EU and ASEAN leaders in Brussels discuss their strategic partnership, trade relations and other international issues
David Hutt
01/03/2023January 3, 2023
As
tensions between the EU and China rise, European companies are turning to
Southeast Asia for investment. This trend will likely continue, despite Beijing
relaxing its strict Zero-COVID policy.
Following street protests in late November, Chinese authorities dismantled most lockdown and testing restrictions, and from this
month visitors to China will no longer need to endure arduous
quarantines.
It is perhaps good news that Beijing is moving away from its zero-COVID policies but "the die is
already cast" on decoupling from China and diversifying supply chains,
according to Chris Humphrey, executive director of the EU-ASEAN Business
Council, which represents European businesses in Southeast Asia.
"Southeast Asia has been seeing the benefit of this with
increased inflows of foreign direct investment, and I do not see the recent
moves by China changing that trend," he added. "For many businesses,
China is now being run as a discreet market, whereas Southeast Asia is being
seen as a part of a larger global or Asian operation."
EU member states invested around US$26.5
billion (€25.14 billion) in the 10 countries of the Association of
Southeast Asian Nations (ASEAN) bloc in 2021, the largest yearly rate on record
and about 14% of overall investment in the region, according to ASEAN data.
That compares to $18.5 billion in 2020 and $6.1 billion in 2019.
At the first full summit between the EU and ASEAN leaders
last month in Brussels, European Commission President Ursula von der Leyen
pledged to invest €10 billion into the region from the EU's Global Gateway strategy,
a counterweight to China's Belt
and Road project.
Deteriorating EU-China relations
While European investment in China hasn't
dried up in recent years, analysts say that the political dynamics have
fundamentally shifted.
Tensions between the EU and Beijing
significantly worsened in 2021 over a host of issues, not least after the EU
sanctioned several Chinese officials over alleged human rights abuses against
the Uyghur
minority in the northwestern Xinjiang region, to which Beijing
responded by sanctioning
several European politicians.
That effectively killed
off the EU-China Comprehensive Agreement on Investment that had
been inked in late 2020. It doesn't look likely to thaw anytime soon.
China has become "less predictable, less
reliable and less efficient," according to a report published in September
by the European Union Chamber of Commerce in China.
And decoupling isn't just a one-way street. Xu
Chengwei of Nanyang Technological University points out that China is also
decoupling from the West.
Shifting
trends
Beijing's strict coronavirus restrictions were a principal
reason for investor hesitancy over Chinese markets. And even though China is
quickly loosening its rules, there are fears the authorities could either make
a U-turn or coronavirus fatalities could spike. Recent data modeling by The
Economist has forecast as many as 1.5 million deaths from COVID by March.
Another concern is the US-China rivalry. The US could impose
further sanctions on China, potentially wide-ranging ones, which Europeans may
have to comply with, said Frederick Kliem, a research fellow and lecturer at
the S Rajaratnam School of International Studies in Singapore.
"This affects mostly companies that have the upstream part
of their value chain in China and a global downstream. Many German companies
that are potentially affected by this are already in the process of adjusting
to this contingency," he told DW.
A study published
by Rhodium Group in September found that European investment in China is
increasingly concentrated around a handful of large, mostly German firms.
Germany's three big automakers — Volkswagen, BMW and Daimler —
and its chemicals group BASF accounted for a third of all European investment
into China between 2018 and 2021, the report found.
The top ten European investors accounted for 71% of all
investment in China in 2021, and a whopping 88% in 2019. And the value of
European acquisitions in China hit a four-year low in 2021.
"Since the outbreak of the pandemic in early 2020 …
stakeholders on the ground say that virtually no European investors that were
not already present in the country have made direct investments," the
report noted.
Even as coronavirus restrictions are lifted, it is possible,
"perhaps even probable, that the concentration of European investment in
China around a small number of well-established European firms whose presence
is welcomed by the Chinese authorities becomes more entrenched," it added.
ASEAN
attracts European investment
At the same time, Southeast Asian countries are attracting a
number of European investors. Danish toy giant LEGO Group broke ground in
November on its €1 billion factory in Vietnam, the company's first
carbon-neutral plant. Dutch firm Harvest Waste plans to build Asia's most
advanced waste-to-energy plant in Cebu in the Philippines.
Vietnam has been the principle benefactor of global decoupling
from China. US-based Apple — which used to rely on China to produce all its
products — has suggested that its MacBooks will be made in Vietnam.
Thanks to South Korean investment — mainly from electronics
giant Samsung — Vietnam is now the world's largest producer of smartphones
after China.
"To remain as a competitive alternative to China, Vietnam
must provide policy certainty, maintain stable real wages, and promote free
trade and investment environments," said Sunhyung Lee, assistant professor
of economics at Montclair State University.
'Reducing
dependencies'
Indeed, commentators say that although European investors are increasingly looking to
Southeast Asia for opportunities, more work needs to be done on regulations and
business partnerships if the region is to ever truly rival China.
"The new EU mantra is about 'reducing dependencies' on any
one country for key products. But as we see in the case of Russia,
disentangling long-standing business ties is often easier said than done,"
said Shada Islam, a Brussels-based commentator on European Union affairs.
As well as a trade pact, the EU and Singapore signed an
investment protection agreement that became effective in 2019. However, trade
and investment pacts with other Southeast Asian countries are proving difficult
to finalize.
Talks are progressing with Indonesia, the region's largest economy, and it's
possible that discussions with Thailand, Malaysia and the Philippines will be
finished within a few years.
The EU and Vietnam also agreed a corollary Investment Protection
Agreement (EVIPA) in June 2019. But whereas their trade agreement became
effective in 2020, the investment pact has so far been ratified by just 12 of
27 parliaments of EU member states, although there is optimism the others will
soon follow.
Vietnamese Prime Minister Pham Minh Chinh spent much of his
European tour last month lobbying European ministers to lean on
national parliaments to enact the investment code.
Edited by: Keith Walker
https://www.dw.com/en/european-investors-give-china-the-cold-shoulder/a-64270954
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