Tensions between the EU and China: all the economic issues between Brussels and the Asian giant

Parliamentary elections ahead, global geopolitical shocks to deal with, the shadow of a second US presidency of Donald Trump, and increasingly complex economic relations with China. It will be a fiery 2024 for the European Union, called to draw up an adequate operational strategy to best address multiple challenges, direct and indirect, external and internal.

One of these challenges will undoubtedly coincide with the People’s Republic of China: how to structure relations with the Asian giant in the context of growing international tensions, as well as amid a clash between the West and the rest of world? Demand worth 856 billion dollars, like the value of the trade of goods between the EU and China recorded in 2022, and continuously growing.

At the same time, there are two variables to consider: in the first 11 months of 2023 Brussels’ deficit with Beijing stood at 201 billion dollars (a very high figure), while the worsening of the aforementioned geopolitical tensions contributed to cooling relations Between the parts. We remember the Comprehensive Agreement on Investment (CAI), or the investment agreement signed between the EU and China in 2020, but "frozen" by the European Parliament after Beijing had sanctioned some Brussels legislators in response to European sanctions against Chinese officials involved in alleged crackdowns against Uyghur Muslims in Xinjiang.

Brussels’ moves

While on the one hand, many of the EU governments have adopted a new political attitude towards China (Italy, for example, has not renewed the Memorandum of Understanding relating to the New Silk Road), the leaders of the large European companies preach caution because they intend to preserve – if not increase – their respective market shares beyond the Wall.

Between the two fires, European Union regulators are working on rules that aim to crack down on non-EU companies fueled by state money. The reference, in particular, is to companies financed by China, accused of altering competition, but not only to them. In general, increasingly concerned that the Old Continent is not in a good position to compete against the companies of rich rivals from Asia and the Middle East, the EU itself has introduced a regulation on foreign subsidies.

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As Politico explained, the regulation came into force in October and requires European officials to verify whether state money from a given non-EU country fuels unfair competition or not in some sectors to the detriment of European companies. The European Commission is currently monitoring 50 deals where a bidder can gain an unfair advantage resulting from a foreign subsidy. The new rules would also allow the Commission to launch its investigations in sectors where it suspects European companies are being undermined by competitors receiving money from foreign states.

The EU’s moves, therefore, were put on the agenda to try to protect the continental market from the domination of Chinese exports. Dominance is no longer limited to low-wage sectors, given that Dragon companies are now in direct competition with those of more advanced economies. And what’s more, also within their respective European national markets, as illustrated by the case of electric cars.

The big issue between the EU and China: electric vehicles

The European Commission has raised an alarm bell about the doubling of the EU-China trade deficit in the last three years, and in October 2023 it launched an anti-subsidy investigation into electric vehicles made in China. Ursula von der Leyen, president of the Commission, was clear: “The global market is flooded with cheaper electric vehicles” with prices “kept artificially low” thanks to “huge state subsidies” by the Chinese government. It cannot therefore be ruled out that Brussels could increase tariffs on imports of Chinese EVs from 10% to around 20-25% once the investigation is concluded (there will be time by November this year).

As the South China Morning Post explained, the EU has passed a series of regulations and laws in recent years as part of efforts to reach its goal of zero carbon emissions by 2050, which have important implications for companies Chinese. Among these, we find the need, for any good produced by non-EU companies, to respect certain environmental standards.

In particular, the submission of an environmental product declaration (EPD) was added as a requirement in tenders for public electric buses, which affected Chinese suppliers such as BYD. The EPD provides information on the environmental impact of a product throughout its life cycle, from the production of raw materials to post-consumer disposal. For electric vehicles, EDP is about designing low-carbon products, optimizing the energy management system, and improving energy efficiency.

In August, the EU also passed a new law to ensure that batteries have a low environmental impact, use few harmful substances, require fewer raw materials from outside the region, and are widely collected, reused, and recycled in Europe. Starting next year, the regulation will gradually introduce reporting obligations, performance classes, and limits on the carbon footprint of electric vehicles, e-bikes, and scooters, as well as rechargeable industrial batteries. China is starting to take notes.

Original article published on Money.it Italy 2024-02-23 07:30:00. Original title: Scintille tra Ue e Cina: tutti i nodi economici tra Bruxelles e il gigante asiatico