Post the coronavirus crisis a number of countries are likely to re-examine economic links with Beijing, while China will make concerted attempts to cash in on the economic slowdown in Europe and other parts of the world, by increasing its share in overseas companies which are in debt.
Even before the outbreak of the Covid-19, the US had begun to adopt a cautious line with regard to economic ties with China (this was evident from the bipartisan consensus with regard to not allowing Huawei’s participation in US’ 5G network). Another clear reiteration of this point were repeated warnings from senior officials from the Trump administration, including Secretary of State Mike Pompeo that economic ties with Beijing need to be pursued with caution.
The outbreak has only worsened the bilateral relationship between Beijing and Washington, even though China has provided assistance to the US. The latest instance being medical aid provided to the state of New York.
There is already a serious debate in the UK as well as in countries like Italy, Germany, Spain and Australia to check Beijing’s growing clout. In Italy, Germany, Spain and Australia laws have been passed so as to pre-empt Chinese take overs of companies, and participation in sensitive sectors.
If one were to look at UK-China ties, post the outbreak of the coronavirus, the Conservative government, headed by Boris Johnson has criticized China for not being transparent about casualties arising out of the coronavirus epidemic. The UK has also signaled downgrading its economic ties with Beijing.
Under the Prime Ministership of David Cameron, the UK’s economic ties with China had witnessed a significant upswing. During the Prime Ministership of Theresa May a decision to allow Huawei participation in non-core parts, while keeping the telecom company out of UK’s 5G network, was taken, though a number of ministers and members of the Conservative party expressed their concern over this decision. Boris Johnson did not reverse May’s decision, though a number of conditions were put in place such as limiting Huawei’s market share to 35%, keeping it away from sensitive sites such as military facilities.
The UK’s top intelligence agencies (MI6 and MI5) have recently warned the Boris Johnson government to rethink its ties with China. The UK’s intelligence community has warned the government that it should seriously look at restricting Chinese takeovers of key companies, specifically in high-tech areas such as digital communications and artificial intelligence. British government has put on hold the takeover of Imagination Technologies, a UK based chip design firm engaged in artificial intelligence research, by China Reform Holdings, a venture capital fund controlled by the Chinese government.
The intelligence community also stated that Chinese students’ access to research at universities and elsewhere should be reduced. The Trump administration has also brought in a number of policies with a similar objective. The UK’s intelligence agencies have warned against the decision to allow Huawei’s participation in the 5G network. There is already a large group of policymakers, including MPs in the Conservative Party which is pressurizing the Johnson government to scale down economic links with China.
EU and China
In the European Union, there is a growing apprehension among countries that China will acquire stakes in companies located within the EU. Even before the outbreak of the coronavirus, European countries like Spain and Italy were facing massive slowdown. The outbreak of the pandemic has only worsened the economic situation; and with a reduction in demand companies will be unable to pay their debts. In such a situation, the probability of takeover by Chinese companies is likely to increase.
EU President Ursula von der Leyen, while warning member states with regard to potential takeover by Chinese companies stated, ‘As in any crisis, when our industrial and corporate assets can be under stress, we need to protect our security and economic sovereignty.’
Laws passed by the EU Countries
If one were to look at the laws being passed to prevent takeover by the Chinese, Germany has imposed a cap on FDI. There has been domestic opposition to China’s increasing share in a number of companies. From 2017 to 2019, mergers and acquisitions by Chinese investors had come down to just €1.3 billion from €12 billion.
Ever since Chinese appliance maker Midea Group‘s $4.93 billion buyout of robot producer Kuka in 2017, Germany had begun to impose controls on investments from outside the EU. It would be pertinent to point out that Zhejiang Geely Holding Group, the private Chinese auto group and state-owned Beijing Automotive Industry Holding (BAIC) Group held a combined stake of nearly 15%.
It is not just Germany which has brought in laws to prevent takeover by Chinese companies, Spain has capped FDI investment at 10%, Italy has brought in laws which make it tougher for foreign investors to invest in strategic industries. It would also be pertinent to point out that the EU has issued new guidelines with regard to screening health and biotech foreign investment.
While China has provided assistance to Europe in the midst of the coronavirus outbreak, there have been divisions with regard to the assistance provided by China. While Italy and Serbia have praised Beijing for the assistance it has provided, there are voices in the European Union which have expressed their skepticism with regard to the same.
Australia-China economic ties
In Australia, a decision was taken to remove an existing law, where foreign investments below a certain value ($175 million) by countries with which Australia had signed FTA’s, even in sensitive areas, like defense and telecom, were exempt from scrutiny.
According to the new law, proposed foreign investments are subject to scrutiny by the Foreign Investment Review Board, regardless of their deal value. In recent years a number of Chinese investments and takeover of companies have drawn eyeballs. One such case is China’s Landbridge Group getting a 99-year lease of the strategically important Darwin Port which hosts the US marines. Australia of course will need to bear in mind the fact that China is Australia’s largest trading partner.
In India too, there is an apprehension that China may look at the possibility of increasing its stake in Indian companies given the current slowdown (China’s central bank has increased its stake by 1.01% in HDFC bank).
In sum, there is likely to be a global rethink with regard to China. This reassessment will be based on pragmatism, and cannot be reactionary. However, countries will watch out for their own interests and will not allow Beijing to take advantage of the economic devastation caused by the coronavirus pandemic. Not only do countries bring in laws to check predatory tendencies, but economic policies need to benefit entrepreneurs. It is also important for countries wary of Chinese domination to work together and come up with a common strategy to keep a check on Beijing’s assertive policies.
The views and opinions expressed in this article are those of the author.
New Delhi based Policy Analyst associated with OP Jindal Global University, Sonipat, India. One of his areas of interest is the India-Pakistan-China triangle.