234553711_EU-China-Weekly-Review
picture alliance / Xinhua News Agency | Wang Jianwei
MERICS Briefs
EU-China Weekly Review
7 min read

Steel and aluminum + Huawei ban in Sweden + Transparency concerns in Hungary

On May 17, the EU and the United States released a joint statement on addressing the global overcapacity of steel and aluminum production. In the statement they singled out China as an example of a country responsible for an overproduction of subsidized goods vowing to hold it accountable. 

What you need to know 

  • The statement followed last week’s virtual summit during which the EU and the United States agreed to map out a path to unblocking the gridlock in the World Trade Organization created by Donald Trump’s administration. The two sides also agreed to work towards dropping bilateral tariffs on steel and aluminum and the EU introduced an immediate temporary suspension on the increase of its rebalancing measures on the issue.  
  • In the statement, the two sides referred to themselves as “allies and partners, sharing similar national security interests as democratic, market economies” and vowed to “hold countries like China that support trade-distorting policies to account.” The EU and the US plan to develop solutions by the end of the year to tackle the issues linked to the WTO’s operation and the overcapacity problem. The EU and other OECD countries have long tried to address the issue, but so far, a global platform has failed to materialize. 
  • Last month the EU deployed its own autonomous measures on selected aluminum imports from China imposing anti-dumping duties ranging between 21 and 32 percent. Such imports amounted to EUR 800 million in 2019. The decision was a result of an investigation launched by the European Commission in October 2020.  

Quick take 

The cooperation on addressing global overcapacity of steel and aluminum offers a glimpse into future transatlantic cooperation on China. While the wording “democratic alliance” appears in the joint statement, the statement focuses on specific, economic and legal issues where the EU has already developed its own position. The EU has reservations to fully subscribe to a US-led alliance of democracies, but it may be much more inclined to participate in an alliance of market economies. 

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Ericsson’s participation in Chinese 5G linked to Sweden’s ban on Huawei

Ahead of a major 5G equipment procurement bid in China joined by Ericsson, China tried to push Sweden to lift its ban on Huawei last week. A series of Global Times articles quoted an “influential source”, likely acting as proxy for Beijing’s position, who linked Ericsson’s involvement in the Chinese 5G market with Sweden’s willingness to lift its Huawei restrictions.  

What you need to know 

  • Huawei’s 5G equipment in Sweden remains banned since telecom regulator PTS prohibited it in October 2020. The Chinese company unsuccessfully tried to overturn the decision in the Swedish courts. Following the final ruling in January 2021 the delayed 5G auctions began with Huawei ban already in place. 
  • Ericsson, which draws around 8 percent of its sales in China, was recently invited to participate in equipment tests run by four key Chinese mobile operators: China Telecom, China Unicom, China Mobile, and China Broadcasting Network Corporation. The tests precede a bid for contracts on providing RAN equipment which will reportedly account for over 75 percent of 5G spending in China.  
  • The unnamed, “influential source” quoted by the Global Times suggested that the results of this assessment will be linked to the potential reconsideration of the Swedish Huawei ban. Beijing communicated a similar message to Stockholm in the past, which prompted Ericsson CEO Börje Ekholm to lobby the Swedish government on Huawei’s behalf. Recently, on May 11, Chinese Ambassador to Sweden Gui Congyou criticized the Swedish ban on Huawei as a political decision.  

Quick take

With an uptake of political tensions and China’s growing willingness to exercise retaliatory coercive diplomacy, European companies face increased uncertainty about their operations in the Chinese market. In addition, the EU is developing politically sensitive regulations, such as the due diligence mechanism or the anti-coercion instrument, are in the coming months which mean that European companies are less able to steer clear of political controversies. 

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Construction of Fudan University in Hungary raises transparency concerns

On May 14, the Hungarian investigative journalism agency Direkt36 reported on new details on the Hungarian government’s plans to establish the campus of the Fudan University in Budapest. The Fudan Hungary University (FHU) is expected to open in 2024 becoming the first Chinese university campus within the EU. 

What you need to know 

  • The decision to establish the FHU appears to have been taken in July 2019 during Chinese Foreign Minister Wang Yi’s visit to Budapest. Wang reportedly asked to treat this as a “priority project” on par with the Belgrade-Budapest railway. The Hungarian government is planning to pay over EUR 1 billion for the construction, and maintenance of the FHU over the coming years. The project will be supported by a EUR 1.25 billion Chinese loan and constructed by Chinese contractors. Neither the Hungarian nor the Chinese state will be allowed to acquire majority in the trust that will run FHU. 
  • The FHU is to occupy half of the space previously assigned for development of the Budapest Student City – a community project that was expected to house 18,000 individuals. On May 18, the mayor of Budapest Gergely Karácsony announced that he will “seize all possible legal and political means to ensure that the Student City is built and Fudan is not”. 

Quick take 

While there is an undeniable value in the establishment of a world class university’s campus in Budapest, the limited transparency surrounding FHU raises red flags. With FHU’s trust remaining outside of direct governmental control, related construction and operation contracts will be assigned without public procurement bids. This opens up opportunity for potential financial misconduct, which has allegedly already plagued the Hungarian section of Belgrade-Budapest railway. The railway was investigated by the European Commission for public procurement law violations and has been a subject of controversy given the ties of the Hungarian contractors to Prime Minister Viktor Orbán.  

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Short takes

European parliaments debate human rights violations in Xinjiang 

On May 17, the German Bundestag conducted a hearing on human rights abuses against Uighurs in Xinjiang. Following the hearing, the Chinese Embassy in Berlin released a critical statement naming the debates on Xinjiang “political manipulation” and alluding to “the dark history of World War II.” Soon after, on May 18 and 19, the Belgian parliament debated the motion of classifying China’s human rights abuses in Xinjiang a genocide. So far, no conclusive statements have been released on the outcome of the debate. 

MEPs expected to formally freeze CAI discussions 

The European Parliament is expected to vote on Thursday, May 20, on a motion to officially suspend political discussions about the ratification of the Comprehensive Agreement on Investment. The motion reportedly demands for Chinese countersanctions from March to be lifted before the discussion on CAI can be reopened. In the meantime, translation and legal scrubbing of CAI continues. 

Italy’s Draghi talks with China’s Li 

On May 17, Italian Prime Minister Mario Draghi held a phone call with Premier Li Keqiang. The Italian readout focused on discussions on climate cooperation within multilateral fora. The Chinese readout mentioned the next year’s China-Italy Cultural Tourism Year and Draghi’s support for the progress on the Comprehensive Agreement on Investment “through dialogue”. 

France joins military exercises in Indo-Pacific 

Between May 9 and 16, French helicopter carrier Tonnerre and frigate Surcouf participated in a joint military exercise in the south of Japan together with American, Australian and Japanese allies. The official objective was to strengthen the capacity for cooperation to support “a free and open Indo-Pacific zone”- a move seen as linked to China’s growing influence in the area. 

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