China Influence Monitor

Hello, and welcome to China Influence Monitor, a weekly newsletter published by CEPA and Coda Story and edited by me, Edward Lucas. We track the westward footprint of China’s influence operations, and their effects on politics, economies, societies and alliances across Central Asia, the Caucasus, Russia and Europe.

In this issue: The EU’s China Investment Agreement is a setback,  but not a catastrophe; Ericsson’s not-totally-sincere lobbying for Huawei — and a Kazakh winemaker hopes to profit from Australia’s woes.

2021 has got off to a dismal start, with the crackdown in Hong Kong and near-meltdown in Washington, D.C. Chinese official media have gleefully linked the two, equating the mob rampaging through the Capitol with the pro-democracy protesters in the supposedly autonomous territory. 

Reminder: Nothing that Chinese influence operations do to democracies matches the damage that we do to ourselves.

But 2020 ended pretty badly too. 

The EU’s new investment agreement with China has sparked dismay among China hawks on both sides of the Atlantic. The deal protects European investors against discriminatory subsidies and intellectual property theft. But past experience suggests that these promises are unenforceable — just like China’s supposed concessions on labor rights and political freedoms. In short, the EU looks simultaneously careless, cynical, greedy and gullible. The deal snubs the incoming Biden administration, kowtows to Beijing, and exemplifies how German mercantilism and French vanity trump any attempts at strategic thinking in Brussels. 

But the gloom is overdone. Having underlined American unreliability over the past four years (let alone in the events of this week), the notoriously unilateralist Trump administration can hardly be surprised that European countries put their own interests ahead of Atlantic solidarity. Nor can the U.S. claim to be “perplexed and stunned” that the EU is trying to protect its own investors in China on lines startlingly similar to the deal already done by the United States.

The China Investment Agreement was symbolically important but in practical terms quite narrow. As Noah Barkin notes, the EU debate over China is not over. It is just the beginning. 

What really matters is what happens next. For a start, year-long wrangles in the European Parliament over ratification of the deal will focus attention on China’s shortcomings and the flimsy arguments made by its supporters. Lots of countries (not only the usual hawks, but also Spain and Italy) are cross about Germany’s arm-twisting to get the deal through.

In Germany, public opinion has hardened on China. An election this year will most likely bring the hawkish Greens into government in Berlin. Nils Schmid, the foreign affairs spokesman of the SPD (the social democrats are usually wet as noodles on foreign policy) told the FT that “Germany needs “a real foreign policy for China…We need to decouple our foreign policy from the commercial interests of big business.” 

All that creates fertile territory for other initiatives. Shamefaced EU politicians will be especially eager to cooperate with the U.S. on China. Beefing up the EU mission in Taiwan — my favorite — would be one option, tighter controls on sensitive infrastructure investments, another. Other possibilities: reviving the WTO, creating the D-10 grouping of big democracies, or the T-12 of technologically advanced ones. Or all of the above.

Takeaway: The EU-China deal is a setback for those wanting a united international front to constrain Chinese behavior. But it is only a catastrophe if we treat it like one. 

HUAWEI’S FAKE FRIENDS

Leaked text messages show Ericsson chief Börje Ekholm was lobbying the Swedish authorities to “talk” to the country’s telecoms regulator about the ban on Huawei (announced in October, to be implemented by 2025). Now Ekholm is worrying publicly about reprisals against his company’s activities in China.

This is not what it seems. It costs Ekholm nothing to be seen to oppose the ban. He gains points with the authorities in Beijing and perhaps protects his company’s 8% of sales in China. But the mushrooming bans in many Western countries on Huawei’s participation in 5G (and next-generation 6G) networks is a boon for Ericsson. The Swedish company is one of the Chinese telecoms giant’s few competitors. Its share price is up by a fifth in the past twelve months. Go figure. 

Meanwhile, this useful paper from Ivana Karásková and colleagues at CHOICE (China Observers in Central and Eastern Europe) rounds up Huawei’s fortunes or lack of them in the region. 

Key points: 

• U.S. diplomacy is working everywhere except Hungary. 
• Romania’s approach is the most hawkish, followed by Poland. 
• The final outcome will depend on continued U.S. involvement, Germany’s stance, any changes in national politics and how local telecoms operators lobby. 

What we’re reading. The Hindustan Times has the scoop on the Afghan authorities’ capture and deportation of ten Chinese spies. Apparently, they were running a fake terrorism network aimed at attracting Uyghur emigres.

What we’re not reading (yet). If Chinese spooks are doing this in Afghanistan, they’re probably trying similar stunts in other countries. The Afghans were working from a friendly service’s tip-off, so spycatchers in other countries with big Uyghur diasporas (hello, Turkey, Germany) should be busy. 

What we’re not reading (also). Any response from the Vatican to the authorities’ bullying of its unofficial mission in Hong Kong — see this long Reuters investigation for the full story. 

What we’re (not) drinking. Ever tried Kazakh wine? The South China Morning Post reports on Zeinulla Kakimzhanov, a winemaker who wants to help fill the gap left by the Chinese authorities’ punitive sanctions against Australian imports. 

Sounds a bit risky, given the Beijing authorities’ vindictive use of tariffs. And tricky, given the huge tailbacks at the Kazakh-Chinese border: up to 42 days for rail freight. These have led to spoiled shipments and a diplomatic protest from the Kazakhs. The Diplomat reckons that the snarl-ups stem from “subnational bureaucratic incompetence” not “central political malice.” 

That’s not altogether reassuring, given similar delays clogging the Russian, Mongolian and Kyrgyz borders. 

That’s it for this week — we will be back in your inboxes next Thursday.

Best regards
Edward

P.S. We’re glad you’re reading China Influence Monitor! Make sure you’re subscribed to the newsletter here and help us spread the word.