The China Chamber of Commerce to the EU (CCCEU) has urged the European Commission not to turn its white paper on foreign subsidies into law, warning of its possible negative impacts. The European Commission said the white paper, released on June 17, seeks to deal with the distortive effects caused by foreign subsidies in the single market by deploying existing and new tools. A public consultation, which aims to help the Commission prepare appropriate legislative moves has ended. The CCCEU, in its feedback to the consultation before the deadline, expressed concerns over possible legal barriers to Chinese companies operating in the EU.

It called on the Commission to “carefully examine the legality, rationality and necessity of adopting new legislative tools on foreign subsidies” and said the white paper should not be turned into legislation. “The legal framework proposed in the white paper to scrutinize foreign subsidies will directly take a toll on non-EU undertakings, including our members, and the EU legislative and business environment they operate in,” said Zhou Lihong, Chairwoman of the CCCEU. She added: “We hope the European Commission will duly and carefully consider our concerns and in the end, reduce business and investment barriers as well as adopt a fair, transparent and non-discriminatory approach toward foreign companies, including Chinese ones.”

The CCCEU said the new legal tools proposed in the white paper lack a clear legal basis under EU treaties, and will overlap with a number of existing EU and member states’ instruments, and produce “double standards” in their enforcement. It said the proposed legal tools could potentially be incompatible with the EU’s obligations to the World Trade Organization (WTO), such as the principles of national treatment, most-favored nation status and non-discrimination.

The CCCEU represents nearly 70 members and Chambers in EU member states, covering about 10,000 Chinese companies in the EU. The CCCEU claimed that the white paper falls short of clarifying key concepts such as the definition and forms of “foreign subsidies”, “leveraging effect” and “material influence”, which it said will “create great legal uncertainties”. It said that the EU should take into consideration businesses’ solidarity efforts in crisis, and proposed “grandfather clauses” to be inserted in possible future legislation, as some Chinese companies’ investments in Europe were a response to invitations by member states in the aftermath of the European debt crisis. “The favorable terms they enjoyed at the time should be legitimately protected and exempted from future scrutiny,” the CCCEU said in a news release. The Chamber set up a task force comprising lawyers, business representatives and EU affairs experts to prepare its response to the public consultation, the China Daily reports.

Meanwhile, German Chancellor Angela Merkel has warned China to do more to open up or risk more restrictions on EU market access. She said that the EU would start limiting Chinese companies’ access to the single market if China does not agree to a major opening up by the end of this year. The European Union last week formally agreed to restrict “high-risk” vendors from building next-generation 5G mobile networks, a move that brings it closer to U.S. policy, advising allies to exclude Huawei, which could have a major impact on the company. “We naturally expect reciprocity for the investment agreement with China. We find that the barriers to entry with regard to China are still too high. This will now be discussed further,” Merkel added. Market access is currently the major stumbling stock in the negotiations to conclude a China-EU investment treaty by the end of the year.

Merkel’s latest comments indicated a tougher stance towards China, since it was the first time she mentioned possible EU countermeasures against China. Chancellor Merkel is expected to chair a mid-November meeting in Berlin of all 27 EU leaders to discuss China. Last week, the EU for the first time lent its support to the “Clean Network” initiative launched by the U.S. to restrict Chinese tech companies and mobile apps, such as video-sharing app TikTok and WeChat, China’s most popular social media platform. China has urged the EU not to participate, but as U.S. Undersecretary of State Keith Krach met EU Internal Markets Commissioner Thierry Breton, the EU said its 5G cybersecurity toolbox shared similarities with the U.S. Clean Network initiative, which was launched in August by U.S. Secretary of State Mike Pompeo. Chinese Foreign Minister Wang Yi said the U.S. is “not qualified” to build a coalition of clean countries “because it is dirty all over itself”.

The EU also “reaffirmed” its classification of China as a partner, strategic competitor and systemic rival – even though China has repeatedly asked the EU to stop using the latter designation, the South China Morning Post reports.

(Infographic Global Times)

The Chinese government announced plans to set up three new pilot free trade zones (FTZs) in Beijing, Hunan province and Anhui province, and expand one of the 18 existing FTZs in Zhejiang province to further open up the economy amid the global downturn sparked by the coronavirus pandemic, rising protectionism and unilateralism. China’s 18 existing FTZs were established to attract foreign capital, boost regional development and improve trade. The nation is now allowing more provinces to join this bold experiment, the Global Times reports. “As protectionism and unilateralism rise amid the pandemic, China’s efforts clearly show its responsibility as a major country. This can inject fresh momentum into the global economy as the world is experiencing a serious recession,” said Zhao Ping, Vice Chairman of the China Council for the Promotion of International Trade (CCPIT).

According to the plan, Beijing’s FTZ aims to build the city into a globally influential technology and innovation center, in tandem with the accelerated development of the services and digital economy sectors. Covering 119.68 square kilometers, the Beijing FTZ will focus on next-generation information technology, biology, and technology services. The FTZ in Beijing is a new innovation in global FTZs. It is “the first to feature services trade and technology globally,” said Tian Yun, Vice Director of the Beijing Economic Operation Association. Beijing will treat foreign investors similarly to domestic investors, will maintain a negative list that bars some economic activities, improve trade access and relax restrictions on the service trade in the Beijing-Tianjin-Hebei region where conditions permit, said Beijing Vice Mayor Yang Jinbai. “Beijing’s digital economy has seen steady development with its added value accounting for more than half of the city’s GDP, the best among all cities in China,” said Liu Yang, Research Director at the Capital Institute of Science and Technology Development Strategy. “Beijing also has the capacity to build a digital currency zone and a digital finance system,” said Liu. Yang Xiuling, Director of the Beijing Municipal Bureau of Economy and Information Technology, said a digital asset exchange that provides domestic and international services would be set up in the FTZ. The FTZ will also focus on offering better policies in the services sector, especially in financial services, according to the China Daily.

The Hunan FTZ of 119.76 sq km will focus on attracting overseas investment by loosening application requirements for foreign companies and promoting international cooperation, in particular with African countries and those along the routes of the Belt and Road Initiative (BRI).

Situated in the Yangtze River Delta economic zone, Anhui’s FTZ, which contains a wealth of smart manufacturing enterprises, is set to boost the region’s development and advanced manufacturing, integrated circuit, artificial intelligence and cross-border e-commerce industries.

China’s FTZ layout is divided into two parts: seaborne trade and land trade, Tian Yun told the Global Times. “FTZs in coastal cities, including Shanghai, are developing their competitiveness based on world-class harbors. With ports like Ningbo Zhoushan, the coastal FTZs will have the potential to compete with traditional free trade hubs such as Hong Kong and Singapore. Inland regions, such as Chongqing and Anhui, will explore trade through the less-conventional means of railways, pivoting their markets toward Southeast Asia and Europe. Inland trade through railways is challenging the traditional route of international trade,” Tian said. “For example, with the establishment of the FTZ in Chengdu, the city aims to lure Japanese exporters to transship their goods en route to Europe, instead of going through the traditional route of Singapore via the Strait of Malacca.”

The expanded area of the Zhejiang pilot will focus on building a new type of international trade center, an international shipping and logistics hub, and the construction of a commodity resource allocation base centered on oil and gas. The Ningbo FTZ plans to build the zone into a global shipping hub, an influential oil and gas allocation center, a supply chain innovation center, and a high-quality smart manufacturing demonstration area.

FTZs in China have played significant roles in stabilizing the country’s foreign trade and foreign investment amid the Covid-19 pandemic. In the first half, the total trade value in China’s 18 FTZs surpassed CNY2.2 trillion, accounting for 15.6% of the national total. The actual use of foreign capital in FTZs reached CNY80.78 billion, or 17.1% of the total, the Global Times reports.

Including the three new FTZs, there are now 21 free trade zones in China. China set up its first FTZ in Shanghai in 2013 to attract more foreign investment and promote trade and regional integration.

U.S. President Donald Trump approved “in concept” a proposed deal between Oracle and ByteDance. He had warned that ByteDance would have to sell its TikTok app to a U.S. company or he would ban the use of the app in the U.S. on national security grounds after September 20. The President told reporters at the White House he was giving the deal with Oracle “my blessing” and that U.S. national security concerns had been addressed. “The security will be 100%,” Trump added. “Conceptually it’s a great deal for America.”

Reuters reported that the new company, named TikTok Global, will have a majority of U.S. Directors, a U.S. Chief Executive and a security expert. Walmart is also part of the deal. The company had joined Microsoft to acquire the U.S. activities of ByteDance, but the Chinese company chose Oracle’s bid. Walmart said it was still interested to play a role in the new company in a “commercial partnership”. Trump said the new TikTok company would be “totally controlled by Oracle and Walmart” and would be based in Texas. The company has agreed to make a USD5 billion donation to an educational fund in the state. “That’s their contribution that I’ve been asking for,” President Trump said.

ByteDance will not sell TikTok to Oracle but instead “serve as a trusted technology provider” to ByteDance, securing details of U.S. TikTok’s users. Analysts speculated that Trump would reject the deal, but he approved it instead. Factors which could have influenced his decision include the fact that Oracle Chairman Larry Ellison is a Trump supporter and that Trump did not want to anger TikTok’s 100 million U.S. users one and a half month before the U.S. presidential elections.

Under ByteDance’s proposal, the Beijing-based company would set up a headquarters for TikTok in the United States. U.S. Treasury Secretary Steven Mnuchin also said that ByteDance has offered to create 20,000 U.S. jobs. Oracle would become ByteDance’s technology partner responsible for the management of TikTok’s data. Oracle said it will take a 12.5% stake in the new TikTok Global, while Walmart said that it plans to take a 7.5% stake. Walmart CEO Doug McMillon would serve on its five-member board. TikTok Global will be majority-owned by American investors, including Oracle and Walmart, according to media reports. TikTok Global will be an independent American company, based in the U.S., with four Americans out of the five-member board, according to the Global Times.

The U.S. Commerce Department also issued an order banning any transactions on Tencent’s messaging app WeChat in the U.S. U.S. consumers would not be penalized for using the apps, but they would no longer be available for download on the Apple and Google app stores. But Magistrate Judge Laurel Beeler in California approved a request by the U.S. WeChat Users Alliance to delay restrictions on the use of the app. He said the government’s actions would affect users’ First Amendment rights in limiting their means of communication. The ban on downloading TikTok was postponed by the Trump administration till September 27.

Data analytics firms Sensor Tower estimates that WeChat has been downloaded by 1.1 million first-time users in the U.S. so far this year, down 31% from 1.6 million during the same period last year. Tencent has changed the name of its WeChat office collaboration app to WeCom to circumvent the ban. The WeCom trademark was registered in the U.S. on August 19. After downloading WeCom, users can link their WeChat account to it and add their WeChat contacts. WeCom users can then message, create chat groups, and even receive virtual money from WeChat friends without their WeChat contacts having to download WeCom.

The Global Times commented that the Trump administration has gone to extremes to turn the U.S. market into a slaughterhouse for Chinese firms. Industry observers said this shows President Donald Trump’s determination to kill China’s high-tech companies, which could have been motivated by U.S. firms aiming to prevent top Chinese tech firms from penetrating their home turf. China’s Ministry of Commerce (MOFCOM) vowed to take countermeasures. The U.S. move had “severely disturbed the companies’ normal operations, hurt the confidence of global investors in U.S. markets and undermined the global market order,” MOFCOM said in a statement. “If the U.S. insists on going its own way, the Chinese side will take necessary measures to firmly safeguard the legitimate rights of Chinese companies,” it said.

Meanwhile, Nvidia Corp, a U.S. company, has agreed to pay USD40 billion to buy British chip designer Arm, causing anxiety that the Trump administration could block Arm’s supplies to China in the future. Hermann Hauser, Co-founder of Arm, called the deal a “disaster”, as the company would lose its independence. Arm controls the world’s most widely-used CPU instruction set architecture (ISA), and chips based on Arm architecture are used in more than 90% of the world’s smartphones. Given the U.S.-China tensions and U.S. suppression of Chinese technology enterprises, if Arm falls into U.S. hands, Chinese technology companies would certainly be placed at a big disadvantage in the market, the Global Times warns. If Arm becomes a subsidiary of a U.S. company, all Chinese technology companies on the U.S. Entity List could be cut off from Arm-based chips, while European companies using Arm technology may also encounter difficulties in supplying products to the Chinese market. However, besides regulatory authorities in the U.S., the EU and the UK, China would also need to approve the deal and could decide to block it.

China is moving forward with its own “unreliable Enuity List” of foreign companies which would be prohibited from trading with or investing in China. The blacklist was first announced in May last year, but till now the Chinese authorities refrained from publishing the rules for being included on the list or the names of the companies on it. The U.S. has a similar list, and China was expected to retaliate by publishing its own. The Ministry of Commerce (MOFCOM) has now released more information about the list.

Any organization or person investigated will have an opportunity to defend themselves, and be granted a grace period to correct any unacceptable behavior, MOFCOM announced. Chinese authorities said in May 2019 it would blacklist foreign firms or individuals that violated market rules or contractual obligations, or took measures that hurt the rights of Chinese businesses or threatened China’s national security interests. Now, MOFCOM says that firms and individuals on the blacklist would be restricted or banned entirely from trading – both imports and exports – with China and also from investing in the country.

Foreign business communities have voiced concerns as to how the rules might be implemented in the highly politicized business environment created by the stand-off between Beijing and Washington, the South China Morning Post reports. Joerg Wuttke, President of the European Union Chamber of Commerce in China, said the vagueness of the language used by the Ministry left “plenty of room for discretionary actions”. Lu Xiang, Research Fellow on U.S.-China relations at the Chinese Academy of Social Sciences (CASS), said the release of the rules was in response to Washington’s efforts to contain Chinese technology companies and would allow Beijing to introduce countermeasures in the future. “China needs more legal tools in the face of uncertainties in its relations with the U.S.,” he said, though he added that he expected very few U.S. companies to be blacklisted. MOFCOM said it would “take corresponding actions” against foreign companies, organizations and individuals if their businesses or related actions “harm China’s sovereignty, security and development interests, violate market rules, halt contractual obligations with Chinese companies or individuals, or take discriminatory measures on Chinese companies or individuals to severely hurt their legitimate interest”. An office would be established to investigate and rule on cases of entities or individuals being suspected of breaking the new rules. Firms already added to the list may be removed if they changed their behavior and took timely action to negate the consequences of their actions.

Individuals on the list would be stripped of their work and residence permits, and could be denied access to the country. In some cases, fines would also be payable. There has been speculation that U.S. courier firm FedEx might be one of the first companies to be blacklisted by Beijing after an investigation was started last year into allegations it allowed weapons to be shipped to China and diverted packages intended for Huawei to the U.S. Another possible target is HSBC over its links to the arrest in Canada of Huawei’s Chief Financial Officer Meng Wanzhou.

The South China Morning Post reported earlier that authorities finalised the details of the list late last year but were reluctant to unveil them due to concerns of a possible backlash that could make the country less attractive to foreign companies. Liao Shiping, Law Professor at Beijing Normal University, said the list only targeted illegal activities by individual foreign entities and “does not mean a change of China’s position to welcome and protect foreign investment”. Earlier this month, China’s Vice Premier Hu Chunhua and Vice Minister of Commerce Wang Shouwen met foreign business delegates and said the country would continue to remove barriers to market access.

Meanwhile, Hong Kong has formally demanded that the U.S. Administration drops its “Made-in-China” regulations, which forces Hong Kong manufacturers to label their export products to the U.S. as being “Made in China”. Hong Kong Commerce Secretary Edward Yau said the next step could be taking the case to the WTO settlement mechanism. The WTO considers Hong Kong to be a customs territory separate from mainland China. Enforcement of the U.S. labelling requirement has been postponed from September 25 to November 9 to allow exporters more time to prepare. The U.S. is the second-largest destination for Hong Kong-made shipments, accounting for 7.7% of the city’s total domestic exports in 2019.

The U.S. Department of Commerce issued new rules that would prevent Huawei from acquiring chips developed or produced with U.S. technology and software, a move that analysts say essentially cuts off supplies of key components for smartphones to Huawei. The new rule was an extension of an earlier ban imposed in May to bar companies from using U.S. technology and software to make chips designed by Huawei. The U.S. also did not extend a waiver temporarily allowing U.S. companies to still buy Huawei-made spare parts and components, and added another 38 Huawei affiliates to the U.S. Entity List, banning them from purchasing U.S. products.

Some analysts said the new measures would make it impossible for Huawei to do business. The new rules, designed to prohibit Huawei from bypassing earlier sanctions by sourcing products via third party buyers, will essentially choke off the company’s ability to acquire semiconductors developed or produced using U.S. technology. With Huawei’s avenues for sourcing critical semiconductors to power its 5G base stations, smartphones and now its cloud computing business shut off, analysts said there were very few options left. Gu Wenjun, Chief Analyst at Shanghai-based semiconductor research firm ICwise, said Huawei’s only long term option was to build a complete semiconductor supply chain itself but agreed that it would be “mission impossible to build a semiconductor foundry without using any U.S. technology”.

So far, China did not retaliate, but Chinese Foreign Ministry Spokesperson Zhao Lijian called the U.S. move a “naked act of hegemony” and accused the U.S. of being the “real empire of hacking.” “We urge the U.S. to immediately correct their wrongdoing, stop slandering and smearing China and halt cracking down on Chinese companies. The Chinese government will continue to take necessary measures to protect the legitimate rights and interests of Chinese companies,” Zhao said. Though the latest U.S. ban on Huawei has put the company’s major businesses – telecom equipment and smartphones – in a highly uncertain situation, the Chinese company has been operating normally and steadily moving forward in spite of tremendous pressure, the Global Times reports. In the U.S., the Semiconductor Industry Association (SIA), which represents 95% of the U.S. semiconductor industry, also voiced concern over the new U.S. rule. “We are still reviewing the rule, but these broad restrictions on commercial chip sales will bring significant disruption to the U.S. semiconductor industry,” SIA CEO John Neuffer said in a statement. Experts said that the new rules, if implemented, could also affect chipmakers in South Korea and other places, posing a serious threat to the global supply chain of semiconductors, including U.S. companies like Qualcomm and Intel, as they would lose Huawei as a client. In 2018, Huawei spent USD70 billion on component procurement, of which USD11 billion went to U.S. companies such as Qualcomm, Intel and Micron. The worst case scenario for Huawei would be shutting down some consumer businesses, while continuing its core business of telecom equipment manufacturing, particularly for 5G. The Chinese government is considering targeting U.S. companies, including Qualcomm, Apple, Boeing and Cisco, if the U.S. moves to cut off chip supplies to Huawei, the Global Times warned.

The move against Huawei comes as the Trump administration threatened to ban TikTok if its U.S. operations are not sold to a U.S. company by September 15.

Huawei Technologies launched a new MateBook X in Shanghai, as its mobile business sustains a major blow from the U.S.’ tightened microchip ban. The laptop, with a price starting from CNY7,999 – its first with wifi-6 compatibility and its lightest weighing only 1 kilogram – was released at the company’s first offline launch event since the coronavirus outbreak. The new Matebook has its own MacOS-like feature called Huawei Share, enabling it to seamlessly transfer files between Huawei devices, as well as serve as an alternate screen for Huawei smartphones. Huawei also launched new Matebook 13 and 14 laptops, as well as a Matebook B specifically designed for enterprise users. Huawei’s laptops are still using Intel processors and Microsoft’s Windows operating system, but the company is developing its own ecosystem for PCs – known as Qingyun – which could evolve to be a potential replacement for Windows, and also a key component of the HarmonyOS, which would be used on all devices. Huawei’s Qingyun ecosystem already has nearly 500 items of China-made software and hardware. Huawei’s developer site also displayed an image of a desktop model using the company’s own 24-core ARM-based Kunpeng 920 CPU.

This overview is based on reports by the Global Times, South China Morning Post, China Daily and Shanghai Daily.