'Mo Money, Ma Problems'
'Mo Money, Ma Problems'
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January 6, 2021

In today’s issue:

1. Eurasia Group| ‘Top Risks of 2021’

  • ‘Top Risks of 2021’: CHINA

2. Biden & the EU-China Investment Agreement

  • 'With Concessions and Deals, China’s Leader Tries to Box Out Biden'
  • 'China and E.U. Leaders Strike Investment Deal, but Political Hurdles Await'

3. The EU-China Investment Agreement: Pro & Con

  • PRO | 'The Importance of the EU, China Investment Deal'
  • CON | 'Europe has handed China a strategic victory'

4. China's Antitrust Investigation into AliBaba

  • 'Mo money, Ma problems - Chinese trustbusters’ pursuit of Alibaba is only the start'
  • 'China’s Pro-Monopoly Antitrust Crusade'

Each New Year brings with it a slew of predications about what’s coming up in that year.

  • Among the best of these is the Eurasia Group’s ‘Top Risks,’ written in part by Ian Bremmer.
  • I’ve included just the China section, which concludes that, ‘On balance, this year will see a bilateral rivalry as intense as that of last year, and that’s dangerous.’
  • Eurasia Group’s business is risk assessment – and it is very good at it. So the whole report is worth a read.

While I am not one for making New Year’s predictions, two events over the holidays have caused me to relent.

  1. The EU’s signing an investment agreement with China, despite signals from the incoming Biden administration to hold off until the Biden team could weigh in.
  2. China’s starting an antitrust investigation into Alibaba for ‘alleged monopoly conduct.’

You haven’t seen much in these pages about the EU-China investment agreement.

  • That’s because it’s been dead in the water for the seven years the EU and China have been negotiating it.

The EU in various contexts have made this lack of progress one its major complaints against China.

  • Even though Angela Merkel, during her 2020 term as EU president, made the agreement a priority, not much happened.

China, for its part, had little incentive to conclude a deal – it already had a fairly free hand investing in the EU.

  • And it had little to gain from acceding to the EU’s demands.
  • Besides, as the EU leaders also often lamented, China is focused on the U.S. and sees the EU as a relative pipsqueak.

Then Joe Biden, with his talk of coalitions of allies against China, won the presidency, and Xi Jinping changed his tune.

  • In December, Xi instructed his negotiators to agree to many of the EU’s demand and get the deal done.
  • Merkel, quick to secure this for her legacy and to advance the interests of the German auto industry, began lobbying fellow EU countries to sign on.

Jake Sullivan, National Security Advisor-designate, posted a somewhat oblique (incoming administration are prohibited from meddling in foreign affairs) but nonetheless clear Tweet, saying that hey, why don’t you guys wait until we’re in office, and we’ll work on this China thing together.

  • Ignoring this entreaty, Merkel plowed ahead, and the deal was signed.

This has led to speculation that the EU is now going its own way and that Mr. Biden will have a difficult time forging any coalition, about China or otherwise, with the EU.

  • And with regard to China specifically, ‘Reinhard Bütikofer, chairman of the European parliament’s delegation on China, says: “We’ve allowed China to drive a huge wedge between the US and Europe.” ’

On the other hand, Joerg Wuttke, president of the EU Chamber of Commerce in China said:

  • ‘We should not have waited for the Biden administration to sort things out. Wait for what?’
  • ‘We don't know if China will be more responsive if the three parties sit together.’
  • ‘We don't have a timeline. Shall we wait another two or three years?’

‘This doesn't exclude our meeting, putting together a program, and talking to the Chinese in a coherent manner, the OECD countries, possibly all together, and the U.S.’

  • ‘But this happening is very much unknown.’
  • ‘We like the fact that there could be a coalition, but at this stage, get the investment deal done and move on.’

My impression is that Mr. Wuttke is on the right track.

  • Yes, it would have better, from a U.S. point of view, if a new Biden administration had had a chance to weigh in.
  • But the deal, from an EU point of view, was more important, and actingin what the EU considered its own interest, especially after four years of being kicked around by the U.S., seems pretty reasonable.

My prediction: This will be a speed bump to U.S.-EU cooperation on China – it is not a signal of EU reluctance to join a coalition to counter China.

  • The deal will not come up for a final ratification vote for a year or so.
  • Given opposition within the EU and the opportunity for the Biden administration to have its voice heard, there is a better than even chance that the EU will not ratify it anyway.

The story to watch is China’s antitrust investigation into Alibaba.

My prediction: Expect a broad and thorough Chinese government effort to assert control over China’s fintech industry.

  • Chinese fintech companies have control of masses of data on individuals that the Party believes should only be in its hands, and they have the ability to generate narratives that don’t necessarily conform to those of the Party.
  • Mr. Xi has demonstrated time and again that Party control trumps GDP.
  • So even if this effort to rein in fintech harms the drive for tech autonomy and global dominance, Mr. Xi will persevere and prevail.
  • This will be one of the biggest and most consequential stories of 2021.
CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue. Including an article here does imply agreement with or endorsement of its contents.
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