is reflecting an antagonism towards China in Europe. Sentiments are getting adverse towards Chinese investments as well. This is evident from the EU Commission’s recent ruling on a merger of China General Nuclear Power (CGN) and France’s EGF. The Commission opined that CGN’s assets were part of those held by China’s State-Owned Assets Supervision and Administration Commission (SASAC). The SASAC is the umbrella agency of all Chinese state-owned enterprises. The Commission’s view implied that the CGN’s assets were a part of the assets of all energy SOEs controlled by the SASAC. The greater implication was the size of the foreign entity in the merger became much larger than the threshold level for escaping greater scrutiny and review of investment proposals.

With both lawmakers and regulatory authorities reflecting hostile attitude towards Chinese trade and investment, is there a significant shift in the European perception of China? The key concern seems to be over the rapid growth of Chinese commercial presence in Europe and acquisition of the continent’s financial assets. During 2015, Chinese companies spent more than $30 billion in taking over various European businesses. Chinese investments in European businesses have far overshot the Japanese and have aggregated to around $200 billion. Major European brands like Volvo and Ferragamo have significant Chinese investments now. The prospects of China owning the financial assets of the continent in a substantive manner is increasingly, and probably alarmingly, becoming a reality for Europe. The vision of a ‘China dominated’ Europe was never so real and is producing anxieties of a kind that an unbalanced trade relation never did.

It is likely that Europe will further resist the Chinese ‘shopping spree’ in the days to come. The threat of Chinese takeover’—for Europe—is now much more than a pure business parlance.

The author is senior research fellow at the Institute of South Asian Studies in the National University of Singapore

Email: isasap@nus.edu.sg

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