Webinar: “EU-China Investment Agreement – What’s in it for European Businesses?” – 18 February 2021
Feb-24-2021 By : fcccadmin
The EU-China Business Association and the Flanders-China Chamber of Commerce organized a webinar entitled: “EU-China Investment Agreement – What’s in it for European Businesses?” on February 18, 2021.
During the webinar, Mr Carlo Pettinato, Head of Investment Policy Unit DG Trade at the EU Commission, and Mr. Joerg Wuttke, President of the EU Chamber of Commerce in China, discussed the benefits that the Comprehensive Agreement on Investment will bring for European businesses. The agreement grants EU investors a greater level of access to China’s market in existing sectors, as well as offering some significant new market openings. It will also level the playing field for European businesses in China.
The discussion was accompanied by an enlightening Q&A session, with closing remarks from Mr. Jochum Haakma, Chairman of the EU-China Business Association. The session was moderated by Gwenn Sonck, Executive Director, EU-China Business Association.
Ms Gwenn Sonck welcomed the participants to the webinar on behalf of the EU-China Business Association. The webinar had the largest number of subscriptions at 400. She also welcomed the speakers and the Chairman of the EU-China Business Association Mr Jochum Haakma.
The Comprehensive Agreement on Investment (CAI) is the most ambitious agreement China has ever concluded with a third country. At the end of last year, the European Union and China concluded the negotiations and reached an agreement in principle on the CAI. The agreement grants EU investors a great level of access to China’s markets and will level the playing field for European businesses in China. In 2020, global foreign direct investment collapsed by 42% due to the pandemic. China however inverted the trend and became the world’s top destination for FDI, overtaking the U.S. Foreign investments in China increased by 4% to USD163 billion. In 2020 China also became the EU’s biggest trading partner overtaking the U.S. According to the IMF, China’s growth will be 8.2% this year, which is the highest in 10 years.
During these difficult times, the EU-China Business Association acts as an important bridge to promote the economic and trade relations between the EU and China. The EUCBA has 20 member associations all over Europe, representing more than 25,000 European and Chinese companies.
Mr Carlo Pettinato, Head of the Investment Policy Unit of the Directorate General of Trade of the European Commission, focussed on the content of the agreement. The conclusion in principle of the negotiations was announced at the end of December after seven years of negotiations. In the last year and a half, there was a big acceleration in the pace of negotiations after the 2019 summit, where the two sides decided to try to conclude the agreement by the end of 2020. The conclusion in principle is not the end of the story. The agreement is not signed yet and has not yet come into force. Before we sign it, we need to conclude the legal review by us and with the Chinese side, the translation, and the cleaning up of the text, and the schedule to present it to the European Council and the Parliament. The signing and entering into force are expected to take place next year.
The rough text of the agreement – not yet legally reviewed – was published on the EU DG Trade website and the list of market access commitments will soon be published as well in the next few weeks. What was the main objective of this agreement for us and have we achieved those objectives? There are two main objectives: improve the level of entry to the Chinese market for European investors and the conditions under which European companies in China operate. The three pillars of the agreement are:
- The market access conditions
- The level playing field: the fair competition conditions in the Chinese market
- Sustainable development: the values, responsible business conduct, ILO convention ratification etc.
Our objectives have been achieved as best as possible. European companies operating or planning to operate in China had signaled throughout the years that there were and still are problems in China. They include very limited market opening and heavy restrictions and even prohibitions to enter certain industries or equity caps in joint ventures. The second category of obstacles were the indirect hurdles or discrimination in the application of certain conditions, unclear licensing procedures and other non-transparent administrative approvals to operate. The third was the lack of a competitive field. The state-owned enterprises enjoy different conditions than other operators and there is widespread use of subsidies in the Chinese economy.
Why is this agreement important? We are already very interdependent. The agreement rebalances quite a bit the starting point. We have a European market which is very open to foreign investment while the Chinese market was not as free and open to foreign investment so there was a complete lack of comparable conditions of opening. The agreement addresses the question of regulatory environment, market access, transparency, predictability and legal certainty of investment conditions, apart from fair treatment and protection from discrimination. We should not ignore the political value for us of the sustainable development aspects. The agreement encourages responsible investment and promotes protection of environmental standards. China commits to fully implement the Paris Agreement on Climate Change and Environment, and as regards the protection of human rights and forced labor, China has committed to ratify the conventions of the International Labor Organization, including on forced labor.
Talking about China, everybody is asking: what about implementation? The CAI provides for a robust state-to-state dispute settlement mechanism, including a special enforcement mechanism for disputes arising out of the sustainable development chapter. There is something more, which is not in any other agreement: regular political oversight including a rapid alert mechanism in case of substantial problems. This is very important and will be done at the level of Vice President of the EU Commission and from the Chinese side at the level of Vice Premier. This is not something that will happen in the course of a summit or once in a while, there is regular political oversight.
The CAI will improve market access of European investors. It includes new market opportunities in crucial sectors, such as cloud services, financial services and health. Providing new openings is something that rarely happens in services and investment agreements, which is different from trade agreements. The binding of existing levels of opening is a guarantee that there will not be backtracking. There is of lot of binding of existing market opening of course, but also new market openings on the Chinese side.
On financial services, China had already started the process of gradually liberalizing and will now bind it, including those further openings that had been granted to the U.S. under the so-called phase-1 deal. The sector is now largely open on an “erga omnes” basis, on an MFN basis, and binding this opening with the EU ensures that China will not be able to backtrack from these commitments in the future. Backtracking of certain openings has sometimes happened in China. Joint venture requirements and foreign equity caps have been removed from banking, trade in securities, and insurance – including re-insurance – as well as asset management.
On health services, the joint venture requirements for private hospitals have been lifted in big cities – including Beijing, Shanghai, Tianjin, Guangzhou, Shenzhen – above 10 million inhabitants and also some cities above 5 million inhabitants as well as Hainan island. On telecom and cloud services, China has agreed to lift the investment ban for cloud services, which will now be open for EU investors, although subject to a 50% equity cap. China commits to market access for computer services, bringing the level of commitment closer to the EU level, although some equity caps in online services remain. China will also include a technology neutrality clause which will ensure that equity caps imposed on value-added telecom services will not be applied to other services, such as financial services, logistics, medical services etc., if these are offered online. On biotech, China had previously never committed on research and development in biological resources. Now they will bind the existing measures. They are gradually opening the sector. China does not lift the restrictions, but the agreement binds any lifting of the restrictions in future. In the business services sector, joint venture requirements are removed in real estate services, rental and leasing services, repair and maintenance for transport, and advertising, market research, management consulting and translation services.
Mr. Pettinato concluded with a few remarks on the level playing field pillar of the agreement. The CAI is the most ambitious that China has ever concluded, not only on the market access side, but also on issues that are key to level the playing field for investors. We have included rules against the forced transfer of technology, which is in the books in China but is not always what is happening on the ground. Now we have a means to monitor and enforce it. There will be a requirement that state-owned enterprises should act according to commercial considerations and should not discriminate against EU investors. Disciplining the behavior of SOEs is a huge issue. The third element of the level playing field are the transparency obligations for subsidies. There will be an obligation to publish subsidies and a consultation mechanism to share information on adverse effects. There is no prohibition of subsidies, but more transparency to understand the subsidies and in case of adverse effects there is a mechanism for consultations that allows us to use the dispute settlement mechanism. In order to bring enforcement you need evidence, which is difficult to get, also from our companies operating in China.
Mr. Joerg Wuttke, Chairman of the European Union Chamber of Commerce in China, said that the organization has 1,700 members in nine cities in China and its foremost obligation is advocacy. The Chamber is not a trade promoter, substituting the national chambers, but is gathering information on where reform steps are lacking and coming up with suggestions. In last year’s position paper we came up with 430 pages of analysis in 35 working groups covering 900 cases. It is a big challenge to pinpoint the areas where China has to improve. Monitoring the gap between promise and delivery of the CAI will become a big chunk of our work. The Chamber is grateful to the European Commission to have finalized the CAI after seven years of negotiations. There has been a lot of talk about why not waiting to conclude the CAI, but there has to be an end to negotiations at one stage because there is a limit of what you can gain. In 2019 the EU Commission made it very clear that the deadline would be at the end of 2020. Be careful of not over-negotiating with China, they are not giving anything away free of charge. If you don’t conclude the deal, you may actually be worse off.
Do not think that because it is China, they are not going to honor their commitments. According to the U.S. Embassy and AmCham, China basically met its commitments in the phase-1 deal on finance, insurance and other items. There are two camps in China. One really wants the domestic reforms to go on and they sometimes need an outside push. Don’t be too pessimistic about the pledges they made. In December, the U.S. was asking to wait to conclude the deal for the Biden administration to take office, and then get something better. If you offer me a deal, give me the parameters and tell me what is in there for me. Tell me how long I have to wait and what the deal is going to be like. Finally, how are we going to sit down and talk with the Chinese? The idea to wait for the U.S. to come up with common ground was ridiculous. The U.S. are our natural ally, and AmCham and the European Chamber’s papers are very identical, but we are not going to wait for the U.S. because we have our own agenda.
The details of the CAI are very important to us because China is the market of the future. Over the next 10 years, 35% of global growth is in China, more than all the OECD countries put together. We cannot just let China do its own stuff, we have to engage. Now we have certainty in a couple of areas. In the case of the SOEs, we have something to legitimately track. The deal gives us a bit of certainty and leverage in case we are not happy with progress.
The big unknown is whether the agreement will be ratified by the European Parliament. It partly depends on how we explain it to the parliamentarians. What is in there for us? Does it creates jobs in Europe? I believe yes, better access translates into more activities in Europe for the Chinese market. The major stumbling block is human rights. Over the past years, China has put on a very ugly face. There is the national security law in Hong Kong, Xinjiang, the Taiwan issue, and the problems in the South China Sea. China is not really popular right now. According to Pew Research, China has moved from 50% to 60% positive in 2010 to 70% to 80% negative in Europe. It is difficult for our decision makers to stay positive on China. Over the last six weeks, Mr. Wuttke says he has been urging Chinese decision makers to understand what it takes to our decision makers to make the CAI happen and not to make it worse. With all the limitations, the CAI is still worth ratifying.
Q&A:
Mr. Jochum Haakma, Chairman, EU-China Business Association: Did any consultations take place with the U.S. or any other non-EU countries during the negotiations? Mr Pettinato: If you mean by consultation that we align our strategy and objectives, the answer is no. But we talk all the time to each other about what we are doing. We have been talking to many partners, including Japan, Australia and Korea. In joint committees one part of the agenda is an update on negotiations. Even before Trump we were already talking with the U.S. when they were negotiating an investment agreement. We have a lot of concerns that we share with the U.S. about certain Chinese practices that we eventually want to bring to the WTO.
Is the CAI different from other investment agreements because it regulates both better market access and investment protection? The investment protection agreement has not been agreed upon yet, does this has to be completed in two years? Will they both be signed at the same time? Mr Pettinato: The big imbalance in the relationship as far as investment conditions are concerned was not on protection but on market access conditions and a level playing field, because 26 of the 27 EU member states are already protected by bilateral investment protection agreements. It was not the most urgent gap to fill. However, we should have a good investment protection agreement with China, replacing the old bilateral agreements. There are some differences with China on investment protection, in particular on dispute settlement. So we had to take a decision: continue to talk on the difficult issue of dispute settlement and put the whole agreement on hold, or do like we did with Japan, where we still had a disagreement on investment protection, but had an agreement on the rest and concluded the FTA. The agreement with China on investment protection will be on a separate track and will most probably not be signed at the same time as the CAI. We hope to sign the CAI next year, while investment protection will probably take a bit longer.
Which conditions must be met before negotiations on the FTA with China can start? Mr. Pettinato: Let’s first conclude and implement the investment agreement, let’s bring some of the rules to the WTO, and see how China reacts to reforms of the WTO, before speaking about the FTA.
Do you expect resistance from EU member states in the approval phase and how to react? Mr Pettinato: I would be surprised if there are real problems. There already is political posturing, but that is part of the game. We have consulted the member states throughout the negotiations up to the highest level. The Commission would not have taken a step if we didn’t have the reassurance that the member states are supporting us. I don’t think the problem will be on the Council’s side, the problems are likely to be in the Parliament. It will be a challenge to get the Parliament to approve the agreement because of the human rights issue. It will not be enough for the Commission to go to the Parliament and say it is good for Europe to have this agreement done. It is up to the businesses to say that this is beneficial to our companies in China but also for their activities in Europe. What China does this year will be observed very closely as part of the ratification.
Could you elaborate a bit more on the dispute settlement mechanism? Mr Pettinato: The dispute settlement in the CAI is the state-to-state dispute settlement. The authorities from the EU side engage with the authorities of the Chinese side, it is not the investors that take action against a government. This is not in the CAI because it is part of the investment protection element on which we disagree with China, because we want the investor court system and China is not there yet.
Could you explain the most-favored nation element of the CAI, because the concessions China has agreed to will also be available to the U.S. and other WTO members? Mr Pettinato: Unlike trade, investment agreements are usually not applied on a preferential basis. You don’t open a sector only to one or another state, except in case of individual licenses. Everything agreed on investment in services, is automatically applied on an MFN basis to the whole WTO membership, because in the WTO there is a general agreement on the trade in services. The non-services sectors are not covered under WTO rules, so China has the obligation to apply the concessions to the EU, not to other WTO members. However, very often you apply them to all foreigners, although you are not obliged to. China could in theory backtrack against everybody, but not against European companies.
To what extent will SMEs benefit from the agreement compared to large companies? Mr Pettinato: The big players have other means to pursue their interests. If anybody gains from clearer rules, transparency, better procedures and ways to have their interests defended, it are the small players. We hope that more small players will feel more confident to enter the Chinese market. Mr Wuttke: SMEs are already quite active here and have been quite successful.
China is trying to make Hainan into a free trade zone. Will there be less restrictions on capital flows? Mr Wuttke: Hainan is labeled as a free trade port. Our shipping companies tell us that there is virtually northing in it, but luxury item producers are saying that sales are going through the roof. China accounts for 50% of the global market of luxury goods. Hainan is also a medical hot spot. The CAI opens the door to private hospitals. Hainan will turn into a major hospital setting. China is aging very fast. Hainan has features of opening up, but is not an area where we will see easing of capital flows. China is very stringent in limiting the flow of capital.
Mr. Jochum Haakma, Chairman of the EU-China Business Association concluded the webinar by thanking Mr Carlo Pettinato and Mr Joerg Wuttke for providing their insights. For the investment world, the CAI will be a major step, because we now have a different framework when everything will be ratified. We hope the Year of the Ox will be a bullish year but the CAI will not be signed yet as President Macron would like it to be signed in 2022, when France assumes the EU presidency. In March, the EU-China Business Association will organize a similar webinar on investments in Europe, where there will also be more scrutiny of foreign investments, including those from China. Mr Haakma concluded with a question: Is the real challenge facing the European Union in the coming years not China but restoring our unity, values and security before we can achieve and maintain strategic autonomy?
If you are interested to learn more, contact the EU-China Business Association: info@eucba.org and follow us on linked: https://www.linkedin.com/company/eu-china-business-association-eucba/
Webinar: “Win in China: Doing business with a changing China” – 10 February 2021
Feb-16-2021 By : fcccadmin
The Flanders-China Chamber of Commerce organized a seminar focused on ‘Win in China: Doing business with a changing China’. Mr. Bo Ji, Chief Representative for Europe and Assistant Dean of China’s top business school, Cheung Kong Graduate School of Business, delivered the keynote speech.
Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce welcomed the participants to the webinar, which took place during the Export Fair organized by Flanders Investment & Trade, a structural partner of the Flanders-China Chamber of Commerce. The Cheung Kong Graduate School of Business is China’s leading, independent, non-profit business school established in 2002 by the prestigious Li Ka-shing Foundation. More than half of its 10,000 alumni are at the CEO or Chairman level and collectively lead one-fifth of China’s most valuable brands. One of the alumni is Mr. Jack Ma of Alibaba. In Europe the focus of the business school is to help businesses in all sectors enter China through one of their programs.
Prof. Bo Ji, Chief Representative for Europe and Assistant Dean of the Cheung Kong Graduate School of Business, said China is changing and has been changing in the past few decades. To do business with China you can’t take a set formula, you have to adapt to the situation. Let’s start with the rise of China and its global implication. China’s share of the world’s GDP started declining in 1820 when the Qing dynasty closed China’s door, because they believed China was big and strong enough, representing about one-third of the world economy. China didn’t need the world and the world needed China. With the first and the second opium wars, China started to decline. In 1900 the united armies of eight nations invaded China and the Chinese economy started shrinking. Now China is rising again. China’s GDP in 2019 was USD14.34 trillion, while last year – when the world was contracting and China was still growing – China’s GDP rose by 2.3% to USD15.58 trillion. Both Europe and the U.S. contracted. China has in the past decades achieved something astonishing, lifting 800 million people out of poverty in the period from 1990 to 2017. The urban population has expanded from only 20% to more than 60% and is still growing. The composition of GDP has also changed. China used to be a big manufacturing economy, but now has become more service oriented. China aims to boost the services’ share in its GDP to 60% by 2025. According to The Economist, China will overtake the U.S. by 2024 to again become the largest economy in the world. There is also a change in the distribution of household incomes. From 2016 to 2026, China will have 272 million more middle income persons and 233 million more higher middle income persons, while in the rest of the world there is not much change. Therefore, China is contributing much to the world’s economic growth. The whole world is depending on China for its growth.
The number of Chinese mobile internet users is higher than the total European population in 2019. China is not just relying on the export market, but is also growing its domestic market, especially after the financial crisis. One measurement is Alibaba’s double 11 shopping festival, the largest online shopping day in the world. Last year, sales reached an astonishing USD74 billion, while in 2019 the figure was USD38 billion. So in one year the number actually doubled. Last year, the pandemic made people do more shopping online, which explains why there is a huge surge, but also shows how big the Chinese market is. China is very successful in fighting the pandemic. At the beginning, Covid-19 shocked the whole world, including China. China had a surge in the number of deaths, but this disappeared after April. China had no domestic cases and imported cases were stopped at entry through mandatory quarantine. In Chinese culture, people believe we are living in a society intertwined with each other. We cannot just think of our own benefit. We have to consider the collective benefit and collective good of the society. People are willing to sacrifice for other people. The government leveraged this fact as well, being very effective in putting down the pandemic, building hospitals, using the QR-code in tracking infections, and taking very serious quarantine measures. The whole country cooperated, putting out the pandemic very quickly. China’s GDP grew 2.3% last year over 2019. In the same period the EU contracted by an estimated 7.4%, the U.S. by 2.4%, the UK by 10.3%, France by 9.4% and Germany by 5.6%. The effectiveness of China dealing with the pandemic is now putting China ahead of the curve. China is leading the global economy in the post-Covid recovery and China’s economy is gathering steam, setting the stage for a strong recovery. Some people don’t believe that in China Covid is under control, but people move freely, go to cinemas and restaurants, and are enjoying life. If there is only one case in a city of five million it is a big issue involving the mayor and a lot of testing. This we don’t see in Western countries, where with 20,000 cases people move around and restaurants are open.
Summarizing, Chinese GDP will continue to grow but slow down. The focus is on high-quality growth, on technology, profitability and the green economy. Rebalancing efforts should be accelerated with increases in health, education and social transfers, supporting consumption and reducing income inequality and pollution. Services will continuously grow over manufacturing. China’s national strategy is “being big”. In Chinese culture, staying together and being big is very important. A Brexit situation will never happen in China. When you stay together, collectively you can be better.
The magnitude of China’s middle-class growth is quite significant. The share of urban households is shifting. Between 2012 and 2022, the number of upper middle class households has increased substantially. In any mature economy the upper middle class needs to be dominant in order to generate consumption, which will boost economic growth and employment. The Chinese millennials aged 18 to 35 love entertainment more than household items, have more access to media and use computers to watch TV. They spend a lot of money on entertainment so Chinese movie stars are making more money than Hollywood movie stars. Members of the middle class in the coastal urban regions have a high desire for buying with high purchasing power. They love high technological products, especially mobile phones and PCs and are willing to pay higher prices for higher quality. They emphasize brands and products. Europeans think about low-priced Chinese products, but now Chinese value quality versus price. Some of the products you can buy in Europe are actually cheaper than the products in China, where the quality is sometimes better. Younger people have a different attitude toward consumption. They prefer expensive and luxury products. China exports low-priced products to Europe and Chinese go to Europe to buy luxury products. They are more brand-loyal and prefer foreign brands. They use the internet more for research and making purchases. They don’t rely on advertisements. They are more likely to buy if their friends also bought the product. Social media are heavily used. The penetration rate of social media among the post-00 generation reached 99% and 73% of the post-80s and post-90s generations use social media apps such as WeChat and QQ every 15 minutes. The post-90 generation emphasizes life with quality, variety in consumption and brands. The new generation likes trendy stuff and foreign brands and aspires to a lifestyle different from their parents. The post-80s care more about price, while the post-90s prefer shopping experience and experience sharing. They want to show their personality and individuality. They prefer encouragement – likes – and entertainment. There are a lot of comments and interaction on Chinese social media. Product introductions are very important because they really want to understand the product, but they do not care much about advertisements and brand culture.
Social media e-commerce is on the rise. In China, people rely on social media to make purchase decisions. Social media and e-commerce are combined, which is very different from the West. In Western countries there is regulation about date protection and social media and e-commerce are relatively separate. In China, purchases and sales of goods are facilitated by social interaction and self-produced content provided by users, and grow through social media and online media. Traditional e-commerce begins with the user entering, then browsing, purchasing and sharing, but social media e-commerce starts with users entering and then sharing, generating more users and eventually purchases.
Prof. Bo Ji showed a video about Pinduoduo, a CKGSB alumni company, which became an astonishing success. Within three years the company was publicly listed and going very strong. It has emerged as one of China’s top e-commerce platforms. Consumers are attracted by extreme savings on a wide range of goods. Users form “teams” of at least two people to unlock discounts. The number of monthly active users reached 289.7 million in the first quarter of 2019. Just as Pinduoduo launched, the first wave of group buying startups came crashing down. When Pinduoduo came along, sellers previously exiled from other platforms flocked to the company. Pinduoduo sold USD969 million of agricultural goods in 12 days. People in smaller cities and rural areas have become more familiar with online commerce. As Pinduoduo continues to grow, it must find ways to make money. One potential avenue of monetization is what it calls “online marketing services”. The company has grown, but so have its operating losses. Despite its losses, financial analysts believe the company can still turn a profit.
Social media e-commerce has four functions:
- increase the customer flows and sales of traditional e-commerce
- promote the integration of online and offline
- enhance the brand and sales of traditional retailers
- drive the user-flow platforms to realize business value
There are 12 top industries in China for foreign companies to participate: new energy; artificial intelligence (AI); cloud services; health; fintech; blockchain; online education; tourism; social media; cleantech; new retail and logistics. New emerging disruptive technologies in China include industry 4.0; blockchain, electric cars; and the Internet of Things (IoT). China needs help in those areas, so there are opportunities for foreign companies.
Take up your courage! Reward success! Celebrate failure! Punish inaction! Go to China, don’t worry too much about it and once you’re there figure out how to swim in the pool. China Start 2021 is an online program, offered this year from April 7 to May 14. There will be six China-related live interactive lectures and two guest speakers. There are also four investment pitching events and five North Summit China Star Awards. Advisors of the China Start Advisory Board will give free one-on-one consultations with leading industry experts. More information is available at www.China-Start.org
Ms. Gwenn Sonck: What are your top tips for companies that wish to start in China? Prof. Bo Ji: Don’t fear, go there and start something. A lot of people just talk about it. Multinational companies went to China and didn’t hesitate to set up their own operations. The business model you have from your country will often work in China. Many MNCs went to China without changing much. On the other hand, local adaptation is inevitable. You are going to figure out how to adapt. It is very important to acquire general knowledge about China to really understand how to do business in China and avoid mistakes and hurdles. Also, understand the cultural aspect: Chinese first want to build up a relationship before doing business with you. You need to nurture and build the relationship, and this takes time, efforts and sometimes investment, but once it’s build, it doesn’t break easily. You can do business at low cost by leveraging e-commerce. You can start selling products without going to China through JD Global and Ali International. If it works, you can start doing it yourself. Those who hesitate and think too much never get there, but those who just do it, make some mistakes and correct them, will grow. Simply thinking and talking about it, and never taking action is the most dangerous thing when talking about going to China.
Webinar: “China Logistics – Challenges and Solutions to and from China” 4 February 2021
Feb-09-2021 By : fcccadmin
The Flanders-China Chamber of Commerce organized a webinar focused on “China Logistics – Challenges and Solutions to and from China” on 4 February 2021.
Ms. Gwenn Sonck welcomed the participants to the webinar. Current spot ocean tariffs from China to Europe are reaching record levels. Experts will explain why and how this happens and what we can expect in the coming months. For traders and businesses in Western Europe, needing to export to and import from China, what are the sustainable alternatives? In this webinar we will present a comprehensive picture of the current status of the Arctic maritime route and a detailed update on the Silk Road option.
Mr Pepijn De Vreese, Chief Officer International Trade of the Port of Zeebrugge, introduced the impact of container shortages on the shipping supply chain. The Port of Zeebrugge is also a long-time structural partner of the Flanders-China Chamber of Commerce for many years. Before Covid-19, the profitability of container shipping had been under pressure since the financial crisis of 2008 due to overcapacity in the market leading to pressure on container shipping rates with an all-time low in 2016, when income didn’t even cover the costs of shipping companies anymore. The first action they took was to try to increase scale through mergers & acquisitions. This involved companies such as CSAV, UASC, APL, Hamburg Süd and OOCL. Some names disappeared, others became part of a larger shipping company. They also formed alliances to share operational costs. There are now three major shipping alliances: 2M, Ocean Alliance and The Alliance. The biggest impact on the sector was the bankruptcy of Hanjin, a Top 10 ocean carrier for containers. There has been huge pressure on prices – which were very low – before Covid-19.
Covid-19 started in China, which took immediate measures with a lockdown. This led to actions being taken by shipping companies. Because cargo dried up, they reduced the number of vessels calling on Chinese ports. Containers were halted in the ports and because of Covid-19 there was a reduction in the availability of port laborers. All these measures led to an imbalance in container repositioning. Containers weren’t repositioned like they should have been. The rest of the world followed China’s lockdown, which meant people took no holidays, didn’t go to restaurants and took no recreation, and there was no physical shopping as people redirected their budgets towards e-commerce for hobbies, personal fitness, home maintenance, office supplies etc. Schools were closed so people had to buy laptops for their kids. All these products originated in large part from China. Because China was able to relaunch production quite fast, a lot of companies moved part of their production to China. The increase in volumes and e-commerce led to a shortage in airfreight adding to sea freight and a massive volume increase leading to container shortages because the containers weren’t where they were supposed to be and because vessels were taken out of rotation. There wasn’t enough vessel capacity to move the containers around were they needed to be.
Adding to these problems was that in the U.S. vessels were and still are delayed at ports due to the huge volumes and personnel at the ports taken out by Covid-19 or by preventive measures creating inefficiencies. Containers also remained longer in the hinterland because there weren’t enough drivers and equipment to move the containers. At the Port of Los Angeles, there are currently 68 vessels and only one-third are being handled while the others have to wait outside the port. Over 560,000 TEU remain idle at the port before being handled. Congestion is also part of the problem we see today. In the UK there are also congestion issues due to volume increases and shortages of staff. Due to driver and equipment shortages, containers in the UK also remained longer in the hinterland. On top of that, due to Brexit, there was stockpiling before the end of the year, leading to 98% of warehouse capacity being filled. Companies started using containers as back-up space.
Shipping companies prioritized vessels and containers on the most profitable long haul routes, first on Asia-Pacific and later on Asia-Europe. Zeebrugge suffered as well as vessels were sometimes turned back at Pireaus to pick up more cargo in China. This led to lack of vessel space for companies outside the big trade routes. These volumes were rerouted to hub ports via feeder vessels. Due to higher volumes, hub ports also got more congested, meaning containers and vessels remained longer at the ports.
The situation today is that carriers do no longer limit vessel capacity. With Chinese New Year approaching, normally vessels are taken out of the fleet because of the expected drop in volume, but now the idle fleet is shrinking, so there are even more vessels. No blank sailings programs are implemented after Chinese New Year to meet high cargo demand. Today all very large container shipping (VLCS) tonnage is sold out so companies can’t use the charter market to cope with highs and lows. Shipping companies prioritize the money they no earn to reorder their debt and are not looking at orders & acquisitions. The carrier box fleet – containers – grew quite fast during the second half of 2020. The biggest Chinese container producer CIMC is working around the clock and its order book is filled until the end of March. New boxes are coming onto the market but this takes time.
Turning to the outlook, the current rates are excessive, but the feeder rates before Covid-19 were not sustainable so they should go back to a level a little bit higher to make it sustainable for shipping companies to offer shipping services to customers. We expect rates to stabilize in the near future and there are signs of improvement in equipment availability in Chinese ports. But shipping lines are still cautious in ordering new vessels – which are only build after two years – as the 2021 outlook is still uncertain. They don’t know what is going to happen after most of the world is vaccinated so they are hesitant to buy more capacity.
Zeebrugge is an emerging Belt and Road Initiative (BRI) hub. COSCO Shipping Ports has managerial control of the Zeebrugge deep sea terminal since 2017 and COSCO plans to make it their hub for North-Western Europe. There is a 20% growth in deep sea container volumes year-over-year for the last three years. Zeebrugge has profited from congestion in the UK. A lot of volume destined for Felixtowe was diverted to Zeebrugge. The work to expand the container terminal is currently under way. COSCO is aiming for this year at a growth of 20% to 30% in line with the previous years. The Lingang Logistics Group also plans to set up a park in Zeebrugge. Shanghai Lingang Group is the biggest industrial and logistics real estate developer in the Shanghai region, owned by the Municipality of Shanghai. They have chosen Zeebrugge as their first overseas investment in line with COSCO’s strategy. In a first phase they will build a warehouse of around 76,000 square meters divided into 10 units. Construction was planned to start in 2020 but due to Covid-19 the Shanghai team could not travel, so it was delayed and construction is expected to start in 2021 becoming operational in 2022. The Zeebrugge Port Authority is also building the biggest turning bridge in Europe connecting the deep sea terminal with the motorway. Zeebrugge is also handling a big volume of Chinese e-cars. Zeebrugge is growing as a BRI hub, but still has a long way to go to reach critical mass, especially concerning containers, but the port will be able to offer more services to companies in the hinterland.
Mr. Didier Duponselle, Director Supply Chain Solutions at Ahlers, introduced the company, which is a Founding Member of the Flanders-China Chamber of Commerce. Ahlers has 650 employees in over 35 locations worldwide. Ahlers started as a shipping company in the Port of Antwerp in 1909 and their headquarters are still located in Antwerp. Its mission is to deliver high-quality logistics services to enable customers to focus on their core business. It offers sustainable and tailor-made logistics solutions with one common cultural approach. Recently, Chinese-owned containers are not allowed to leave China and should be used first on the domestic market. This has even added to the problem. The supply chain has not come to a standstill, it is disrupted, is less reliable and it is really global. How does this affect shippers, importers and end customers? Spot rates are at a record high. There are higher peak season surcharges and equipment imbalance surcharges to cover for container returns. Several booking stops were announced for certain carriers. Contracts and long-term agreements are not always honored. The better you negotiated and obtained better prices, the easier you are now put aside. Rollovers are causing delays at loading points and as a result at destinations.
There is increased uncertainty. The maximum rate today for a 40 foot container is USD10,000 on the Shanghai-Antwerp route, which is massive. The average is about USD8,000. The Harper Index from Asia to Europe is similar. This reality is unseen. On the Antwerp-Shanghai route we see some peaks in 2017, but we also see quite significant increases in the last months. The maximum price for a 40 foot container today is USD3,000, this is also not going in the right direction. It is a global issue.
What are the alternatives? There is the Arctic Route – a sea freight alternative – and there is the Silk Road, the real alternative. The classic Suez Route is still the major trade lane for containerized goods with many available carriers and takes 37 days from the Far East to Europe. There are three alliances and competition to offer competitive prices as long as there is sufficient capacity. About six months ago we were happy with this situation, but today we are a lot less happy: capacity is restricted and the alliances are playing their capacity game. It is in fact an oligopoly, being allowed to share rates within the alliances. This goes back to 2008 when there was a necessity to consolidate. In adverse times like today we are all affected.
Arctic routes have been discussed quite a lot in certain forums. Nobody feels comfortable if you only have one choice so everybody is looking for alternatives. Today, traffic on the Arctic Route is mainly project related (65%) – mainly focussed on LNG – and of the 35% cargo vessels, 50% is container traffic. In 2020 only 499 vessels have used the Norther Sea Route (NSR), so it is still very limited. You need special vessels do deal with the ice, but the distance is 40% shorter compared to the Suez route. The Arctic Route is still not open year round, this is expected by 2030, so in the month of February this is not a good option.
The Rail Silk Road takes about 16 to 18 days and is approximately 11,000 km long. Volumes are higher than on the Arctic Route at 1.14 million TEU last year, an increase of 56% year-on-year. It is expected to increase to 3 million TEU by 2030, but for global trade it is still very low. You have to keep in mind that there are different track gauges so at certain terminals containers have to be transferred from one rail operator to another. You have multimodal options: a sea-rail combination via Kazakhstan and Kaliningrad; trucking to the Chinese border and continuing by rail; and sea freight to Vladivostok and continuing by rail to Europe. Finally there is a “Covid track”: containers going by rail to St Petersburg and onwards by ship to Western Europe.
Which is the better option? Looking at the ocean route, vessels are delayed by 7 to 12 days, ports of discharge are congested and there are delays for pick up of up to two weeks extra. So there is a delay of 7 to 26 days. On the rail route, in late December there were 7,000 containers waiting to cross into China with an average delay of 20 days, but some containers waiting for 42 days. Delays today are 5 to 7 days.
Dec.’19 | Sep.’20 | Jan.’21 | |
Rates ocean | USD2,150 | USD2,400 | USD9,750 |
Rates rail | USD16,900 | USD6,000 | USD14,500 |
Avg delay rail | 3-5 days | 15-20 days | 3-5 days |
Rail rates declined due to subsidies from the Chinese government and more frequent use by shippers. Then there was a spike in prices due to the shortage of containers and the Chinese government reduced subsidies as there was huge demand on this route. Train organizers also raised their prices. Looking at the CO2 on different routes, CO2 by ship on the Suez route is 3.27 tons; by ship on the NSR it is 2.33 tons and by rail on the Silk Road 8.66 tons. Also in terms of CO2/ton km, the Rail Silk Road is a lot less interesting. A main reason is that many of the trains still have diesel engines. A truck is still three times worse than rail.
Is the Silk Road a viable alternative today? Not yet, due to delays at the China-Kazakhstan border and high prices. Thinking strategically, it might be later as it takes only 16 days to Europe, with a high safety level and lower inventory carrying cost. Since many parties are involved, you need an experienced partner. Ahlers has offices and people along the complete route able to handle the different modes of transport. Short term, the Arctic Route and rail are not a good option. Capacity has not decreased in the ocean trade and demand has not doubled. There is still some long term balance. In the second half of 2021 a normalization of tariffs is expected, but still at a higher level than pre-Covid. Longer tariffs do not show the extreme high peak we see today. It is expected that lead times will improve as carriers plan to continue to sail during the Chinese New Year period. No rate changes are expected till the end of March.
Ahlers’ recommendations for shippers include:
- Checking contracts on legal strengths and asses applying penalties, certainly with carriers.
- Increase your safety stock as the chain can no longer be deemed reliable enough for the coming months.
- Book two weeks faster than you used to as timing between confirmed booking and actual vessel departure may increase from 10 days to three to four weeks.
- Trust a forwarder that can deliver a solution and back up bookings with a different carrier for critical goods.
- Change incoterms to FOB/FCA/EXW and have more influence on your supply chain.
- Make a risk assessment study on your supply chain and structurally re-assess a rail solution.
Q&A: Can you ask compensation for delays if paying a high price? Mr. Didier Duponselle: It all depends on your contract. If you are entitled to it, go for it, they can pay.
Webinar: A New U.S. President – What’s in store for U.S. policy and engagement with China? What does this mean for European businesses? – 19 January 2021
Jan-27-2021 By : fcccadmin
The EU-China Business Association and the Flanders-China Chamber of Commerce in partnership with The Conference Board organized a webinar on: ‘A New U.S. President – What’s in store for U.S. policy and engagement with China? What does this mean for European businesses?’ This webcast outlined the Biden policy agenda for China and identified the key areas of similarities and differences from the outgoing Trump administration.
Ms Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce and the EU-China Business Association, welcomed the participants to the annual joint webinar with The Conference Board and introduced the speaker, Mr. David Hoffman, Senior Vice President Asia and Managing Director of the China Center for Economics & Business of The Conference Board.
Mr David Hoffman said he hoped to introduce what we might know and the unknowns in the change of administrations in the United States and what it means for U.S.-China and Sino-Western relations. First he gave a recap of the last four years, followed by a preview of what might be in store, a medium-term view on the structural factors shaping the U.S.-China, EU-China and China-Western relationships more broadly and a view of developments three years out, and finally the implications for business.
The last four years have been a whirlwind, especially the last year with the Covid pandemic. Many business leaders and policy makers summarize the Trump years vis-a-vis China as a situation where the administration was strategically correct in terms of pressuring China to make some important and arguably overdue changes in its trading and investment arrangements and also its geo-strategic arrangements on defense and military posture, but that it was operationally flawed. Nonetheless, it has comprised some key achievements where credits are due. A phase 1 trade deal was reached, a light agreement mostly related to procurement of goods and services and an attempt to balance the trade relationship and deal with the very significant trade deficit on the U.S. side of the trading relationship. Despite all of the difficulties since May 2019 when Huawei was put on the Entity List, the phase 1 deal has stuck. Although China is significantly behind its procurement commitments – about 50% at this point – with one year to go, China will have to make it up considerably in year two if the commitments are to be achieved in full.
The Trump administration changed narratives on China globally by calling out perceived misconduct and detailing fair play issues. Many sacred cows were broken, many sensitive issues that many governments around the world had issue with vis-a-vis trade and investment asymmetries with China and were afraid to mention for fear of retribution or criticism or retaliation were raised. Trump and his team put those on the table. This raised public awareness globally, broke the established inertia of legacy dialogues which many perceived as ongoing forever without a whole lot of progress. On the national security side, Trump and his team managed to mobilize a “whole-of-government” pressure campaign. This began in November 2018 when the previous Department of Justice’s Attorney General Jeff Sessions introduced what he called the “China initiative”, basically an unlocking of U.S. law enforcement agencies to pursue and elevate the legal cases they had on China, whether security or visa fraud or others. This culminated in Huawei being put on the Entity List in May 2019. Arguably, there were some achievements. The door is now open to potentially a reset. At least the core problems are exposed, neither side is denying that these problems exist, nor that there is a great power competition.
The main critique of the Trump administration was on style issues, the way diplomacy was conducted in a very public way in many cases via Twitter. The perception of the Chinese public at least was that the U.S. was embarking on a wholesale attack on China’s political and economic system, with unachievable goals where major Western-like market and political liberalizations were on the agenda, i.e. the disavowal of industrial planning, the diminished control of the central government over the economy, a de-elevated position if not a complete deregulation of the state-owned enterprise structure and so on. Many of these features marked the Chinese system for over 2,000 years. A lot of people felt that those demands were not realistic. It was a highly public, politicized and confrontational engagement style, which is an approach that is generally not well received. A lot of the rhetoric was quite demonizing to the Chinese public and government and highly insulting to the Chinese polity and citizenry.
The current status is that we have seemingly broken dialogue channels and deep distrust primarily on the Chinese side, because there is a ubiquitous belief on the Chinese side that containment and regime change are the U.S. motives. That is obviously not a healthy starting point. If this was the idea behind the policy approach, you could consider it successful at least from that point of view and it resulted in two important changes. One, the dual circulation policy in China that was announced in October last year, implying that China should become less reliant on trade and investment and global engagement and be more self-sufficient. Second, we have seen growing anti-China sentiment in many Western publics and polities across many issues. If this was the aspiration of the outgoing administration, then some progress has been achieved.
Ms Gwenn Sonck: An audience poll showed that 33% found that Trump’s policy and approach to China has been “quite damaging”, while 19% said it was “potentially cathartic in a positive way”; 19% “cathartic but we don’t know in what way,” 11% “extremely damaging”, and only 2.8% said it was “game changing positive”, while 13% said it was “unproductive and soon forgotten”.
Mr David Hoffman: When we polled U.S. audiences it was split three-way: positive, potentially positive or we don’t know yet, while with this audience it is more skewed to quite damaging or extremely damaging. It’s very interesting. My own answer would be somewhere between unproductive and quite damaging.
Mr Hoffman: The Biden campaign has formulated a number of documents that we synthesized to try to establish what the orientation would be. The overarching theme of the campaign is that the Biden administration will focus on making America more competitive vis-a-vis China, not on changing China. That is a very important distinction by contrast with the Trump administration’s focus on changing China and the idea that with hard policy and hard power China would concede these changes. The Biden campaign has outlined 12 policy priorities focused on consensus goals, consistent with Biden’s standing as a self-proclaimed centrist.
- Invest at home to strengthen U.S. ability to compete with China. We can expect almost every domestic U.S. policy – investment structure, education reform or health care reform – will be in the context of being necessary to compete with China over the long term.
- Work with allies and partners to address China-related challenges.
- Refocus on big, achievable goals for remedying unfair trading practices. The Trump administration had 148 items on the Trade Representative’s list that were being pursued for concessions. The Biden administration is expected to focus on a smaller set that they believe is achievable.
- Define clear principles and processes to manage technological competition.
- Fight climate change as a national and global priority.
- Mobilize an Indo-Pacific defense strategy to meet the Chinese military challenge.
- Return to leadership in international organizations.
- Advance American values to address the Xinjiang and Hong Kong crises.
- Deter CCP efforts to exploit American openness.
- Promote highest standards for infrastructure development.
- Pressure China to contribute more to global public goods.
- Ensure necessary resources and clear lines of responsibility to manage China policy.
The Biden administration has produced the documents around these 12 points and within each describes very clearly the tools and tactics that will be used to achieve these goals. There is coherence around a policy architecture and strategy.
Foreign policy is shaped by contingencies. What are we expecting to see in the “first hundred days”? Not all of the things initiated by the Trump administration will be discontinued. Many things will be continued but in a different way and style. We will see a continuation of the phase 1 deal, tariffs will continue to be used as a leverage mechanism. We will continue to see cross-agency law enforcement. There will be some changes, such as a transition plan for tariffs and embrace of phase 2 as a focal initiative. We will see a continuation of the upgrade and enhancement of Asia regional military and defense alliances. The Biden team has talked about new multilaterals to establish the highest standards for environmental, labor, and digital activity and forging a new alliance with Europe in this regard. There has been talk of a democracy summit and the withdrawal of tariffs on allies. The Biden team will take a stronger position on human rights in Hong Kong and Xinjiang. Trump called Biden a coward for not meeting with the Dalai Lama. On the technology side we will see a ‘small yard, high fence’ concept, where restricted or controlled technologies are limited to the most sensitive ones and the walls that constrain the trade in these technologies will be very high and impermeable, but most technologies won’t fall within that yard. There will be a ramp up of the Committee on Foreign Investment in the U.S. (CFIUS) – a Treasury agency – and the Foreign Investment Risk Review Modernization Act (FIRRMA) – a new congressional act – to monitor technology flows and IP security. We will see an effort to collaborate on shared issues such as climate, public goods and anti-terrorism. The U.S. might join the Asian Infrastructure Investment Bank (AIIB) and rebuild the operations of the Center for Disease Control (CDC) in Beijing.
This is not a soft policy set, it is quite hard on China. We expect the hard stance to continue and it is hard to predict how China will react. It is not likely to result in an immediate deescalation of tensions. Things may not get better quickly but at least they won’t get worse is about the best prediction at this stage.
Style will certainly change. Under Biden we will see a de-politization of trade and technology. We will see a return to civility and quiet diplomacy and a return to experts and process. The cabinet that Biden has nominated is a team of professionals. A return to process will be well received on the Chinese side.
Ms. Gwenn Sonck: In a second poll the audience was asked about expectations of the administration change in the U.S. About 69% said that relations between the U.S. and China will improve a bit, while 23% felt that it would have a strongly positive impact on U.S.-China relations. Only 7.7% answered that the change of administration would not have much impact.
Mr David Hoffman: In the near term we are likely to see detente, where relations stabilize, dialogue channels begin to open and we will see a slow improvement. The Chinese side expects relations to be fraught for the foreseeable future. If you would ask the Chinese leadership to answer the questionnaire they would probably answer that it wouldn’t have much impact. Or relations would get worse before they get better.
Administrations in the U.S. come and go and it is questionable what any President can get done. The structural drivers on each side are the most important. On the U.S. side there is a broad-based awakening to the “China challenge”. China has been named a strategic competitor, and by some in Washington even an enemy. Congress is now heavily involved. There are 366 bills in circulation and 75 non-binding resolutions and this will constrain the Executive branch to conduct foreign policy on an unfettered basis. There is significant working class dissatisfaction with globalization.They believe that foreign trade and globalization have had a very negative impact on welfare and those are the people who vote in Congressmen and Senators. The U.S. government will need to be responsive to them. There is also an erosion of mediating institutions such as the WTO, the UN and the G20.
On the Chinese side there is an entrenched belief of U.S. “containment” motives; a very different global development and governance vision; a self-reliance obsessed approach, and a uniquely ambitious and powerful leader in Xi Jinping. For both the U.S. and China there are acute domestic challenges.
Looking two to three years out on how this relationship will evolve, the friction emanates from an incompatibility of the authoritarian state-capitalist system and the Western democratic free market system. It is not a criticism of either system. Both systems have strengths and weaknesses but they have some fundamental incompatibilities that will necessarily – if unresolved – lead to a more separated business environment. The only question is how fast this separation will occur and whether and how it will be possible for companies and foreign investors to play both sides and address the increasingly divergent business environments.
There are three scenarios of how this systemic tension will resolve:
- Partial accommodation: doors open wider.
- Persistent friction: business continues, but is complicated.
- Impassable friction: business becomes impossible due to an unforeseen event that drives a huge wedge between the West and China.
The second scenario is the most likely where neither side imposes hard policy actions that prevent business and commerce. Huawei and many other companies are on the Entity List of the Department of Commerce, which means U.S. companies must apply for permission to continue supplying semiconductors and restricted components. Most of those applications are approved and trade continues. Things will remain for the foreseeable future and military tensions will also remain under control.
The big questions for European business in the next 100 days are:
- Will the EU Council and EU Parliament ratify the EU-China Comprehensive Investment Agreement? There are some contentious issues around labor and human rights.
- How will Beijing respond to intensifying European criticism and action on China human rights and labor issues?
- Will U.S. aspirations for coordinated U.S.-EU actions on China materialize? How fast, how extensive and how serious?
Ms Gwenn Sonck: A third poll asked the audience about their expectations of U.S.-China coordination on China. “Be fast-coming, substantive and impactful” (8%); “Be fast-coming but probably limited in scope and impact” (39%); “Be more talk than action and not accomplish much” (47%); and “Never really get off the ground” (6%) were the answers given.
Mr David Hoffman: We don’t really know what the reasons are for these answers. The new administration will be challenged to put the political capital into foreign affairs to establish and motivate multilateral cooperation, and reform global institutions because the domestic demands are so high. Much will depend on how much effort and leadership the U.S. can apply to this challenge.
Three predictions:
- Political, geopolitical and economic trends point to increasing bifurcation between the China market and Western markets.
- MNCs will need to adapt significantly to succeed in an increasingly divergent, more separated Chinese business environment.
- Autonomy challenges related to control, alignment and compliance loom large.
One key question: in an increasingly politicized commercial sphere, how can companies successfully navigate home-market politics and China-related ethics and dependency risks?
Q&A: Are the current tariffs going to remain in full? Mr Hoffman: They will be reduced over time as there is not much support for tariffs in the U.S. Congress, with a few exceptions. The Biden administration recognizes the true cost of tariffs and the impact they have on American household finances. There is a deep recognition that they hurt American workers and consumers.
How will President Biden handle the Hong Kong case? Mr Hoffman: We can expect the Biden team to be swifter to impose stricter sanctions on Hong Kong. They will be very cautious in trying to undertake pressure campaigns that do not harm the Hong Kong people but that actually do pressure Chinese policy makers. We will probably see a strengthened sanctions programs around companies and individuals and the FED settlement windows tinkered with.
Exclusive Webinar with H.E. Mr Cao Zhongming, Ambassador of the People’s Republic of China in Belgium – 16 December 2020
Dec-22-2020 By : fcccadmin
The Flanders-China Chamber of Commerce (FCCC) organized an exclusive webinar with H.E. Mr Cao Zhongming, Ambassador of the People’s Republic of China in Belgium on 16 December 2020.
Mr Stefaan Vanhooren, Chairman of the Flanders-China Chamber of Commerce, welcomed Ambassador Cao as honored speaker to the webinar, adding he had not been able to meet the Ambassador in person for some time due to Covid-19. Today, we are experiencing difficult times due to Covid-19, which has changed our world, he added.
H.E. Mr. Cao Zhongming, Ambassador of the People’s Republic of China in Belgium, said it had become a tradition to attend the reception of the Flanders-China Chamber of Commerce at the end of the year to meet face-to-face, but this year we meet online which is also a good opportunity to have exchanges. Ambassador Cao next gave a short introduction to the performance of the Chinese economy and offered some suggestions and personal ideas on how to further promote FCCC members’ cooperation with China. The Ambassador also presented his best holiday wishes to the FCCC members. At the moment, Covid-19 is having an adverse impact on the world economy and all countries are facing serious challenges. There are also reports that inoculations in Belgium will start in January next year, and hopefully Belgium will overcome Covid-19 as soon as possible and have a good economic recovery.
Many entrepreneurs are focusing on what has been happening in the Chinese economy. As China has put Covid-19 under control, China is among the first countries to resume production. According to World Bank projections, China is on course to become the only major economy that will have positive growth this year. For the first three quarters of the year, China’s GDP has achieved a positive growth of 0.7%. China has for the first time become the largest trading partner of the EU. From January to October, China’s actual use of foreign capital topped USD115 billion, a year-on-year growth of 3.9%. Non-financial FDI reached USD86.3 billion, among which about USD14 billion for participants in the Belt and Road Initiative, up by 23.1%. In November China’s manufacturing PMI, the new export orders index and the import index respectively stood at 51.5 and 50.9, up by 0.5 and 0.1 points compared with October. This shows that China’s domestic demand and international demand for Chinese products are all improving. Recently, the 5th plenary session of the 19th Central Committee of the CPC has adopted a suggestion for China to make its economic and social development plan for the next five years. The Chinese government is making a scientific analysis of the new development phase, will stick to the new development philosophy and set out to foster a new development paradigm with the domestic situation as the mainstay and the international situation reinforcing each other. This is the direction the Chinese economy will take in the future. In the meantime, China will deepen opening up and will try to bring out more synergy between the domestic and international economic cycles.
China’s 14th Five Year Plan will bring development opportunities to the world, including Belgian entrepreneurs. The first aspect is the good timing brought about by China’s new development paradigm. Chinese President Xi Jinping pointed out at the 15th Summit of the G20 leaders’ meeting that adhering to a new development paradigm is not about adopting a closed door policy, but is rather about making efforts at both supply and demand and to promote unimpeded flow all through the process of production, distribution and consumption. China will continue to improve the resilience and competitiveness of the economy and build a new economic system of opening up at higher standards. Under the new development paradigm, China will fully unleash its market potential and there will be more market demand. China will open up more and share its development opportunities with the world and deepen win-win cooperation with the international community. The Ambassador expressed the hope that Belgian companies will seize the opportunities in the next five years and embrace the Chinese market.
The second aspect is that China will work to improve its business environment for foreign investment. Since the beginning of this year, the Chinese government has worked to relax market access, adopting the negative list for foreign investment and an industry catalogue encouraging foreign investment, and encouraging more foreign companies to invest in such sectors as high-end manufacturing, high-tech sectors and also renewables, energy conservation and environmental protection. China also adopted a negative list for cross-border trade in services to expand talent programs for the service industry and also is working on foreign investment laws to improve the foreign-related legal framework, enhance IP protection and work to ensure that domestic and foreign companies enjoy the same preferential policies. China’s legal environment will be improved to ensure equal competition between domestic and foreign capital. China will also accelerate the building of free trade zones and free trade ports and try to make the business environment more fair, equitable, transparent and friendly and making it a top option for investment of European companies, including Belgian companies.
The third aspect is that China will work to step up pragmatic cooperation with the international community as stated by President Xi Jinping at the APEC CEO dialogue not long ago. He said that China would actively take part in the international division of labor and become integrated in the global industrial value and supply chain. China is committed to expand cooperation and exchanges with the outside world. China is open to cooperation with every other country, region and enterprise, that wishes to do so. This year, China’s per capita GDP will exceed USD10,000 and the middle-income population will reach 400 million. Many international agencies are projecting that China’s retail market sales will reach USD6 trillion this year. In the next five years, China with its mega market and its complete range of industries, will provide more opportunities for all countries. Although affected by Covid-19, China and Belgium’s trade figures are growing. For the first nine months of 2020, bilateral trade reached close to CNY20 billion, a growth of 7.4% year-on-year. This year, China-Belgium trade is on course to exceed that of 2019. China is open and ready to share the dividends of its high-quality development to fully unleash the potential of China-Belgium cooperation and work together with Belgium for common growth.
Ambassador Cao proposed to continue to stick to multilateralism, maintain openness and inclusiveness, and seek win-win cooperation. With the authorization of vaccines and thanks to the measures to contain Covid-19 in various countries, there is light at the end of the tunnel. The Ambassador said it would be possible to put Covid-19 behind us and seek win-win cooperation to work for broad economic recovery between China and Belgium and China and European countries. He also hoped to see Belgian entrepreneurs traveling back and forth between the two countries soon and wished success to their business endeavors.
Q&A session:
Many member countries are asking when travel restrictions will be lifted or changed so that travelers do not need to quarantine any more and companies can send experts to China again? Ambassador Cao: We fully understand that entrepreneurs from China and Belgium wish to resume free travel between the two countries as soon as possible. We agree that having face-to-face exchanges between our entrepreneurs will help to create more cooperation opportunities. China has brought Covid-19 infection under control. There are still sporadic cases but not on a large scale, but China is facing pressure on having imported transmission from international travel. There are more than a dozen imported cases on a daily basis even after taking precautionary measures. Just like in other countries, China has taken measures for international personnel traveling, including quarantine, and the EU took similar measures. Many Chinese entrepreneurs and businesspeople are not able to come and negotiate business deals in the EU at present. All those restrictive measures targeting the virus – not the personnel exchanges – will be adjusted in time as the virus is brought under control. If FCCC members have special needs to travel to China for emergencies, they can inform us, and we will examine the situation and take it into consideration as an exception.
As travel is not possible now, will one-year multiple entry visas be prolonged? Ambassador Cao: Because of Covid-19, China is adjusting its visa policy so for traveling to China visas need to be renewed. We will still have to see what to do with visas that were issued before Covid-19 after the epidemic is behind us. We are monitoring the situation, if there is an update it will be made public. We have border control measures to control the virus. If entrepreneurs wish to travel to China for emergency purposes it is a precondition for them to be tested and it is important for them to stay healthy.
Mr. Luc Arnouts: Do you believe that by banning Huawei we will hurt our good relationship? Ambassador Cao: Huawei has been doing business in Belgium for over one decade and has established a sound working relationship with its clients. In the past one to two years a certain country accused Huawei of having security risks without producing any evidence. This has had a negative impact on Huawei’s reputation and its cooperation with countries. It is regrettable that some European security agencies have been convinced or are under pressure from a certain country also start to question the security of Huawei’s products. This has been undercutting their efforts to do business in Belgium. It is an unsubstantiated claim that there are serious risks associated with Huawei’s 5G technology and it is also a pity that up till now Huawei is still to have the opportunity to take part in Belgium’s 5G market. We hope that this decision is not the final one because Huwaei is the leading company in the sector and has reliable and secure technology. At the end of the day, this is a decision taken by the Belgian government and the Belgian telecom sector. We have also made the point to the various competent Belgian government agencies that we hope there will not be discriminatory measures targeting Huawei, especially without any evidence suggesting any security risks. Both the Chinese and Belgian governments have the responsibility to protect our companies. In China the Chinese government has the responsibility to respect and protect the interests of Belgian companies investing in China and vice versa. We are still closely following the latest developments and see what will happen next.
Mr Kurt Vandeputte is responsible for Umicore’s global corporate affairs and has been in charge for 15 years of Umicore’s battery activities in Jiangmen. He said that Umicore announced better financial results for this year thanks to the fast recovery of the business in China for automotive catalyst products. Recently Japan and Korea, and China as well, have set targets to achieve carbon neutrality in a couple of decades. In Europe there has been a vote to accelerate the reduction of CO2 emissions. There is a new target of reaching 55% reduction by 2030. Is the Chinese government also considering to increase their ambition for CO2 reduction? Ambassador Cao: Umicore places high importance on climate change and environmental protection. It has invested in battery production in China. This is part of the green economy that will help reduce the use of photo cells and has also invested in the green sectors in China that will help to better protect the environment. As for China’s climate change policy, China is a major party to the Paris Agreement and has made contributions to ensure the adoption of the Paris Agreement in 2015. As a result of the policy of the current U.S. administration, whose term will end shortly, to withdraw from the Paris Agreement, the European countries and China are becoming major promoters of efforts to deal with climate change. China is a developing country with a large population so it is faced with the daunting task of development, but due to the philosophy of a shared future of mankind, China has great resolve and commitment to environmental protection, to green development, to conserve energy and reduce carbon emissions. Chinese President Xi Jinping has already announced that China will work to realize the carbon peak by 2030 and carbon neutrality by 2060. From carbon peak to carbon neutrality, China will take 30 years less compared to the EU, which is not easy. A few days ago at a UN Climate Ambition meeting, President Xi Jinping announced further measures by China to reduce carbon emissions. By 2030 China aims to reduce per unit GDP energy consumption by 50% compared to the level of 2005. The percentage of non-fossil fuels in supplying China’s primary energy consumption will be increased to 25%. There will be great prospects for non-fossils such as wind and solar power. China will increase its forest stock by 6 billion m2. Overviewing the Earth from the Universe, much of the forest increase on the surface of the Earth can be attributed to China in recent years.
Mr Thierry Smagghe‘s company has achieved African swine fever (ASF) free stage for Europe, which will be confirmed soon by the WOAH, and he asked for the Ambassador’s support to open China for Belgian pork. China still needs a lot of pork and Germany now also has ASF while Belgium is getting rid of it, offering an opportunity to get the trade going again. Ambassador Cao: The pig sector of Belgium is following closely its exports to foreign partners. In China pig farming is also a large industry and a very important part of Chinese agriculture so we have the responsibility to ensure that the hog industry will not be affected by swine fever. ASF is highly infectious and once it is spread is not easy to bring under control. The Chinese competent authorities in charge of meat quarantine are following developments very closely and implemented strict measures. We have been following closely the outbreak of ASF in some European countries. Because of Covid-19, part of the evaluation and analysis is also affected because site visits are impossible. For pork exports, it’s a technical problem. We need patience and wait for the Chinese competent authority in charge of meat quarantine at the borders to complete the process.
In which way will there be more opportunities in the medtech sector and especially in the tender-based business in the Chinese health sector like hospitals or labs? Ambassador Cao: This is a very specific question requiring professional knowledge. I only have limited information on China’s medical device market. From an overall look at the Chinese market, there is great demand for high-quality medical devices. During the trade mission to China led by Princess Astrid there was an agreement on medical cooperation between the Chinese and Belgian side. Due to various reasons it was not signed but it is worth continuing pushing forward. Belgian companies have made deals with Chinese partners, such as IBA, a company active in proton therapy devices. This is an example of Belgian companies expanding medical cooperation with China. It shows that the Chinese market is open to Belgian business partners and Belgian medical devices that meet the market demand of China will find their way to Chinese hospitals. A part of Barco’s business sectors is also devoted to medical devices and has great potential on the Chinese market.
Mrs Gwenn Sonck: It is clear that many of our companies continue to be in China for China and China remains a top-3 priority. As China is the only country with a positive growth this year, many European companies in China have seen double-digit growth and it is thanks to the Chinese market that some companies have made profits in the region. Our Chamber is there for you to help you further expand in the Chinese market. We have built up a strong network in many locations in China which we want to share with you. Do not hesitate to contact us for any question or suggestion you may have.
Ambassador Cao expressed the hope that the epidemic would be brought under control in Belgium and there would not be another rebound. The Embassy values the role that the FCCC has played in bridging the business communities of Belgium and China. Although the epidemic presents all of us with challenges, there are also opportunities. Some companies may be affected, others – for instance those in the wind business, environmental protection and e-commerce – will have greater opportunities. Belgium has a central location right at the heart of Europe so there is also a bond in transportation and logistics operations closely connecting the two countries. We are only two weeks away from welcoming 2021, marking the 50th anniversary of China-Belgium diplomatic relations. We hope that Belgian companies will see this as an opportunity to further expand cooperation to set up trade and investments in China to make the third decade of the 21st century even more fruitful for China-Belgium relations. The Chinese Embassy in Belgium will continue to facilitate our companies to deepen cooperation with each other and we hope that the FCCC will follow closely Chinese companies investing in Europe and in Belgium and their problems in operations and business in Belgium. As mentioned by Mr Luc Arnouts concerning Huawei’s problems in Belgium, the BIT is making a document related to 5G and public consultation. We hope that the BIT will continue to provide a fair, equitable and non-discriminative business environment for Chinese companies operating in Belgium. Hopefully next year the epidemic will be behind us and we will have more opportunities to work together. Stay safe and healthy, Merry Christmas and Happy New Year!
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