Trump world hovers over next steps in EU China investment and trade moves

Germany’s prosperous port city of Hamburg is the host of a German-European-Chinese summit, the Hamburg Summit 2016 this week. The swanky event takes place against a backdrop of rising questions over international stability, US-China relations, and investment frictions in EU-China relations.

 

A city open to China

 

Hamburg is positioning itself as a facilitator in the currently politically troubled waters in the bilateral relationship between Beijing on the one hand and Brussels and Berlin on the other.

 

“At the summit there were many discussions relating to the Chinese initiative on a new Silk Road. As Hamburg’s mayor, I am delighted that one end of this road is located in our city. This applies both to the sea routes via ship and to the transcontinental routes via rail”, Olaf Scholz, the popular social-democrat mayor of the Hanseatic city said at the close of the first day of the event, which runs until Friday (25 October 2016).

 

The real overarching theme of the event has been bilateral investment relations, however. Plans aired by Germany’s ministry of economics several weeks ago to restrict investment from China, and notably its recent blocking of the takeover of the company Aixtron has stirred a controversy in Germany itself, not least within the ranks of the social-democratic party SPD. This despite it being Sigmar Gabriel, the party leader and Germany’s economy minister, who initiated these controversial moves. Speaking in Hamburg, former German Chancellor Gerhard Schröder and SPD boss said: “Germany should not take a defensive approach to Chinese investment in our economy.”

 

Fritz Horst Melsheimer, President of the Hamburg Chamber of Commerce, is also sceptical of new-fangled protectionism. Melsheimer said in opening remarks at the event: “We welcome Chinese investments in Europe, in Germany and – of course – in Hamburg. The Hamburg business community vouches for openness to the new investments and stands up against protectionist regulatory interventions”.

 

Trade and investment frictions

 

After uttering his liberal credo, Melsheimer called on the Chinese to offer more reciprocity in market access for German investments. “Our companies expect the same openness towards their investments in China. This was echoed by current German Foreign Minister Frank-Walter Steinmeyer: “Investments can’t be a one-way street”, he said in his keynote address at the summit.

 

Current frictions between the EU and China – centred on trade defence in the steel sector and investments – are far from being resolved.

 

Jyrki Katainen, Commission Vice President, whose job as overseer of the Juncker investment plan, is to attract Chinese investments, focused on China’s excess capacity in the steel sector. “Trade must be fair or it has very damaging consequences in terms of job losses and undermines support for open markets”, Katainen said. And: “EU China economic relationship is overall very positive but we have some specific issues still to resolve”.

 

Beijing is not happy with how the EU is handling its ongoing reform of trade defence instruments (see here). The new dumping calculation methodology proposed by the EU early November to replace the WTO-inconsistent analogue country methodology which will no longer be legal under WTO rules in early December 2016 is seen by many observers as not very different to the old method. This has reportedly infuriated China. The German investment moves have also upset the Chinese.

 

‘Trump factor’ in EU China investment relations

 

“Under the background of complicated international situation, a more inclusive and positive attitude is necessary for both”, said Zhao Zhongyi, Executive Vice President of the China Association for Trade in Services, a government body, at the Hamburg summit.

 

Former Australian Prime Minister Kevin Rudd, a fluent Chinese speaker, also speaking in Hamburg, said the election of Donald Trump could potentially destabilise the US China relationship: “Trump’s domestic political narrative is directly connected to his economic narrative about China. He therefore will find it difficult to walk away from it”, Rudd, who now lives in the United States, believes.

 

“China will have a robust response, which it will articulate through the relevant national and international for a”, Rudd said.

 

Europeans are all pushing for progress in the current bilateral investment agreement negotiations. “One important step is … to conclude a robust EU China Comprehensive Agreement on Investment”, Melsheimer said.

 

Yet after 12 rounds* of talks on this agreement launched in 2014, little tangible progress appears on the horizon. Europeans chastise lack of reforms in China. China continues to say its is opening up its economy and notably its much prized services sector where investments are key and where growth is expected to he highest.

 

Growth in service imports in China in 2015 was 14.6 percent, CATIS’s Mr Zhao said. “China’s use of foreign capital in service sector in first 9 month this year amounted to 430.7 bn yuan, an increase of 9 percent over 2015”, he added.

 

Also: “China is now orderly opening up its finance, education, culture, medical care and other services, removing access restrictions of foreign investment in services sectors including child and elderly care services, architectural design, accounting and auditing, commercial logistics and e-commerce”, so Zhao.

 

This comes as Germany’s goods exports to China saw their first decline since 1997 in 2015, and the trend is seen as likely to persist.

 

The Commission for its part is worried the deterioration of bilateral relations between China and the US could have a negative fallout for the China EU investment deal. China is indeed negotiating its own bilateral investment treaty with the United States. Talks had progressed relatively well in the months running up to the US elections. This had had positive spillover effects for the EU deal.

 

Miguel Ceballos Baron, number two in Commissioner Malmström’s cabinet, told Borderlex today that “when the Americans make progress, we make progress. What’s going to happen in the coming months we don’t know. This may affect our decisions with China. It remains to be seen”.

 

*The article was corrected to reflect that there have been 12 rounds of negotiations, and not 22 as initially written.