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EU tells China spy and sanction laws could spook investors

September 25, 2023

The EU's trade chief has told China that its security laws and politicized business environment risk alienating investors. Beijing's apparent support for Moscow has not helped either, he added.

 A truck drives past containers at the Yangshan Deep Water Port in Shanghai
Dombrovskis was expected to express concern about the imbalance in trade between China and the EUImage: Aly Song/REUTERS

European Union Trade Commissioner Valdis Dombrovskis on Monday said companies from within the bloc were increasingly questioning their future in China after recent legal and political developments.

The warning that China needed to do more to reduce the perception of risk came as Dombrovskis visited Beijing for high-level trade talks. 

What did the trade chief say?

Dombrovskis said tight security laws and a more "politicized" business environment have left European companies unsure of their legal obligations when operating in China.

The EU trade chief raised the concern during his appearance alongside Chinese Vice Premier He Lifeng later on Monday, but had spoken about it at more length in an earlier speech.

At Beijing's Tsinghua University, Dombrovskis said some EU companies questioned their future in the world's second-largest economy.

A new foreign relations law partly aimed at beating foreign sanctions, plus a recent update to anti-espionage laws, were of "great concern to our business community," Dombrovskis said.

"Their ambiguity allows too much room for interpretation. This means European companies struggle to understand their compliance obligations: a factor that significantly decreases business confidence and deters new investments in China," the commissioner warned.

"The EU and China both benefited immensely from being open to the world," he said.

"European companies still want to invest here — but only if the conditions are right."

Dombrovskis mentioned the issue again later on Monday alongside Vice Premier He.

Beijing's tacit support for its ally Russia amid its war in Ukraine was also a big factor in "reputational risk" for China, Dombrovskis warned.

However, the EU trade chief said that Beijing and Brussels would resume "regular exchanges about macroeconomic issues."

"Reigniting the economic and financial dialogue and macroeconomic dialogue will be important in this regard and we look forward for these dialogues in coming months," Dombrovskis said. 

China exporting military gear to Russia despite sanctions

China says ready to import more, hopes for end to high-tech export restrictions

Chinese customs data shows the EU's trade deficit with China widened to $276.6 billion (€261.4 billion) in 2022, starkly up from $208.4 billion a year earlier.

China's He said that Beijing was willing to increase its imports from the EU after his dialogue with Dombrovskis.

China's vice premier said both sides had agreed to cooperate to stabilize supply chains and oppose de-coupling, a term often used in western countries to denote reducing or seeking to eliminate dependence on the world's most prolific exporter.

When China objected to this terminology, after some European and American politicians employed it, Brussels instead said it was looking to "de-risk" its China relationship.

He also said that China hoped the EU would reconsider restrictions place on high-tech exports to China. 

This may be a reference to an EU proposal announced by Commission President Ursula von der Leyen in the summer to not allow "a limited, small set of cutting-edge technologies" to "enhance the military capabilities of some countries of concern." She had tried at the time to say the move was "country agnostic," but given the far-reaching sanctions imposed on Russia amid its invasion of Ukraine, the main focus of such a scheme launched in mid-2023 appeared clear. 

Questions for both sides

Dombrovskis' four-day trip began on Saturday. It follows an EU Chamber of Commerce report that showed business confidence was at one of its lowest levels in years.

The visit also follows Brussels' decision to investigate Beijing's electric car subsidies. The probe could see the EU impose punitive tariffs on vehicles deemed to be sold at an unfairly low price.

The Chinese commerce ministry has condemned the EU's actions as "naked protectionism." It said the measures would hurt China-EU economic and trade relations.

With Europe aware of the damage caused by its past dependence on Russian oil and gas, the EU is increasingly seeking to pivot away from China for some raw materials and components.

rc, msh/fb (Reuters, AFP, AP)