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Toggle navigation Additional Book Information. Description Table of Contents Editor s Bio. In a nutshell, northern Europeans want policies focused on their own access to the China market. Eastern Europeans look to Chinese investment in order to supplement falling EU subsidies in the near future. Southern Europeans have already received significant Chinese investment, and, like eastern Europeans, they increase their economic options by welcoming new entrants.

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These peripheries are not united and so any coalitions between them risk becoming excessively complex. Some can be tempted to bargain away issues that are secondary for them. That is the real lesson from recent Hungarian or Greek stands on human rights and South China Sea issues — it is also clear that on these issues, they could ignore friendly pressure from some core European member states. Chinese offers do strengthen the bargaining hand of the smallest or weakest inside Europe. More solidarity and shared economic interest is a necessary response. The forthcoming departure of the UK removes an obstacle to unity on pure trade issues.

It is enlarged to Italy as two recent letters and a non-paper on investment screening to the EU Council have done. Some will, because of the beliefs of their leaders, others will on the contrary trade away some of these issues. On trade and investment, a real break among Europeans in negotiations with China would strike at the heart of the EU. The separate Norwegian free trade agreement with China could be an early warning signal in this respect. For years, China and the EU have failed to find an agreement on either a partnership or an investment agreement. A partnership and cooperation agreement PCA in EU parlance would require more common ground on values.

Over the past five years, China has not taken a great interest in an investment agreement that would require changes to its economy. It has rather sought a guarantee against anti-dumping by proposing a free trade agreement. It has also used every bilateral opening with member states and beyond — as free trade treaties with Iceland, Switzerland, and ongoing negotiations with Norway and Israel can testify. This flurry of activity coincided with the period of greatest difficulty for the EU, following the public debt crisis. But will this suffice to arrive at a more balanced relationship?

At present, China views market entry for goods and easy investment opportunities in Europe as a given. The guarantees and reciprocity sought by Europeans from an investment treaty, and the granting to China of a free trade treaty, would clearly require a Chinese opening and concessions creating level playing field conditions that China has never granted. Although new anti-dumping criteria and investment restrictions are annoying to China, avoiding these may not be enough by itself for Chinese leaders to bring about a change of paradigm for their economy.

As the conclusion of this report shall show, a shift of attitude must come from China. While official statements seem to reflect a balanced relationship, the reality is that this relationship has advanced in areas of direct interest to China, including some which are not shared with Europe. Europe must stem this trend even before it moves forward its own goals. Reciprocity remains a demand which Europe makes of China. Leveraging the interests that Europeans share with other partners of China, including a primary interest in seeing international law prevail, is an essential tool.

So is engagement with China, and avoidance of linkage between the various issues in play. China has changed course several times in the past 70 years. One should not give up hope that it will do so again. One sign that it is China that drives the European Union-China relationship is the narrowing of the space for government-to-government debate. Thirty years ago there was space for discussion between Europe and China on Asian issues, global values and European presence in China.

Whatever the pledges made, the actual focus of EU-China relations, and even more that with member states, has shrunk to bilateral issues, economic or normative. The EU is now experiencing difficulties in implementing a broader agenda. Debate on global issues is largely confined to those where both China and the EU are unavoidable actors, if very dissimilar ones. But when did China ever cancel a state visit to the United States, as it did with the EU in over a disagreement about the Dalai Lama?

The US-China high level strategic and economic dialogue has never missed a beat. Still, the density of government and related exchanges between China and the EU, and through mutual visits at the member state level, is almost overpowering. The United Kingdom alone had 14 direct ministerial encounters between January and May Germany had nine, in addition to a near-on full government-to-government yearly exchange.

The resources and time devoted by China to the maintenance of these contacts is staggering. It contrasts with the scheduling difficulties cited at one time or another for some encounters at the EU level foreign policy and security dialogue, high level economic dialogue, human rights dialogue. In the three years that have followed up to the end of , many of these have led to meetings and statements.

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But there have been few formal agreements, and even fewer really new agreements. Some initiatives have seen no implementation at all. The above list cannot possibly account for numerous meetings relating to most of the 94 items on the agenda. But among the agreements mentioned, only two are new: Some omissions from the list of dialogues stand out: Iran and North Korea are addressed in the high-level strategic dialogue, but there have been no issue-specific meetings, projects, or agreements on the strengthening of the non-proliferation regime and related export controls, nor on nuclear security in general.

The exception is a consultation on activities in space that probably contained a discussion on non-nuclearisation. This is likely a consequence of the EU prioritising a speedy conclusion of an investment agreement. Negotiations over what is now called a Comprehensive Agreement on Investment had seemed destined for progress in January , but these political intentions have not been confirmed since. Public procurement, an area where the EU has expressed itself strongly, has had very few related meetings and no statement of intent other than renewed EU requests.

There has been no cooperative activity in the following areas: Climate change, the object of several declarations at previous EU-China summits and in the context of the Paris December Conference, has seen few developments apart from funding for a new emissions trading system. China conducted extensive pre-summit dialogue with the EU but sacrificed the result during the June summit because of the ongoing dispute over market economy status for China.

In sum, the only new as opposed to renewed agreements signed concern crime with Europol, and short-term visa-waivers for diplomats. Literally all other developments have resulted from agreements signed before On other issues, it is hard to pick out clear results from the mass of ongoing dialogues. On human rights a key initiative of Agenda , a yearly round of talks takes place more and more towards the end of each year: If member states had been serious in this logic of delegation, a statement from the European Council on Liu Xiaobo would have been released.

This is a specific area where complete delegation to the EU cannot replace collective expression by member states. As seen in the decision of the new American administration to refuse to sign the joint letter of February , the burden will fall heavier on the shoulders of those Europeans that choose to position themselves as a global human rights defenders.

Many of the bilateral consultations concern just that — issues of bilateral interest to China and the EU. China signing up to the December Climate Conference was a milestone, even with commitments that were scheduled for only after and without verification besides periodic reports on implementation by all signatories. China had earlier impeded progress in this area. The EU-China Summit of June , a prelude to the G20 Hamburg summit, was thought by Europeans an ideal occasion for China to demonstrate its contribution to fighting climate change.

In other words, this was to be at no cost to China. But the meeting of minds was not confirmed. China punished the EU for withholding market economy status by denying the fruits of tortuous weeks of joint negotiation on climate. South-east Asia is also a partner for Europe, on a non-traditional security agenda meant to foster regional trust. But piracy has now abated in the area. But one needs to remain cautious on the scope of further bilateral engagement. Other choices made by China can, at times, prompt genuine worry in Europe: Further opportunities could emerge for EU-China cooperation in the few cases where a Chinese special envoy or local embassy engage in mediation, and when China balances its principle of non-interference with rare humanitarian concerns.

China says its aid is without strings attached, as opposed to the conditionality of contemporary Western and Japanese aid, though it is, in fact, tied to contracts with Chinese firms. But at least here is an area where China may shoulder increased responsibilities — an important step towards furthering the multilateral system which Xi Jinping claims to defend. On sustainable development, there is no reason why European development agencies and NGOs could not cooperate with Chinese entities, instead of working separately. On Syria, the lines were drawn early.

Any convergence between Europe and China was precluded by hostility to regime change, concern about Uighur fighters on the ground, close Chinese relations with Iran, including the Revolutionary Guard active in Syria. The EU has not been able to obtain anything from China but a token financial contribution to refugee operations in the region. Instead, China vetoed — with Russia — a resolution sanctioning the Syrian regime after its use of chemical weapons in February Meanwhile, Donald Trump had backtracked on his earlier stands regarding Taiwan.

Nuclear and ballistic proliferation is a key issue of global interest for the EU on which China is influential. In the case of both North Korea and Iran, China has actually benefited from the international sanction regimes. The E3 France, Germany, and the UK have repeatedly reached out to China in order to obtain common positions on sanctions, and is usually credited with some success in this area.

The two countries have often been able to rely on each other for implicit support. Within the provisions of the Joint Comprehensive Plan of Action JCPOA of July with Iran, ballistic missiles remain a contentious issue, and some parallels remain with North Korea — including the level of threats involving use of its missile forces emitted by both countries. In the latest stand-off with North Korea, after the launch of a ballistic missile over Japan and a nuclear test for what is widely believed to be an H-bomb, China took a position that remains ambiguous — voting and in fact announcing that it will implement the July round of sanctions, but proclaiming at the same time that these will not resolve the nuclear issue.

This is not a side issue: Europe is directly concerned by Iranian and North Korean ballistic capability. This is the case for the South China Sea, a well-documented case. Beyond this, a striking feature, seen from Europe, is the growing coordination between China and Russia on joint naval exercises and increased military cooperation. Both have been present in the wider international operation to remove chemical weapons from Syria in And in July , they conducted the same exercises in the Baltic.

But this took place in a wider context of visiting some member states: There, they conducted live fire exercises, a joint exercise with the Italian navy in the Tyrrhenian Sea, and they visited the port of Piraeus, while other ships visited a Romanian port in the Black Sea. They went on through the Atlantic to join the Russian navy in the Baltic, later making port calls in Finland and Latvia. The move is interesting as it seems to show that global power projection and reciprocal support with Russia are mixed with regional diplomacy.

Only six months earlier, China had moved to normalise its relations with Norway. China achieved active cooperation with the Nordic Council in , and it has also gained observer status in the Arctic Council. In the area of domestic security, there is also a nascent issue in EU-China relations. The ministry of public security MPS has been able to cooperate with Europol since Extradition agreements have been signed with Bulgaria, France, Greece, Italy and Spain, reflecting concern about transnational illegal activities.

Chinese police have been briefly allowed on the streets of Rome to reassure Chinese tourists against petty crime. But China has also launched a worldwide campaign to apprehend suspects of corruption. One remarkable case has come to light in the United States with the refugee billionaire Guo Wengui. They are also likely to be imitated: Vietnamese security agents forcibly repatriated a Vietnamese national from Berlin in July European cooperation with China over extraditions should be watched in this context, with clear red lines drawn — and implemented.

The risks that an American pullback from globalisation creates should provide a common incentive for the EU and China. Paradoxically, it is Europe that has evinced most anxiety since the election of an American president who has strong arm-twisting and isolationist impulses. China may have regarded this as an opportunity as much as a risk, and it has a much lower threshold for what it requires from the international order. It may in fact agree occasionally with Donald Trump in identifying clear interests as the most secure basis for international relations.

In the area of security, there is no question that a less credible American security guarantee to allies will result in more defence cooperation among these same allies — a development which the US in fact professes to favour but which also places checks on its own international authority. In the Asia-Pacific, that means cooperation among Asian partners and by them with Europe, seeking to balance China inside the region. Japan has signed defence procurement agreements with France, Germany, Italy, and the UK, and one is in preparation with Sweden.

Strong partnerships with Asia-Pacific nations are also essential to persuading Beijing that Europeans are not dependent on exchanges with a rising mercantilist China. These partnerships include modern and inclusive free trade agreements FTAs such has already been implemented with South Korea. An FTA with Japan is likely to be adopted before the end of , and another one with Singapore should be confirmed by May That said, the benign neglect between India and the EU should end.

Although India has its share of the responsibility in its inward-looking nature and absence of international strategy, Europeans are also to blame: That India largely ignores the EU is not a delusion — it is because the member states have so little coherence in this respect.

Europe and India should set an example through maritime cooperation — in non-traditional security such as natural disasters and rescue operation, in the protection of fishing rights in exclusive economic zones, including for impoverished nations — throughout the Indian Ocean. This would set an example for the practical and legal resolution of issues in the South China Sea issues would be clear. In fact, the projects proposed under the BRI umbrella in Europe are far less important than the huge infrastructure investments announced for countries as diverse as Laos, Malaysia, Myanmar, Sri Lanka, Djibouti, and of course Pakistan.

It is their public salesmanship that is unified under BRI. By contrast, the main tool of geopolitical influence that Europe possesses in the Asia-Pacific belongs to member states, and it is largely indirect: To its credit, since the EU has run its own Silk Road project with eastern neighbours and central Asian states. It is almost non-existent elsewhere, and neither the EEAS or other sectors of the EU can make up for the predominantly national and deal directed approach of most member states.

Europeans largely deny — or spare? This is particularly true in the Asia-Pacific. China is the second military power there, and is aiming for future regional parity with the US. Even though some Europeans — mainly France and the UK, be it inside or outside the EU — have a small or intermittent military presence in the region, hard power eludes Europe. It is all well and good for Europeans to sign up with their chief ally, but what exactly are they signing up for if it becomes unpredictable and reactive?

As evidenced by Agenda , Europe has had immense and diverse hopes of cooperation with China. China has signed up in principle to these goals. In reality, China has focused on much narrower goals in dealing with the EU. Within Europe, China too has often been talking past the EU. And by doing so, it may have ignored some realities on the ground. Where China invests, it has indeed largely won over investees, but it has not won over the public and may be losing its hold over governments. It has come up against the fact that the EU institutions and market are strong providers of public goods, structural subsidies, and low interest lending.

What worked for China in free-for-all developing economies — often at a great capital or political risk to itself — does not work in the EU, or even in nearby countries. And so in the past few years both sides have failed to move the relationship to a more positive level. At present, they risk bitter conflicts on the core areas of market access and investment. China may refuse to recognise the existing asymmetry and seek to punish Europe for treating China as the non-market economy that it is.

It will resent the screening of investment by Europe when China uses its new riches to acquire proprietary technologies in sensitive areas and in infrastructure that forms part of the global transport and logistics chain. China may seek to isolate Europe in its own Galapagos, an archipelago of norms and welfare rules that the rest of the world ignores for the sake of pragmatism.

Coupled with deeper integration, continued improvement in the European economy — where 2 percent of high quality growth easily matches 6 percent of lower quality and credit-dependent Chinese growth — is recreating a resilience that was not so apparent a few years ago. Most of its diplomatic efforts are designed to keep controversy out of the relationship, and critics conveniently out of the room.

This was always the case for sensitive issues such as Taiwan, Tibet and human rights. It now extends to other areas in the relationship: For their part, the Chinese will pursue practical policy goals which pertain to their own core interests, and set aside dialogues which were only agreed in principle.

China will silently register its positions and quickly move on to the next items rather than seek to answer questions or criticism. The issue for Europeans now is not a choice between engagement and conflict. It is finding the areas where they can leverage their priorities and interests, and dismissing the areas where extensive dialogue is fruitless. This does not exclude repeated attempts at detecting whether Chinese positions change. But it is difficult to justify time-consuming attempts at creating shared goals in many areas if these efforts yield little or no result.

But China itself increasingly circumscribes this form of engagement with a new NGO law. This is at the same time that Chinese public diplomacy, through its media and cultural arms, is much more pervasive inside Europe. China remains open to the transfer of knowhow and experiences in a broad governance perspective: China in fact knows how to build cities just as well as Europe does, and it does so on a grand scale in Africa, and with transport infrastructure projects now across south-east Asia. They are just of a type that often does not take into account best labour and environmental norms and practices.

And where they are profitable, as is the case with thermal energy plants and solar energy, then China could become a world leader by itself. Recognising reality is vital. Europeans have tended to focus on the influence of Russia rather than that of China. It has extraordinarily repetitive messages, quite openly based on interest rather than on the appeal of an ideology.

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Instead, it is solely focused on stressing the mutual benefits of harmonious cooperation. To rekindle a meaningful relationship of global importance, Europe and China must consider two very different kinds of approach. Europe also needs to retain the capacity to negotiate workable compromises among its members and associates. China, meanwhile, generally believes what it sees rather than what it hears.

Yet if they do not achieve this by themselves, win-win mottos may soon be replaced by zero-sum games. Within the last year, investment issues with China have become more prominent than those connected with trade. Overall figures are both abundant yet hard to verify. The EU has no unified instrument for recording foreign investment and acquisitions, and it has effectively outsourced the monitoring of Chinese foreign direct investment FDI. Still, overall estimates matter.

Of course, none of the above figures record other types of inflows, such as holdings in public bonds, shares under declaratory levels, physical real estate acquisition and, of course, lending. EU dominant position competition rules [37] provide a form of investment screening — but there are almost no other checks. One might add that many in the member states, starting from most Treasury types within finance ministries, have no wish to delegate upwards this authority.

An EU-wide debate on investment screening has started in the EU. But China is in fact the main object of this debate, which has many different sides to it. The first is the fundamental asymmetry between China and the EU in its policies or lack thereof when it comes to investment. China forbids foreign investment in 11 sectors, and severely restricts it in other areas as well, thanks to its status as a developing economy.

There are all sorts of problems for Western investors, including the near-impossibility of securing arbitration for all practical purposes, the difficulties in moving capital back from China, and challenges to intellectual property rights. Few foreign companies have ever bothered to register a case with the China International Economic and Trade Arbitration Commission. And China has now decided to create its own arbitration rules, separate from the accepted United Nations jurisprudence.

China is now increasingly requiring foreign companies to transfer technology, cede source codes for IT, and generally place servers and storage inside China.


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While infrastructure projects such as ports or railways are largely achieved through loans which come with promises of future investment attached, acquisitions often target high-tech sectors and niches where China has an explicit goal of achieving world-class levels. They also do not exclude defence and security-related sectors, with the line between civilian and military high tech being hard to define. Unlike the big ticket items for which a few Chinese companies — HNA, Anbang, Fosun — have been publicly known, these purchases are often smaller in value, and are made by much more diversified Chinese or quasi-Chinese firms: Opacity of the buyers is in itself an issue.

Some of these trends have been replicated inside the EU. More often than not, these contain both state and military-related actors. Chinese negotiators have identified industries where they would struggle to take over the principal firms but where there are possibilities to be had among ailing European companies, family-owned businesses, and critical suppliers large and small. In this way, Chinese companies have slowly increased their control within supply chains. Another regular occurrence now is when a local company, once taken over, becomes a vehicle for acquiring competitors for high tech or simply volume acquisition for infrastructure and transport.

Two examples provide a flavour. In February , the French government allowed a Chinese company, Yantai Taihai, owned by the municipality of Yantai Shandong , to acquire Manoir Industrie, a family-held medium-sized enterprise that specialises in steel tubing and needles for the civilian nuclear industry, including nuclear waste retreatment, petrochemicals, and high-speed rail.

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Under Chinese management, the company has developed business in China but also bought other industry-critical companies — in France, Europe, and also in India. It is now close to having a monopoly on the supply of critical parts in nuclear waste treatment plants — a sector where China, as it has a right to under the Non-Proliferation Treaty, has been negotiating the acquisition of the overall process with France for years. Does all this matter? Yes, if one considers the leverage it affords China on Airbus and Boeing as a very large buyer.

A third example is ongoing: Within months, Taxify is now setting up operations in 35 countries, with price-cutting practices. This competition would seem as only beneficial to customers: In the cases above, a common thread is the use of proxies at some stage in the acquisition process. Those two examples differ from each other in that one is in critical technologies and the other in volume industries.

But a third example spans both types. In , Shandong Heavy Industry Group, a state-owned enterprise SOE , bought 75 percent of Ferreti, an Italian luxury yacht manufacturer experiencing financial difficulties. Since then, Ferreti, which already built military fastboats, has expanded to create a naval military division.

And in a seemingly unrelated development, in February the China State Shipbuilding Corporation concluded an agreement with Fincantieri, the Italian shipyard, to produce large cruise ships in Shanghai, which included production technology transfer measures. This is perhaps the only component of the civilian ship industry that China had not broken into. The same month, in a third and still apparently unrelated development, in Abu Dhabi, Fincantieri and Ferretti — now a Chinese firm — signed another cooperation agreement that includes military ships.

The square has been circled: Fincantieri has agreed to transfer know-how against a further share of the cruise market while Chinese-owned Ferreti teams up with Fincantieri on military units. This is called, in Chinese parlance, a win-win: There is a postscript to this story, since the French government has temporarily blocked Fincantieri from taking control of STX.

In a very Chinese way, Fincantieri was seeking only 48 percent of shares, but it was joined by Fundazione Trieste which sought a further 7 percent. Beyond the pattern, there is a strategy at work that spans civilian and military sectors, focusing on technology acquisition, future norms, and market share on the one hand and military spin-offs on the other. In fact, as IT hardware, software, and communications dominate the military sector more and more, the issue of dual use is growing beyond all previous notions.

The party-state clearly sets priorities and oversees processes. Military goals are built into all plans, and in a national commission for integrated civilian-military development was created — and is headed by Xi Jinping himself. Among many new Chinese investment funds leveraging capital markets, entering into joint ventures with foreign firms, and investing abroad — 30 defence-related investment vehicles have been identified, and that is probably not the sum of it. More generally, aviation and shipbuilding industries have tapped the markets through IPOs, bond issuance, bank loans and investment vehicles, many of them placed in shell companies.

Some features of the above-mentioned plans and institutions closely resemble US civilian-military schemes put in place since the s — and for a reason, since there is a lot of institutional borrowing from the American model. Meanwhile, some Chinese plans, such as Manufacturing , clearly go beyond military goals, and are a plan for self-sufficiency and global dominance in the industries of the future such as new energy vehicles, high-tech ship components, new and renewable energy equipment, robots, mobile phone chips, and wide-body aircraft.

Other leading-edge industrial societies such as the United States and Japan have also taken notice. A recent study identifies 29 investments from China into US artificial intelligence companies since , and the Committee on Foreign Investment in the United States is considering special measures for investments into AI firms and start-ups generally. In research on Chinese acquisitions in the EU from to , ECFR has identified cases out of that are directly related to Manufacturing targets, showing also that the policy was not a complete novelty.

Of these, 63 relate to the period, among which 42 for and the first half of One knowledgeable observer in France muses that Chinese buyers are very apt at identifying interesting companies, and although they use local nationals or Chinese residents as intermediaries, they do not depend on these. The same observer studying the new pattern estimates that, while there is no proof positive of a pre-established grand plan, it very much looks like there is one.

Country profiles in this Power Audit back this up. The proposal was withdrawn in June of the same year. Another development concerns acquisition of land close to military bases or critical industry sites. In the Baltic states, this mostly concerns purchases relating to Russia.

But in the Netherlands — where out of registered Chinese companies, are empty shells — there appears to be a pattern of land purchases close to innovative start-up companies. One was a deal with Pipistrel, the maker of ultra-light planes, hybrid motors, and gliders, for production in China; the other was the purchase of Elaphe, a company designing electric engine in wheel sets — in other words, key components of the future aircraft, drone, and auto industries.

The aircraft industry indeed figured very often during the course of In Germany, Kuka had to divest itself of its aerospace branch before the company was taken over by Midea Group. In Shanghai Electric bought Broetje Automation, a drilling and riveting equipment manufacturer for the aerospace industry. One investor stands out. But it is Huawei, the communications and mobile phone company, which is present literally in every EU member state. By contrast with other Chinese firms, it mostly creates local subsidiaries, and does not show up much in the table of mergers and acquisitions.

As such it is increasingly attractive to engineering graduates. Huawei has made Hungary its main launchpad in Europe, where it has 2, employees. Huawei is the most active Chinese firm in lobbying, both at member state level but even more so in Brussels. The military origins of its founder, Ren Zhengfei, and its core business, which involves hardware and software access to voice and data traffic, have always posed a security problem.

In the UK, it has had to set up a unit supervised but not managed by the British government to ensure the cybersecurity of its installations against siphoning from China. In London actually turned down a Huawei offer to provide mobile reception on the London Underground for free. It is now part of a consortium for the same project.

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But Huawei is also increasingly leading on network infrastructure — so much so that it is technically irreplaceable in the coming 5G mobile generation. Beyond the direct lobbying, and generous grants to think-tanks in Europe, it is now very active in defining 5G norms compatible with Chinese-made equipment. This is likely to be a battleground on issues of privacy and security: Data centres — which China increasingly requires to be placed inside China for companies operating on the China market — may also become an issue: By no means do Chinese acquisitions focus solely on the industries mentioned above.

Component suppliers to the German auto industry, located in central and eastern European CEE countries or in Germany itself, seem to be of particular interest. The trend deserves mention because in China foreign car companies have been pressured for years into buying from indigenous rather than foreign-owned subcontractors. China also manages to acquire technology from Europe through scientific cooperation and by buying in, or even developing science parks or start-up campuses single-handedly.

It is helped by two factors: The EU itself leads the way, following the tradition in this area of open-ended contributions to China. An EU-funded contractor, Dragon Star, facilitates the agreements and publicises the results. It covers, in fact, the EU, accession countries, Norway, and Switzerland. One Italian company making naval radar antenna technology, including for coastal surveillance, comments: MOST controls all exchanges. In the case of ITER the fusion project located in Europe but international in nature , it broadcasts the help this brings to national goals: Science or high tech parks are in fact more prevalent in China than they are in Europe or even the US, where clusters of institutions spring up according to market or by aggregation.

But there have been two Chinese initiatives. The first has turned into an inconclusive seven-year saga: Nor are most of the acquisitions above among the most publicised. Another category stands out: Even more prominent to the general public has been the spending spree on football teams including not just one but both well-known Milan clubs. But football clubs matter only because the buyers were rushing to please, or so they thought, Xi Jinping, who has said he wants China to rise up the world football ranking. This group of companies has evidently used political connections to launch uncontrolled investment in what are non-strategic sectors.

Here the pattern is unpolitical and looks very much like the Japanese investment craze of the late s. China differs from Japan, however: They too are well-connected. The Chinese government, which has established the most pervasive programme of survey and evaluation of its own citizens from their web use and generally electronic records, will be able to expand this data collection globally. The distinction between state and private enterprises was always tenuous.

The other category of investment that has been in the limelight is, of course, infrastructure. Nonetheless, labour union strongholds are probably what explains some exceptions, such as French ports or Lisbon, for example, for which no bids have been made. But the number of offers is nevertheless astounding.

Some aspects deserve a mention: Where new infrastructure is under consideration, the Chinese operator lends, with risks being therefore borne by the investee rather than by the investor. This should be of particular concern where multiple projects are at play — can all five vastly upgraded Adriatic ports break even when there is already overcapacity in European ports? Even Piraeus, the Chinese success story in this category, is vulnerable to these potential developments.

In these areas, Chinese investment or management takeovers are an issue for a limited number of reasons. Labour is one, in a very conflictual sector, and also because Chinese takeovers generate fewer additional jobs than initially appear to be the case. There could also be a security risk. It remains of course a prerogative of the host country to grant and calibrate such access. In this case, it is the indirect influence gained that may matter: In principle, managing ports does not imply full control. Some governments have been more reluctant than others. Poland is planning a new large-scale central airport CPK , in which Chinese banks are interested.

It must be support, but with our control. We would like to avoid the situation in which projects such as CPK are wholly financed by China. It may be the more mundane issue of a near-monopoly of Chinese companies — again, really one big state actor — on European infrastructure — and not solely security issues which should be taken into consideration.

One cannot help but reflect that these SOEs, using the pretext of BRI and the Silk Road towards the government, are perhaps overstretching their involvement. That is cause for concern at Chinese economic policy. In , Anbang, Fosun and even HNA and their semi-private business tycoons have entered choppy waters in China itself: The figures will become less spectacular, but issues involving critical technologies, security, opacity and reciprocity will remain. Norms, and particularly industry and technology norms, are one area where cooperation between the EU and China is of the utmost interest.

As already mentioned, China is very active in Brussels-based advisory groups for the coming 5G standard. In other areas, and particularly industry standards in the transport sector, it is very intent on exporting along with BRI projects to Eurasia the Chinese norms that go with financing packages. The move may be more important for the future than the present exports themselves. On agriculture, attempts by Chinese firms to lower standards on agricultural products, especially dairy products, have also happened in Germany, the Netherlands and France: In every member state, Chinese officials have raised agriculture as an area of an interest in joint cooperation agreements.

Access to the attractive Chinese market is used as a carrot-stick tool. In March , following the signing by Ireland of a joint European letter criticising human rights in China, China threatened Ireland on the economically sensitive issue of beef exports. The country had to wait until April , and a more accommodating policy towards China, to become the first EU member state where the ban on beef exports was lifted.

Lithuania saw a breakthrough in when China certified Lithuanian dairy companies; the following year, certificates for Lithuanian beef products were issued. Investment from China is both sought after and increasingly a cause for concern. The wake-up call was the Chinese investment raid on Germany. Fears abound about security and increased Chinese influence, and a lack of responsiveness by China at the EU level.

Imports from China are unquestionably rising up the technology ladder, but Chinese firms are far behind their Japanese or Korean competitors, in localising plants within Europe. Another concern is the siphoning of commercially applicable technologies, and this is clearly taking place through select purchasing of firms — often relatively small and in quite a few cases in financial difficulties — in sectors like the auto industry, aeronautics, machine tools, and biopharmacy.

This happens on a scale that is far less than that practised, for example, by Gafa and Silicon Valley firms flush with cash. The difference with American predatory practice is twofold: But, on the other hand, technological transfer through acquisitions is a two-way street between Europe and the US, mostly limited by the availability of finance. With China, the technology flows only one way. For China, reaching world-class levels in many areas by , is an absolute priority. This is shown by: Of even more direct concern is the question of dual use technology, and of military sectors within the companies considered for purchase.

What point is there in having an arms embargo and EU guidelines for arms exports if these issues are left to one side? This is compounded by the fact that most future technologies and leapfrogging developments have obvious military applications. The Kuka debate and the Aixtron case in Germany have created a growing European awareness on the need to screen extra-EU.

The main impetus, however, has come from the US and Japan: These have included the UK, France, and, most recently, Germany.


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  • In both the US and Japan, the debate over China and national security has grown very loud: In the US case, the issues of intellectual property rights and technology theft, and for both countries the overarching theme of economic security and technological lead, are interspersed with that of national security. Should Europe follow suit? And, if so, how? A first step Europe must take is actually not to recuse itself from the issue, particularly if the US and Japan are reinforcing their own legislation and, above all, implementing it more frequently.

    If Europe failed to do so, it would become the shop of last resort for China and others seeking advanced technologies. Indeed, the US is considering a more extensive use of Sections and , and is considering a reform of CFIUS, which is already increasingly active. It reviewed cases in , and around in In the first half of it already turned down nine investments. Japan is also gearing up for closer surveillance of technology transfers.

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    It has also introduced control of foreign students, participation in international conferences, university cooperation projects and visiting fellows. In particular, it monitors the background of foreign students and their onward career after graduation, with an obligation for universities to comply. Australia, shaken by influence-peddling scandals involving Chinese agents and the political class, is also beginning to respond to these sensitive issues, and on some investment cases in particular: The plan, if agreed, would be broad-based and encompass all investments that have an implication for public order or security.

    It creates a right for the European Commission to supervise investments in sectors where it subsidised technologies. It also lists critical technology sectors that are key to the industries of the future and which more often than not have direct military applications. Indeed, given the difficulty in predicting what the sensitive areas of the future will be, it is important for the EU to allow itself the freedom to act, within established rules, complete autonomy, and perhaps even a degree of unpredictability.

    And there is an obligation for member states to inform the European Commission of their own screening, along with the possibility for the European Commission to request information. The area under screening is quite extensive, and includes critical technology. The proposal is non-discriminatory — it does not target China in any way, a requirement which is consistent with European policies on trade.

    Yet Europe is not well prepared to define investment screening, not to mention implementing it, given the lack of human resources at the EU level, the dependence on external intelligence sources, and the sheer difficulty of identifying key technologies that relate to national security. The proposal does not enter the area of national security, which remains a member state prerogative.

    It is also not a tool aimed at direct leverage over partner countries: It is mandatory in one key respect: Yet it is not mandatory in terms of what comes after the review: Clearly, this is a compromise between those who wanted to shift authority on investment screening to the European Commission, and those who insist on retaining national control — whether or not they have investment screening mechanisms in place. It is likely that the authors of the proposal are counting on peer pressure, on reciprocity among member states, and on public opinion making its voice heard in some cases.

    One knowledgeable participant explained that meeting regularly on investment and security issues was already in progress: Investment screening will require that the European Commission and member states pool investigative tools and initiate exchanges of information and views with third parties — the US, Japan, Australia, and Canada come to mind, because they are the most advanced in this area.

    But this raises issues of its own. Exchange of information implies reciprocity, and a dialogue backing up the data exchanged. And transferring EU data to others implies an analytical capacity to sift through the raw data communicated by member states and an ability to reach practical conclusions.

    In short, in spite of the non-binding nature of the proposal, the EU institutions themselves needs staff that are empowered to make this happen. In spite of these difficulties, some unity has appeared at the core. In France, Germany, and Italy sent two joint letters and a non-paper to the European Commission urging it to devise a proposal for investment screening. The Netherlands, Spain, and the UK are likely to support this approach. For some of these countries, and for many European Commission officials, this marks a major shift.

    A Brussels official sums up the mood change thus: China — and even more Russia — have convinced me. While some resistance by northern European countries had been expected, the most vocal opponents came from southern Europe — Antonio Costa from Portugal and, predictably enough, Alexis Tsipras from Greece. To expect otherwise would have been foolish, and a broad mandate scares those member states that have already accepted bilateral Chinese investment in their infrastructure and finance sectors, and that applies especially to Portugal after the euro crisis.

    Even among the three signatories of the proposal to the European Commission, there is no complete agreement on process. Italy professes to seek regulations and implementation solely in the hands of the European Commission, apparently because it fears national bias among its powerful neighbours. Its own behaviour towards Chinese investment, including in sectors that include defence interests, sometimes seems to belie its present position at the European level.

    Germany would also federalise the process — leading to some observations that it makes the deals for itself and mutualises the difficulties. And even those few member states that have adequate tools for investigation and legal action may have an interest in a shared process. For the UK, there is a need to demonstrate both to Europe and to the US that it is a reliable partner on strategic matters. Convincing some other member states to back investment control will be harder. Some have already given up any hope of preserving their ground, and see foreign investment as a financial resource.

    A few have interests in the China market that at present dwarf any other consideration. Alongside investment screening, there is also European momentum behind finalising the Investment Agreement that has been in the works since This would replace existing agreements between China and each member state, and that were often concluded decades ago. With some member states, this would actually give better terms to Chinese investors.

    A breakthrough would require that the principle of reciprocity is recognised and on the way to implementation, and, for example, that China would open up its public procurement. China and the EU entered the 15 th round of the investment agreement negotiations in October There is, as yet, little to show for it. Reciprocity — preferably positive and not case by case — between both parties is key to arriving at an agreement.

    Should China take these proposals seriously, it would certainly meet with European good will. What it can no longer expect is that Europe would unilaterally allow for vastly increased and targeted Chinese investment as China simultaneously increases the reach of its centralised defence procurement, industry, and technology acquisition sectors.

    The reform of European trade defence instruments is now under way, after an earlier failure in A permanent and non-discriminatory regime is needed. This first step has now been approved by the European Parliament from a European Commission proposal, and is set to go to the European Council. It is strictly concerned with criteria for anti-dumping. The European Commission, basing its decisions on its own studies, would identify countries and sectors where there are significant price distortions.

    EU companies would then be able to launch a complaint without having to cite their own evidence within these countries and sectors. The burden of the proof is largely placed with the foreign companies incriminated, which can put forward proof that their own pricing is not subject to the distortions identified in the same sector and country that they operate in. After anti-dumping criteria, the modernisation of trade defence instruments is still in the works.

    The new trade defence instruments have to be consistent with WTO rules and will apply to all external partners, ending the special treatment for non-market economies. It is clear that Chinese dumping and public sentiment were the key motivations behind the proposal, but the debate now extends beyond China to basic differences among member states and also to the possible backlash from trade partners of the EU other than China.

    Yet, the thorniest issues between the EU and China concern advanced technologies, among which IT, artificial intelligence, big data, and networks stand out. This is an area where the EU is behind the curve, and has perhaps been guilty of a certain amount of gullibility. Specific mention should be made of a well-funded programme from DG Innovation to put European start-ups in contact with potential Chinese suitors. Its events and fairs, managed by a well-known contractor in Brussels, amount to the closest thing to a free bar in what is the most vital sector of European innovation for the future.

    Certainly, these risks also exist with the snapping-up of successful European start-ups by cash-rich American IT companies. But at least there the process is theoretically open in both directions. Individual interest — the obvious motivator for all start-ups in getting funded — clashes with the obvious consequence that innovation will flow only in one direction — towards China, which is organised top-down to capture innovation and pre-empt new markets. The EU should simply scrap such programmes. In the area of technologies with dual use implications, a trend from direct arms sales to Chinese investment in some areas of the European production chains should be watched closely.