Category Archives: US

11th
Nov 2017

Why we are entering a new era in China-Europe relations

US President Donald Trump’s ‘America first’ announcements and policies are alienating his Western allies. This coincides with the United Kingdom beginning its departure from the EU, now set for 29 March 2019 at 23:00. In these circumstances, China has been quietly reaching out to Western nations. Both Beijing and Brussels hope to move ahead with economic globalization, and during the annual EU-China Summit held in Brussels on June 1–2, 2017, the two sides forged a new green alliance to combat global warming, a clear nose thumbing at Trump. With the EU and the United States increasingly divided, this moment may mark the beginning of a new China-EU axis in global politics.

One of the areas in which China and the EU have developed strong ties is in the monetary field. Beijing has traditionally supported the euro, which is the only serious alternative to the dollar, and has diversified its foreign exchange reserves—the world’s largest—so that it now holds over one-third in euros and just slightly more than half in dollars, a decrease of around 30 percent since 1999, when the European common currency came into circulation. What this means is that in the last several years, Beijing has swapped dollars for euros, a trend that is likely to continue in future.

China’s diversification strategy signals that the dollar is no longer the world’s only reserve currency, and this is important to Beijing, which is trying to internationalize its currency as it weans itself off of its dependency on the United States’ economic cycle and monetary policy. Europe has, in turn, supported many of China’s monetary ambitions. The Europeans unanimously backed the decision by the International Monetary Fund (IMF) in December 2015 to include the renminbi in the basket of currencies making up the Special Drawing Right (SDR), an international reserve currency that includes the U.S. dollar, the euro, the British pound, and the Japanese yen. The decision was clearly political. The EU wanted to send a friendly message to China, the world’s second-largest economy, as well as to recognize what Beijing had done to support the euro during the euro crisis of 2009–11, when the European common currency became the target of speculative attacks mainly stemming from Wall Street–based banks and hedge funds. At the time, Chinese leaders intervened on various occasions to reassure the financial markets by buying eurozone bonds.

Today, the old continent is home to the largest number of renminbi bank clearings or offshore hubs where the Chinese currency can be traded. The fact that offshore renminbi hubs have also emerged in Budapest, Frankfurt, Luxembourg City, Madrid, Milan, Paris, and Prague indicates Europe’s willingness to promote the use of the Chinese currency. In the same vein, most of Europe’s central banks have accepted—or are considering accepting—China’s currency as a viable reserve. Although London is currently the most important offshore market for renminbi trading, once the United Kingdom leaves EU, significant shares of renminbi trading in London will most likely move to the continent, in places such as Paris, Frankfurt, and Luxembourg, thus strengthening the China-EU monetary axis even more.

When it comes to trade, relations between China and the EU are more rocky, although Trump’s derision of global trade certainly provides an opening. Between 2002 and 2016, total EU-China trade has risen dramatically, from 125 billion euros to roughly 515 billion euros. Today, China and the EU trade more than 1.5 billion euros in goods each day, and total bilateral trade in 2016 was 514.6 billion euros according to the European Commission—nearly equivalent to what China exchanges with the United States. In fact, the EU is now China’s most important trading partner, although China ranks number two for the EU, after the United States.

In addition to buoyant commercial relations, Beijing is trying to charm Europe through investments. Europe is now the top destination for Chinese foreign investments, surpassing the United States. According to the China Global Investment Tracker, a joint project of the American Enterprise Institute and the Heritage Foundation, China invested nearly $164 billion in Europe between 2005 and 2016. During that same period, it invested $103 billion in the United States.

These dynamics indicate that Europe-China relations are entering a new phase. Make no mistake, however. A China-EU alliance would be more a marriage of convenience than a solid partnership—one that is facilitated by Brexit and that revolves around a shared antagonism for Trump. We must wait and see whether the new dynamics within both the United Kingdom and the United States transform this axis into a more permanent one as new possibilities for China-EU relations open up, unthinkable only a few years ago.

An earlier and expanded version of this article was published in Foreign Affairs.

08th
May 2017

How Trump is reconnecting Europe with China

China is on a charm offensive in Europe, a move facilitated by U.S. President Donald Trump’s policies and his declarations since taking office. Beijing is eager to find allies willing to stand up for open trade amid fears Trump could undermine it with his protectionist, so-called America First measures. Sensing a low tide in Transatlantic relations, Chinese leaders are reaching out to the European Union — China’s leading trading partner and an important source of investment and technology. Beijing seems willing to set aside differences over bilateral trade and investment in order to draw the Europeans to its side.

In recent months, Beijing has toned down its public campaign to obtain EU recognition of market economy status for China. The case is now being dealt with at the World Trade Organization in Geneva, a move that allows the European Union and China to avoid giving the question too much publicity. If China obtains its coveted prize, it will be more difficult to adopt anti-dumping measures against Chinese companies. Neither the European Union nor the United States has yet recognized China as a market economy, and Western unity on this issue has so far prevailed.

The issue of market economy status marred Sino-European relations throughout 2016 and could have tainted relations this year too, had the election of Trump not changed priorities for Brussels and Beijing. Both stand united against protectionism, and on March 10, the European Council issued a conclusion document underlining that “trade relations with China should be strengthened.”

China-EU-US trade

EU policymakers have accepted Beijing’s request to bump up the annual China-EU summit from its usual July date to June. This is intended to send a unified message President Trump. Brussels and Beijing want to press ahead with economic globalization and free and fair trade in order to better tackle domestic problems. China is rebalancing its economy from one based on exports to one focused on domestic consumption, while the European Union is trying to recover from a long recession. However, it is not only the economic dimension that is bringing China and the European Union closer, but also their support for multilateralism and international organizations — in contrast with Trump’s preference for power-based bilateral relations.

China stands to gain from divisions among Western allies — even at a moment such as this, when there are a number of frictions in Sino-European relations, including the question of growing Chinese investments in the old Continent. A report by the Rhodium Group, a research firm, and the Mercator Institute for China Studies, a think tank in Berlin, found that Chinese direct investment in the European Union surged 76 percent to around €35 billion in 2016. Chinese purchases are growing rapidly in sectors that remain restricted to foreign investors in China, and this inflames debate about growing imbalances between the two sides. Those imbalances draw particular concern from Germany, where Chinese acquisitions soared to 11 billion euros in 2016, surpassing for the first time German mergers and acquisitions in China.

In February, France, Germany, and Italy asked the European Commission to rethink rules on foreign investment in the European Union. This was a message to Beijing to enforce reciprocity in market access, and at a time when the two sides are negotiating a bilateral investment treaty. It is unlikely, however, that a pan-European screening mechanism similar to the Committee on Foreign Investment in the United States will see light in the near future. Europe is now the top destination of Chinese investments abroad, surpassing the United States. According to the China Global Investment Tracker, a joint project of the American Enterprise Institute and the Heritage Foundation, between 2005 and 2016 China invested nearly $164 billion in Europe. During that same period, it invested $103 billion in the United States.

With negotiations on the Transatlantic Trade and Investment Partnership in limbo, and the Trump administration’s focus on America First, Europeans feel they have been left alone to deal with an increasingly powerful China. The latter is luring EU members with the prospect of increased investments in their countries. Should President Trump not change course, the European Union and China are bound to get closer, despite their differences.

An earlier and expanded version of this article was published in RealClearWorld

31st
Oct 2016

The EU-China-US triangle – priorities for the next U.S. administration

China is possibly the EU’s most ominous economic and trade challenge. At the same time, Beijing represents a formidable opportunity for many European companies as well as for EU aspirations to emerge as a global actor. The country continues to be viewed with suspicion across Europe due to the non-democratic nature of the Chinese regime, raising questions as to what use Chinese leaders will make of their country’s increased capabilities. Yet, it is precisely this authoritarian Communist China, informed by values and principles quite different from those of the EU and its member states, that has come to support the EU’s integration process – including key initiatives such as the European common currency. This dual significance of China for the EU – as both a daunting challenge and a formidable opportunity – has implications for the transatlantic relationship. There is great scope for joint EU-US cooperation on advancing a set of rules and principles in China and the surrounding region dear to Western public opinion. At the same time, the role that China plays in Europe – through the New Silk Road and the growing investments attached to this grandiose project – has the potential to drive a wedge between the transatlantic allies.

us-china-eu

There are three trade and security issues that, according to our research, are likely to become top priorities for the next U.S. administration.

1) The next U.S. administration may need to find a compromise with the EU and China to avoid the emergence of competing trade blocs. This will be particularly pressing if the U.S. Congress fails to pass the TPP, and the United States and EU do not succeed in finding a compromise on the TTIP. Then, the China-led RCEP [Regional Comprehensive Economic Partnership] will get a boost, but also plans for an EU-East Asia trade agreement will be resurrected, increasing the prospect of a Eurasian trade deal which will exclude the United States.

2) The next U.S. administration may seek to avoid a transatlantic rift over market economy status (MES) to China. Washington has already declared that it will not grant Beijing the coveted MES. The EU, instead, is working on a compromise, which will entail recognition of market economy to Beijing, while reinforcing the existing trade defence measures to protect some European sectors considered of strategic significance. The compromise has three aims: avoid retaliation from Beijing; increase market access for European companies in the Chinese market; and send the message that Europe is more open than the United States – something that will undoubtedly attract more Chinese investments into the Old Continent.

3) The next U.S. administration may want to discuss security in Eurasia with China and Europe. The United States is disentangling itself from Central Asia and the Middle East, while China makes inroads into these regions through its Belt and Road initiative. Europe has strong security ties with Washington, but Brussels is also tempted to push forward security cooperation with Beijing, particularly in the Mediterranean and along the Arabian coasts, given the economic significance of Southern European ports and the Suez Canal for China’s maritime Silk Road and future Sino-European trade relations.

To read the full story, please see the interview to Dr. Casarini by Mercy A. Kuo, published in The Diplomat

21st
Jul 2016

Asia and Europe inching closer to each other

Cooperation between Asia and Europe in the last 20 years has enhanced the relations of the two continents in all fields, from international trade to global economic recovery, infrastructure and migration. Asia and Europe have signed many bilateral trade agreements and discussions are ongoing on regional deals.

These achievements were in full display at the 11th Asia-Europe Meeting (ASEM) Summit held on 15-16 July 2016 in Ulaanbaatar, Mongolia where 53 Heads of State and Government – 30 European and 21 Asian countries, as well as the ASEAN Secretariat and the European Union – got together under the overarching theme of ‘20 Years of ASEM: Partnership for the Future through Connectivity’.

Leaders at the ASEM 11 Summit, 15-16 July 2016, Ulaanbaatar (Mongolia). Source: http://www.aseminfoboard.org/events/11th-asem-summit-asem11

Leaders at the ASEM 11 Summit, 15-16 July 2016, Ulaanbaatar (Mongolia). Source: http://www.aseminfoboard.org/events/11th-asem-summit-asem11

The ASEM dialogue process was first launched on 1 March 1996 in Bangkok, Thailand, to enhance relations and various forms of cooperation between the then 15 members of the European Union and its Commission, the then 7 members of the Association of Southeast Asian Nations (ASEAN), and the individual countries of China, Japan, and South Korea which would form the so-called ASEAN+3 grouping. A series of enlargements saw additional EU members join as well as India, Mongolia, Pakistan, and the ASEAN Secretariat in 2008, Australia, New Zealand and the Russian Federation in 2010, Bangladesh, Norway, and Switzerland in 2012, Croatia and Kazakhstan in 2014.

When the ASEM was inaugurated in 1996, it was conceived as an instrument for bridging the missing link between the EU and East Asia. At the time of the first ASEM in 1996, North America and East Asia had already established an institutional mechanism (the Asia-Pacific Economic Cooperation) for deepening inter-regional cooperation and North America and the EU had further bolstered their transatlantic ties. In this context, it was perceived that there was a glaring missing link as far as relationship between the EU and East Asia was concerned and that the ASEM process would serve to fill this missing link in the triangular relationship: North America-EU-East Asia.

ASEM paramount objective has always been the enhancement of economic relations between the two regions. The ASEM process allows the EU to avoid the risk of being isolated by too close a collaboration among the Asia-Pacific countries while also giving East Asia the opportunity to counterbalance US presence by opening up to Europe.

Europe’s economic presence in Asia is felt particularly in the areas of trade and monetary policy. For instance, Brussels is Beijing’s most important commercial partner—the two trade more than one billion euros a day. The EU is ASEAN’s third-largest trading partner, after China and Japan, but ahead of the United States. Overall, Asian markets are the destination for almost one third of EU exports and offer rapidly expanding market opportunities for European firms, which are also among the biggest contributors of FDIs in the region

Following the surge of trade relations, Asia has become the largest buyer of euro-denominated assets. The share of euros in the foreign exchange portfolio of Asia’s major central banks’ accounts is, on average, for around 25-27 percent of the holdings of Asia’s major economies, reaching 30% and above in China (the world’s largest holder). This makes the euro the second-most-important reserve currency in Asia – after the dollar, but ahead of the yen.

Europe’s economic rebalance toward Asia is rooted, as in the case of the United States, in the realisation that Asia has become central to global prosperity and to the Western powers’ own growth prospects. Since 2011, the EU has signed free-trade agreements with South Korea and Singapore; it is negotiating one with Japan, Vietnam, Malaysia and Thailand; and has opened discussion on a trade and investment agreement with the whole of ASEAN.

At the last ASEM summit, leaders from the two regions explored plans for an inter-regional investment and trade agreement that would counterbalance the US-led Trans-Pacific Partnership (TPP). Such dynamics deserve to be followed closely by European and Asian companies for the potential that they could have for trade, investment and jobs creation on the Eurasian continent.

More on this in the interview to Dr. Casarini by Xinhua News.

14th
Apr 2016

Europe bats its lashes for the Chinese currency

The central parity rate of the Chinese currency has weakened in recent weeks against the world’s major currencies. HSBC currency analysts suggest further depreciation of the currency against the US dollar by the end of the year. However, this has not prevented the West – and Europe in particular – from doubling down on the currency.

Behind Europe’s investment in the renminbi there is a clear strategy of support for the Chinese currency. When the International Monetary Fund announced in December that the renminbi would join the US dollar, the British pound, the euro, and the Japanese yen in the currency basket underlying its unit of account, the Special Drawing Rights (SDR) basket, the decision was clearly political.

Even though the currency performs well and its internationalization is sustaining, its inclusion in the SDR owes much to the decision by the US to defer to Europe. The US had in fact argued for years that the renminbi should be included in the SDR only if China opened its capital account, let its currency float freely, and had a more independent central bank. None of this has happened. But after China established the Asian Infrastructure Investment Bank with the support of Europe, the US agreed to drop its objections. After all, the SDR basket plays a minor role in global finance, and admitting the renminbi was seen as a small price to pay to keep China embedded in the Bretton Woods institutions.

renminbi stash

The currency’s inclusion in the SDR, it is hoped, will encourage China to liberalize its capital account further. Europe would also like to welcome the country to the core group of world powers that decide global monetary affairs. British Chancellor George Osborne has made it clear that he would like the City of London to be the most important offshore market for renminbi trading and services. It was no coincidence that during President Xi Jinping’s state visit to the United Kingdom in October 2015, China chose London to issue its first overseas renminbi sovereign debt.

The rest of Europe is equally enthusiastic. Today, the continent is home to the largest number of renminbi bank clearings. Offshore renminbi hubs have emerged in Frankfurt, Paris, Milan, Luxemburg, Prague, and Zurich, and most of Europe’s central banks have added – or are considering adding – China’s currency to their portfolios. Europe’s efforts could succeed; but unless China makes its currency even more widely accessible and opens its market further, they are almost sure to fail.

An earlier version of this article was published in project syndicate

20th
Aug 2015

Dispute for islands in the South China Sea heats up

Global companies operating in South East Asia should pay attention to rising tensions between China and some of its neighbours over disputed islands. These dynamics, if not properly managed, could impact their business and shipping operations.

China is investing in a ‘modern maritime military force’ to protect the country’s ‘maritime rights and interests.’ The force will assist in asserting China’s claims over the disputed islands in the South China Sea. In May 2015, Beijing released its first ever White Paper on military strategy. The Paper outlines plans to build military forces with expeditionary capabilities, including naval and air platforms that can operate over long ranges.

Beijing aims to move from ‘near seas defence’ to a combination of ‘near seas defence’ and ‘far seas protection,’ which would involve at least a limited power projection capability. The force would allow China to show resolve at points of contention, such as disputed islands in the South China Sea. China has long said that it owns most of the reefs and islands in the South China Sea, buttressing pretensions to more vaguely defined rights to most of the Sea itself.

Source: World Review (worldreview.com)

Source: World Review (worldreview.com)

In recent years, Beijing has intensified construction on islands of military installations, some of which could be used for offensive purposes against other claimant states. These facilities include an airstrip, garrisons, air-defence batteries and radar and communications equipment. The new infrastructure boosts China’s ability to patrol surrounding waters and monitor the activities of other claimants.

Beijing seems intent on making enforceable the strongest possible claim to civil control of the disputed areas, leading eventually to formal legal control. This can be achieved by asserting physical control at specific points through the use of coastguard vessels to protect fishing rights and to ward off others. Moreover, China is deploying flotillas of trawlers and patrol vessels to protect the interests of its national oil company, which is drilling in disputed waters and now physically enlarging and developing atolls in the Paracel Islands.

At the end of June, Beijing announced that it had completed some of its land reclamation activities on the Spratly Islands, which are also claimed by other countries in the region. Before January 2014, the Chinese presence in the Spratlys consisted of a few concrete blockhouses perched on top of seven coral atolls. Today, these reef-based constructions have grown from five acres to an area covering 2,000 acres.

By asserting, in no uncertain terms, that it considers this area to be its exclusive domain, Beijing is heightening tensions with its neighbours and the United States. As a result, military spending in the region is increasing. The Stockholm International Peace Research Institute (SIPRI) has found that major South East Asian naval powers have increased their defence spending by more than one and a half times since 2003, while China’s spending has grown more than fivefold in the same period. China’s South Sea Fleet has more major surface ships than all the South East Asian countries combined.

The waters of and the airspace above the South China Sea are filling up with military hardware as the dispute for islands heats up. Companies operating in the area should pay close scrutiny to these dynamics, including the potential impact of rising tensions for their business.

An enlarged version of this article was published in World Review

19th
Jun 2015

Beware of Taiwan’s evolving political dynamics

Taiwan’s political landscape is undergoing profound changes which are likely to have an impact on cross-strait relations in the years to come. Taiwan’s ruling party, the Kuomintang (KMT), suffered one of its worst electoral defeats when the Taiwanese elected more than 11,000 mayors, councillors and town chiefs in November 2014. The elections saw the KMT even lose the capital city Taipei which it had controlled for 16 consecutive years. The results are a huge political blow to Taiwan’s President Ma Ying-jeou. The winner is the Democratic Progressive Party (DPP) whose gains surprised many observers. DPP mayoral candidates won 13 of Taiwan’s 22 counties and major cities, up from a previous six. DPP mayors now govern more than 60 per cent of Taiwan’s 23 million people and are poised to win the presidential elections scheduled for January 2016.

Taiwan’s opposition leader Tsai Ing-wen spent 12 days the United States from May 29 to June 9, 2015 with a two-fold goal: win Washington’s support for her presidential bid in 2016 and reassure US officials about the intentions of her party vis-à-vis cross-strait relations. It is worth reminding that the DPP controlled the presidency from 2000 until 2008, when President Ma took over amid widespread dissatisfaction with corruption in the DPP and its tense relations with China.

Dr. Tsai Ing-wen,  Chairperson of the Democratic Progressive Party (DPP). Source: www.theepochtimes.com

Dr. Tsai Ing-wen, Chairperson of the Democratic Progressive Party (DPP). Source: www.theepochtimes.com

Tsai Ing-wen had a series of meetings with government officials, academics and overseas Taiwanese. She saw the administration of US President Barack Obama on June 2. The US is following the political dynamics in Taiwan closely after the DPP’s best election results in history in November 2014.

The resounding defeat of current Taiwanese President Ma Ying-Jeou’s party was the result of both domestic factors – such as an unequal distribution of wealth, sluggish government reform, the KMT’s perceived coolness towards youth and civil movements – and the way President Ma is dealing with cross-strait relations. There is widespread belief, prevalent among Taiwanese youth, that only Taiwan’s business elite is reaping the economic rewards of closer ties with China. President Ma has signed 21 agreements with China so far, including a ground-breaking free-trade pact – the Economic Cooperation Framework Agreement (ECFA) – in 2010.

Taiwan’s youth was at the forefront of an occupation of the legislature during the ‘Sunflower Movement’ of March and April 2014. Thousands of mostly young people protested about the Cross-Strait Service Trade Agreement (CSSTA), which, if passed, would open much of Taiwan’s service sector to investment from mainland China. Protesters claimed that the KMT had pushed the CSSTA through the legislature without following proper democratic procedures. They feared the agreement would harm Taiwan’s economy and give China too much leverage.

The DDP prefers to maintain a comfortable distance from being integrated with China, but it also has to find a way to achieve economic growth. The mainland is Taiwan’s most important economic partner by far, while the US remains the ultimate guarantor of its security. These dynamics need to be carefully considered when doing business in Taiwan.

14th
Mar 2015

China and Europe boost monetary connections

Europe’s four-largest economies – Germany, France, the United Kingdom and Italy – have decided to join the Asian Infrastructure Investment Bank (AIIB), a China-led regional bank designed to finance infrastructure projects in areas such as energy, transportation and communication in Asia. China is set to provide up to 50% of the bank’s $50 billion initial capital. Initiated in October 2014, the AIIB is seen as a potential rival to the US-based World Bank and this partly explains why Washington put pressure on the European allies to stay out from the China-led bank.

Yet, the US appears to have overlooked the extent of the monetary connections established between Europe and China in recent times. The two have, in fact, boosted monetary relations through currency-swap agreements, yuan bank clearing, and support for each other’s currency – the euro and the renminbi.

Today, the renminbi is the world’s second most used trade finance currency and the seventh-ranked global payments currency. The People’s Bank of China (PBOC) has in the past few years signed bilateral currency swap agreements worth more than 3 trillion yuan ($480 billion) with 28 central banks and monetary authorities.

More than 50 central banks have so far added the Chinese currency to their portfolios as growing trade ties and a growing number of reforms by Beijing are leading reserve managers to view it as a viable reserve currency. Most of Europe’s major central banks have added – or are considering adding – the Chinese currency to their portfolio, often at the expense of the dollar. In October 2014, for instance, the United Kingdom raised 3 billion yuan via a landmark offshore sovereign yuan bond and kept the proceeds into its foreign exchange reserves rather than converting them into dollars.

In October 2013, the PBOC and the European Central Bank (ECB) signed a bilateral currency swap agreement for a sum of €45billion (RMB350 billion), the largest ever signed by Beijing outside the region. In November 2014, the ECB decided to add the Chinese yuan to its foreign-currency reserves.

Source: www.leaprate.com

Source: www.leaprate.com

The PBOC has also designated a number of yuan clearing banks, known as RMB Qualified Foreign Institutional Investor (RQFII). Half of these ‘renminbi hubs’ are in Europe, in places like London, Frankfurt, Paris, Luxemburg and Prague. In January 2015, China’s and Switzerland’s central banks signed a RQFII agreement, making Zurich the newest hub for renminbi trading.

China’s ultimate goal is to make the yuan one of the main currencies for global trade and to place limits on the role of the dollar in the international monetary system. Since 2008, Chinese officials and scholars have maintained that the US is abusing its position as controller of the main reserve currency by pursuing irresponsible economic policies. An op-ed by Xinhua agency on 13 October 2013 did not hesitate to call for a ‘de-Americanized’ world.

The euro is seen in Beijing as a counterbalance to the dollar and instrumental for creating a multipolar currency order where the renminbi would also have its place. Consequently, China has divested away from the dollar in recent years and into the euro. Today, euro-denominated assets represent around one-third of China’s total foreign currency reserves which, at more than US$4 trillion, are the world’s largest.

Eurozone governments and institutions have actively courted Chinese purchases of euro-denominated assets. Since its establishment in May 2010, the European Financial Stability Facility (EFSF) – replaced in October 2012 by the European Stability Mechanism (ESM) – has actively sought Beijing’s support, obtaining concrete pledges for the purchase of Portuguese, Irish and Greek bailout bonds auctioned by the EFSF/ESM €440 billion rescue fund.

Monetary relations between China and Europe are expected to intensify in the future, challenging the dominant position of the dollar. If the issue is not handled with attention, there is risk of a serious transatlantic rift.

21st
Dec 2014

China in space: Europe and the United States have different views

In the last decade, the EU and China have expanded their bilateral cooperation to include satellite navigation, earth observation, space exploration and space technology development – in stark contrast with the US which increasingly views Chinas as a space competitor. This has significant implications for Europe’s aerospace sector.

In the late 1990s, some European governments and aerospace companies began collaboration with China on space technology. On 30 October 2003, the EU invited Beijing to jointly develop Galileo, Europe’s global navigation satellite system meant to rival the US Global Positioning System. According to the EU-China agreement, the cooperation is limited to civilian applications.

Source: www.debatingeurope.eu

Source: www.debatingeurope.eu

This form of cooperation facilitates European companies’ entry into the Chinese aerospace market while allowing Beijing to acquire European technology and know-how to be used concurrently to develop China’s own satellite system, the Beidou. Since December 2011, the Chinese system is operational in the Asia-Pacific region and Beijing plans to establish it as a global system with 35 satellites by 2020, challenging not only the US GPS, but also Galileo.

Due to a number of issues, the EU decided to officially put a halt to its satellite navigation cooperation with Beijing in July 2008. Their collaboration resumed, however, in 2012 – expanding to cover issues such as earth observation and space exploration.

The US has been reluctant to cooperate with Beijing because of technology transfer concerns and regulations as well as political pressure from those who want to take a tougher line. Under the Clinton administration, the US attempted to cooperate with China on space transportation. The administration of George W. Bush curtailed cooperation in space activities that Clinton had initiated. The 2001 report by the Rumsfeld Commission warned of a potential “space Pearl Harbor” if adversaries attacked US satellites. In January 2007, the People’s Liberation Army (PLA) destroyed an old Chinese weather satellite using an anti-satellite weapon prompting General Michael Moseley, US Air Force (USAF) Chief of Staff, to declare the test a “strategically dislocating” event – as significant as the Russian launch of Sputnik in 1957.

China views US dependence on space as an asymmetric vulnerability that could be exploited and, like the US, it has made considerable investments in developing counter-space capabilities. The US wants to prevent the transfer of any technology with military applications that might assist China in countering US space assets. In 2011, the US Congress passed an exclusionary law prohibiting NASA from using its funds to host Chinese visitors and from working bilaterally with Chinese nationals affiliated with a government entity or enterprise.

The EU and the US do not have the same responsibilities in Asia and tend to look at China and the use of space differently. The US is the main guarantor of Asia’s security and increasingly views China as a space competitor. Washington believes that space technology should not be disseminated, as it provides the US and its allies with an asymmetric military advantage.

The EU is mainly a civilian power with a negligible security presence in Asia, but significant economic interests. The EU views space-related activities and technology as a medium for international cooperation. For Brussels, space cooperation with Beijing – limited to civilian applications – is meant to build trust with China.

Europe’s aerospace sector, increasingly dependent on exports, finds a promising market in China. It would be in the long-term interest of aerospace companies to devote the necessary attention to the dynamics outlined above, including an assessment of the impact that transatlantic difference over China in space could have on future business.

A longer version of this article is published as a Wilson Brief with the title: China in Space: How Europe and the United States Can Align Their Views and Boost Cooperation.

28th
Nov 2014

Western competition for Asian markets is heating up

President Obama used his recent trip to Asia to push through the Trans-Pacific Partnership (TPP), a massive trade agreement that includes twelve nations total, but excludes China. The TPP is the economic centerpiece of the U.S. rebalance to Asia, and China is responding to it by promoting the Regional Comprehensive Economic Partnership (RCEP), a mega-regional trade agreement that includes ASEAN, Japan, South Korea, India, Australia and New Zealand, but excludes the United States. Beijing is also pressing forward a free-trade agreement for the whole Asia-Pacific—the FTAAP—as a way to dilute the TPP and ensure that Beijing continues to get preferential access to some of its most important trading partners.

Yet, China is not the only one trying to create an alternative to the TPP. The European Union (EU) is pushing forward its own economic rebalance toward Asia—a move that challenges U.S. initiatives and provides Asian countries, including China, with more leverage over trade negotiations with the United States.

Source: www.debatingeurope.eu

Source: www.debatingeurope.eu

Europe’s economic presence in Asia is felt particularly in the areas of trade and monetary policy. For instance, Brussels is Beijing’s most important commercial partner—the two trade more than one billion euros a day. The EU is ASEAN’s third-largest trading partner, after China and Japan, but ahead of the United States. Overall, Asian markets are the destination for almost one third of EU exports and offer rapidly expanding market opportunities for European firms, which are also among the biggest contributors of FDIs in the region. In the case of ASEAN, Europe is by far the largest investor. EU companies have invested an average of 13.6 billion euros annually in the region in the last decade.

Following the surge of trade relations, Asia has become the largest buyer of euro-denominated assets. The share of euros in the foreign exchange portfolio of Asia’s major central banks’ accounts is, on average, for around 25-27 percent of the holdings of Asia’s major economies, reaching 30 percent and above in China (the world’s largest holder). This makes the euro the second-most-important reserve currency in Asia—after the dollar, but ahead of the yen.

Europe’s economic rebalance toward Asia is rooted—as in the case of the United States—in the realization that Asia has become central to global prosperity and to the Western powers’ own growth prospects. Since 2011, the EU has signed free-trade agreements with South Korea and Singapore; it is negotiating one with Japan, Vietnam, Malaysia and Thailand; and has opened discussion on a trade and investment agreement with the whole of ASEAN.

China and the EU are currently negotiating a bilateral investment treaty that, if successful, could pave the way for a bilateral free-trade agreement. At the last summit of the Asia-Europe Meeting (ASEM)—an inter-regional dialogue forum between European and Asian leaders—held in Milan in October, Matteo Renzi, Italy’s prime minister, expressed support for the opening of negotiations on an FTA with China. While some European leaders such as David Cameron, the British prime minister, have already declared their support for an EU-China FTA, the position of Italy—currently holding the presidency of the EU Council—is somehow surprising, given that the country’s small and medium enterprises have been particularly hit by Chinese competition in the last decade. Yet, sluggish growth in many Eurozone countries and growing Chinese investments in Europe are playing in favor of an early adoption of an EU-China deal.

The EU does not have troops or binding military alliances in Asia, making it easier for Brussels to engage the region without the security and strategic considerations that beleaguer the United States. While politically the EU’s presence in Asia is broadly complementary to that of the United States, economically the transatlantic allies are competitors. As Western competition for Asian markets is heating up, companies should devote the right amount of time and resources to understand the implications of these dynamics for their business.

A longer version of this article was originally published in The National Interest.