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February 10, 2021

Dear readers,

In this issue of the EU-China Weekly Review, we cover the following topics:
  1. 17+1 summit brings mixed results for China
  2. Borrell-Wang Yi call and the underlying issue of Sino-American rivalry
  3. China Three Gorges plans to go big in Spain
  4. European business leaders attend a high-level dialogue with Premier Li Keqiang
  5. Greece energy sector tender highlights the challenge of Chinese SOEs’ dominant position
The EU-China Weekly Review is compiled by MERICS Analyst Grzegorz Stec. Share story tips to grzegorz.stec@merics.de or via Twitter: @grzestec.

We wish you an interesting read. Please send your feedback to: publications@merics.de

17+1 summit brings mixed results for China

On February 9, China’s President Xi Jinping held an online 17+1 summit with representatives from Central and Eastern European (CEE) countries. The summit would normally be attended by Chinese Premier and CEE Prime Ministers, making Xi’s decision to take Li Keqiang’s place a boost to the meeting’s importance.

What you need to know
  • Xi voiced China’s readiness to cooperate on vaccine distribution and coordinate customs clearance. He also expressed the intention to import USD 170 billion worth of goods from CEE over the next five years – including doubling the imports of agri-food products. The participants did not manage to agree on standard “guidelines” (纲要) – a joint statement including robust political language – instead, they released a simple “activity plan” (活动计划) for the coming year.
  • Although the summit was attended by five CEE heads of state and six prime ministers, several countries sent lower-level ministers. China’s intense efforts to encourage participation from high-ranking representatives – including the offer to relaxing import restrictions – did not convince the six countries that sent only Ministers - three Baltic states plus Bulgaria, Slovenia, and Romania. In the history of this format, it was the lowest turn-out of top-level government representatives.

Quick take

The fact that the summit took place allowed Beijing to bolster its narrative of China’s partnership with Europe. However, averting the ongoing 17+1’s deterioration seems even more challenging than it did before the summit. Xi’s proposals will be measured by CEE governments against past undelivered economic pledges. This may not be enough to stop CEE countries increasingly viewing their China relations through a security lens and leveraging assertiveness towards China in relations with Washington – especially in the context of cooperation within NATO.

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Borrell-Wang Yi call and the underlying issue of Sino-American rivalry

On February 8, the EU’s High Representative Josep Borrell held a video conference with China’s Minister of Foreign Affairs Wang Yi.

What you need to know
  • Speaking beyond the framework of their usual dialogues, the two sides lauded the completion of CAI negotiations, disagreed over the EU’s criticism of China’s human rights violations and expressed an eagerness to cooperate on combating climate change and the Covid-19 pandemic. Borrell also reaffirmed President Michel’s invitation for Xi Jinping to meet with EU27 leaders in Brussels later this year.

  • Wang Yi raised the topic of relations with the US, which the Chinese readout framed as “international and regional issues of common concern” (共同关心的国际地区问题) between the EU and China. The Chinese side also described the protests in Myanmar and the Iran deal in the same way. In response, Borrell highlighted the EU’s strong bond with the US and expressed hopes for trilateral cooperation on selected global challenges.
Quick take

Sino-American rivalry remains one of the underlying themes of Brussels’ exchanges with Beijing and Washington. Beijing has been trying to leverage diplomatic talks with the EU and its concept of strategic autonomy to prevent a potential transatlantic united front against China. Brussels and European capitals will find it increasingly hard to convincingly communicate its vision of non-equidistant relations with Washington and Beijing. The EU’s refusal to fully align with the Biden administration on China is already being presented by European and US commentators as falling in line with Beijing.  

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China Three Gorges plans to go big in Spain

China Three Gorges has been growing its portfolio in the renewable energy market in Southern Europe. The SOE appears to be particularly interested in Spain – Europe’s largest photovoltaic market, which plans to derive 97 percent of its power from renewable energy by 2050. 

What you need to know
  • The company is reportedly planning to purchase a portfolio worth EUR 500 million comprising eight wind farms with around 400 megawatts of capacity located near Burgos. This is in line with last year’s purchase of 13 solar parks that can generate up to 500 megawatts. To manage these assets, the company established a dedicated subsidiary - China Three Gorges (Spain).  
  • China Three Gorges (Europe) is also the biggest shareholder – with 19 percent – in Portugal’s Energias de Portugal (EDP). In 2019 the Chinese company failed to perform a EUR 9 billion takeover bid of EDP, but a year later it was among the final bidders for the EUR 1.5 billion Grupo T-Solar, a green energy farm located in Spain and Italy.
Quick take

The European renewable energy market is set to boom under the EU’s Green Deal. The China Three Gorges case is a harbinger of future attempts by Chinese companies to take advantage of this opportunity. The still unpublicized CAI provisions on the further opening of the EU’s renewable energy market will define the size of the playing field.

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European business leaders attend a high-level dialogue with Premier Li Keqiang

On February 5, Premier Li Keqiang met with European business leaders at a high-level dialogue presided by former European Trade Commissioner Peter Mandelson. Close to 30 major European companies attended the meeting – including BMW, Volvo, Airbus, AstraZeneca, BASF and L’Oréal. 

What you need to know
  • Li Keqiang informed European business leaders on China’s economic recovery promising unspecified market openings and highlighting green development, the digital economy and smart manufacturing as desired areas of business cooperation. 
  • According to the findings of a MERICS study, an average 11.5 percent of 25 major EU companies’ profits in 2019 were generated in Mainland China. While a recent report by the German Chamber of Commerce in China (AHK) shows that the Chinese market is the number one source of global profits for 16 percent of the surveyed German companies operating in China.
Quick take

In 2020 China became the world’s leading destination for FDI noting a 4 percent year-on-year increase, against the US sharp fall by 49 percent in the same timeframe. The importance of the Chinese market for leading European companies is likely to increase further this year. However, concerns about political pressure from authorities have been growing among European companies in China paired while Beijing has been increasingly embracing usage of coercive economic diplomacy in 2020. The two trends may leave companies increasingly vulnerable to pressure by Beijing, as shown by the example of Ericsson CEO’s lobbying the Swedish government against Huawei ban in fears of retaliation against his company’s China operation.  

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Greece energy sector tender highlights the challenge of Chinese SOEs’ dominant position

State Grid Corporation of China (SGCC), the world’s largest electric utility company, was barred from a major tender by Greek authorities. Other Chinese companies were also targeted in the process. 

What you need to know
  • The Chinese SOE was banned from bidding for the purchase of a 49 percent stake in HEDNO, an electricity distribution company controlled by state-owned Greek Public Power Corporation. The basis for the exclusion was the potential conflict of interest stemming from SGCC’s existing 24 percent stake in the Greek power grid operator IPTO. The company filed a complaint with the European Commission over the exclusion.
  • Aside from SGCC, the Greek authorities reportedly banned another Chinese state-owned enterprise from the tender – likely China Southern Power Grid. The supposed reasoning behind the decision was the fact that it shared the same major shareholder as SGCC and therefore resulted in a conflict of interests.  
Quick take

The Greek case poses a wider question about whether a conflict of interest between separate Chinese SOEs investing within European markets should be scrutinized under EU anti-monopoly regulations. The share of Chinese SOEs in (decreasing) overall inbound investments from China to the EU amounted to only 11 percent in 2019. However, SOEs often invest in strategically sensitive infrastructure, raising additional security considerations. 

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About MERICS EU-China Weekly Review

The MERICS EU-China Weekly Review is compiled by MERICS Analyst Grzegorz Stec. Share story tips to grzegorz.stec@merics.de. Twitter: @grzestec
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