There is a new sight amidst the lockdown chaos in Shanghai: tall green metal fences erected around apartment complexes and building entrances. Apparently to seal off those who have tested positive from the outside world and thus “stop” the virus. These green fences have been heavily criticized on Chinese social media. Whether the barriers will now replace sending Covid-positive individuals to a quarantine camp remained unclear at first. The capital Beijing also declared several “high-risk areas” on Tuesday due to 33 newly registered infections. It is probably only a matter of days before a hard lockdown will be imposed here as well.
Instead of gradually paralyzing the entire country, the government could also try to quickly authorize mRNA vaccines. First and foremost, the effective vaccine by German manufacturer Biontech, writes Finn Mayer-Kuckuk. The fact that this has not yet happened is primarily for ideological reasons: Beijing would rather use a domestic substance on the front line. But domestic products like Arcovax are not yet market ready. However, Biontech and its Chinese partner Fosun Pharma remain optimistic that they will obtain approval for their vaccine.
In other areas, business between Europe and China is also stagnant. In a recent study, think tank Merics and the Rhodium Group report that direct investment from the People’s Republic in Europe increased only marginally last year. Again, one of the reasons is Beijing’s strict covid policy. But new measures on the European side could also further discourage investment, writes Amelie Richter. A new draft law on third-party subsidies, for example, envisages that all companies operating in the European Union must disclose subsidies from third countries – which could have a deterrent effect on investors from the People’s Republic.
Shanghai continues to struggle under curfews, while Beijing begins to slip into a lockdown. The situation is so tense that the Communist Party’s highest asset is at risk: the general acceptance of its policies among the population. So it is baffling that public health policymakers are not grasping at every straw to alleviate the situation. To be specific, not a single mRNA vaccine is being administered in China. And the country’s own conventional vaccines have been injected in large numbers, but they are not particularly good at stopping Omicron (China.Table reported).
Despite high infection rates, modern vaccines have made a return to normal life possible in the US and Europe, because vaccinated individuals rarely need to be hospitalized. “One strategy that needs immediate implementation is to increase rates of the booster vaccination dose to the elderly and other vulnerable groups and to see if mRNA vaccines can be used,” said Jaya Dantas, a public health expert at the Curtin School of Population Health in Australia. It is only through the use of mRNA technology that the number of cases has decoupled from the number of deaths around the globe.
Now there is apparently new momentum in the approval process of BioNTech’s German mRNA compound. According to reports, BioNTech and its Chinese partner Fosun Pharma are again in negotiations with the authorities. They look for a way to obtain approval for the successful vaccine. After all, it will apparently take a while before a product from Chinese competitors is ready for the market.
The approval drama surrounding Cominarty (the vaccine’s trade name) has now dragged on for a year (China.Table reported). In April 2021, BioNTech CEO Uğur Şahin visited China for talks to kick off the formal approval process. At the time, he expected green light by mid-2021, and Fosun prepared to set up production facilities. In August last year, Fosun Group Chairman Guo Guangchang still assured, “Related matters are currently proceeding normally in accordance with procedures.” Since then, however, there has been silence about the Cominarty approval. BioNTech had no choice but to repeatedly signal its willingness to cooperate.
At the beginning of 2021, mRNA vaccines may have had an aftertaste of being unproven. But after approval in 165 countries and regions and administration of 2.6 billion doses last year alone, its properties are well known. Therefore, medical doubts are considered unlikely by now. Analysts and industry insiders suspect a mix of primarily political motives behind the lengthy approval process.
Meanwhile, China works tirelessly to quickly develop its own home-grown products. Several projects are currently already in advanced stages:
But early successes do not make a market-ready vaccine, as Curevac by German company Curevac has shown, whose first candidate failed due to insufficient efficacy, and which now struggles to make headway on its second attempt. BioNTech’s formula is directly based on the research of Hungarian mRNA pioneer Katalin Karikó, who has so far been unsurpassed in her field.
An effective vaccination strategy is urgently required. The capital, Beijing, announced the discovery of 33 new infections on Tuesday. That sounds low – but in Shanghai, the ongoing drama also started with double-digit infection numbers that quickly grew into five figures. By Tuesday evening, Beijing had designated two “high-risk areas” and 12 “moderate-risk areas”. That is widely considered a prelude to a lockdown that would painfully cripple China’s administrative heart (China.Table reported).
The likely scenario is that, for ideological reasons, Beijing will wait for Arcovax to be market-ready in the next two or three months and authorize BioNTech’s German product in parallel. This would prove the technical prowess of their own industry – and provide plenty of effective vaccines for the market.
China’s shopping spree in other countries seems to be history for the time being. Although Chinese investments continued to rise overall in 2021, albeit by a meager three percent, the small increase was mainly due to the construction of own factories. Spending on corporate acquisitions fell to its lowest level in 14 years, according to a new study by Rhodium Group and Mercator Institute for China Studies (Merics). “Compared with the peak periods around 2016, Chinese investment has settled at a low level,” Max Zenglein, chief economist at Merics, said on Tuesday during the presentation of the study.
The days when China invested heavily in Europe are also over for now, according to the authors of the study “Chinese FDI in Europe: 2021 Update”. It is true that Chinese foreign investment rose by a third last year. But even this fluctuation happened at a low level.
In fact, investments are a long way from their record six years ago. Back then, they still amounted to €47 billion. Most recently, it was just under €8 billion. In other words, less than a fifth of its peak. Zenglein expects things to remain difficult in the “current difficult economic and regulatory environment”.
The study finds several factors at play:
In the meantime, experts see a change not only in the quantity but also in the quality of Chinese spending. “The nature of Chinese investment in Europe has fundamentally changed in recent years,” explains Agatha Kratz, director of Rhodium Group. “The era of billion-dollar acquisitions in strategic sectors is probably over.” Chinese companies instead built factories in Europe themselves.
The most popular destination for Chinese FDI was the Netherlands. The acquisition of Philips’ home appliances business for €3.7 billion by private equity firm Hillhouse Capital made the Netherlands the largest single recipient of Chinese investment. The deal represented around 35 percent of the total amount of all investments in 2021, according to the study.
The Netherlands is followed by Germany, the United Kingdom and France, which are also popular recipient countries. Together, they accounted for a further 39 percent of Chinese investment. According to the study, the United Kingdom in particular experienced a major increase. There, FDI from China increased by a third. In France and Germany, however, the figure decreased. In Germany, FDI dropped from €2 billion to €1.5 billion – the lowest level since 2015.
The study also found that Chinese venture capital increasingly flowed into European tech startups. At €1.2 billion, the investment volume in this sector was more than double that of the previous year. E-commerce applications, fintech, game developers, AI and robotics companies in Germany and the UK were particularly popular among Chinese investors.
Where increased financial involvement by Chinese players is actually expected, however, the study found that the situation last year was lukewarm at best: In Eastern Europe, FDI declined after a strong run in 2020, coming in at €385 million. In Northern Europe, FDI flow remained stable at €1.2 billion. Here, Chinese investors show particular interest in Finland.
Chinese SOEs, in particular, appear to have become more cautious about their foreign investment. FDI by state-owned participants dropped to a 20-year low in Europe, according to the study. At €1.3 billion, it accounted for 12 percent of total investment. This was the lowest figure since 2001, note the researchers from Merics and Rhodium Group.
The only actual activity of Chinese state-owned enterprises was in Southern Europe. There, SOEs made a major investment of around €600 million in Spain’s energy sector. The energy company China Three Gorges bought renewable energy plants there.
But there is also activity on the EU side that discourages investors from the People’s Republic. In several EU states, screening for FDI is currently being reviewed and renewed. Additional new legislation from Brussels could affect market access for Chinese companies in the future and thus reduce their desire to invest, the study states.
Among them are the EU Supply Chain Act and two new drafts that passed an important legal hurdle earlier this week: The European Parliament Committee on International Trade voted on Monday on its position on a new law on foreign subsidies and on the trialogue agreement on the new International Procurement Instrument (IPI). Both will now be voted on in the EU Parliament in the near future.
Especially the law on foreign subsidies could dampen the investment enthusiasm of Chinese companies in the EU. This is because the draft law envisages that all companies operating in the European Union will have to disclose subsidies from non-EU countries – which will have a significant deterrent effect on some investors from the People’s Republic.
Sinolytics is a European consulting and analysis company specializing in China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.
Ever since the Chinese government announced the introduction of a national social credit system (SCS) in 2014, this topic has been stirring international debate. In the broadest sense, the SCS is a data-based and technology-supported assessment system that evaluates financial reliability on the one hand, and general social behavior on the other. All natural individuals, government institutions as well as companies are subjected to this assessment. International attention is generally focused on the evaluation of individual behavior based on a scoring system, which is used to derive rewards and disadvantages.
Less attention is paid to the part of the system that rates companies. As with individual behavior, the SCS also aims to reward compliant behavior and punish non-compliant behavior of companies. But unlike with individuals, this is not usually done using a scoring system, but by red and black lists which can be accessed online and show who has behaved particularly well and who has behaved particularly badly. To assess the reliability of individual players, the system collects financial and behavioral data.
Firstly, the financial and credit behavior of companies is collected in order to use it for assessing their credit risk. In particular, credit overdrafts, fraudulent behavior and embezzlement have a negative impact. In this respect, the SCS is similar to credit rating systems like Schufa or Equifax.
On the other side, data on (social) behavior is collected to “educate” companies to comply with regulations and to “behave well”. Here, rule violations such as delayed tax payments or the improper use of donations can become just as much a malus as the failure to fulfill government contracts.
The SCS has one primary goal concerning companies. It is intended to promote China’s economic development by creating trust in business partners through transparency, and thus making the Chinese market more attractive for investment. In this way, it is intended to contribute to the legitimization of the Chinese Communist Party, as it is based primarily on economic success.
The company-specific SCS also applies to foreign companies, including the approximately 8,000 local German companies, and thus has an indirect effect beyond China’s borders. However, German companies have rarely appeared on blacklists so far. This may be due to the fact that German companies in China feel compelled to comply with the law for reasons of compliance alone.
Still, according to the AHK Business Confidence Survey 2021, the SCS continues to cause concern and speculation. This is because the precise implications for (German) companies are still difficult to assess. On the one hand, there is concern that the government could instrumentalize the SCS to enforce political and/or economic goals. Closely linked to this point is the fear that the SCS could lead to selective discrimination against foreign companies. Furthermore, the SCS generates additional costs, because companies have to strategically select partner companies, suppliers and employees and continuously monitor their behavior to ensure that their own rating is not damaged by possible misconduct of their partners. Since the SCS also dictates that the misconduct of companies in one area also has an impact on other areas of the company (joint rewards and punishment mechanism), the SCS can quickly create a downward spiral – which could be fatal for the companies.
In the longer term, the question arises whether the SCS will remain a Chinese phenomenon because it is only designed to compensate for systemic deficits in China that do not exist in this form in developed industrialized countries with a rule of law. Or will the SCS spread from China to the rest of the world? One argument for the latter would be that the control and educational aspect of the SCS could be attractive to other developing countries and authoritarian nations. And even some foreign companies might welcome the transparency and global spread of the SCS. The idea that alternative data and digital scoring systems should be a viable supplement for assessing the credit risk of individuals and companies is already prevalent, and not just in China. And last but not least, various digital business models are already emerging around the SCS, which are likely to meet international demand sooner or later.
Prof. Dr. Doris Fischer holds the Chair of China Business and Economics at the Julius-Maximilian University of Wuerzburg. Lena Wassermann is a doctoral student at the Chair of China Business and Economics at the Julius-Maximilian University of Wuerzburg. The authors conduct research as part of the research project “Learning from the ‘frontrunner’? A multidisciplinary analysis of the Chinese Social Credit System and its impact on Germany”, funded by the Bavarian Research Institute for Digital Transformation (bidt), on the impact of the social credit system on German companies.
This guest article is published as part of the Global China Conversations event series of the Kiel Institute for the World Economy. On Thursday (28.04.), the topic will be: “China’s Social Credit System: How does it impact German companies?”. China.Table is a media partner of the event series.
Autonomous courier in Shanghai: A customer takes everyday goods from an unmanned vehicle. Unmanned vehicles have been in use since the beginning of April to counter food shortages during the lockdown in the metropolis – and to prevent infections with the coronavirus.
There is a new sight amidst the lockdown chaos in Shanghai: tall green metal fences erected around apartment complexes and building entrances. Apparently to seal off those who have tested positive from the outside world and thus “stop” the virus. These green fences have been heavily criticized on Chinese social media. Whether the barriers will now replace sending Covid-positive individuals to a quarantine camp remained unclear at first. The capital Beijing also declared several “high-risk areas” on Tuesday due to 33 newly registered infections. It is probably only a matter of days before a hard lockdown will be imposed here as well.
Instead of gradually paralyzing the entire country, the government could also try to quickly authorize mRNA vaccines. First and foremost, the effective vaccine by German manufacturer Biontech, writes Finn Mayer-Kuckuk. The fact that this has not yet happened is primarily for ideological reasons: Beijing would rather use a domestic substance on the front line. But domestic products like Arcovax are not yet market ready. However, Biontech and its Chinese partner Fosun Pharma remain optimistic that they will obtain approval for their vaccine.
In other areas, business between Europe and China is also stagnant. In a recent study, think tank Merics and the Rhodium Group report that direct investment from the People’s Republic in Europe increased only marginally last year. Again, one of the reasons is Beijing’s strict covid policy. But new measures on the European side could also further discourage investment, writes Amelie Richter. A new draft law on third-party subsidies, for example, envisages that all companies operating in the European Union must disclose subsidies from third countries – which could have a deterrent effect on investors from the People’s Republic.
Shanghai continues to struggle under curfews, while Beijing begins to slip into a lockdown. The situation is so tense that the Communist Party’s highest asset is at risk: the general acceptance of its policies among the population. So it is baffling that public health policymakers are not grasping at every straw to alleviate the situation. To be specific, not a single mRNA vaccine is being administered in China. And the country’s own conventional vaccines have been injected in large numbers, but they are not particularly good at stopping Omicron (China.Table reported).
Despite high infection rates, modern vaccines have made a return to normal life possible in the US and Europe, because vaccinated individuals rarely need to be hospitalized. “One strategy that needs immediate implementation is to increase rates of the booster vaccination dose to the elderly and other vulnerable groups and to see if mRNA vaccines can be used,” said Jaya Dantas, a public health expert at the Curtin School of Population Health in Australia. It is only through the use of mRNA technology that the number of cases has decoupled from the number of deaths around the globe.
Now there is apparently new momentum in the approval process of BioNTech’s German mRNA compound. According to reports, BioNTech and its Chinese partner Fosun Pharma are again in negotiations with the authorities. They look for a way to obtain approval for the successful vaccine. After all, it will apparently take a while before a product from Chinese competitors is ready for the market.
The approval drama surrounding Cominarty (the vaccine’s trade name) has now dragged on for a year (China.Table reported). In April 2021, BioNTech CEO Uğur Şahin visited China for talks to kick off the formal approval process. At the time, he expected green light by mid-2021, and Fosun prepared to set up production facilities. In August last year, Fosun Group Chairman Guo Guangchang still assured, “Related matters are currently proceeding normally in accordance with procedures.” Since then, however, there has been silence about the Cominarty approval. BioNTech had no choice but to repeatedly signal its willingness to cooperate.
At the beginning of 2021, mRNA vaccines may have had an aftertaste of being unproven. But after approval in 165 countries and regions and administration of 2.6 billion doses last year alone, its properties are well known. Therefore, medical doubts are considered unlikely by now. Analysts and industry insiders suspect a mix of primarily political motives behind the lengthy approval process.
Meanwhile, China works tirelessly to quickly develop its own home-grown products. Several projects are currently already in advanced stages:
But early successes do not make a market-ready vaccine, as Curevac by German company Curevac has shown, whose first candidate failed due to insufficient efficacy, and which now struggles to make headway on its second attempt. BioNTech’s formula is directly based on the research of Hungarian mRNA pioneer Katalin Karikó, who has so far been unsurpassed in her field.
An effective vaccination strategy is urgently required. The capital, Beijing, announced the discovery of 33 new infections on Tuesday. That sounds low – but in Shanghai, the ongoing drama also started with double-digit infection numbers that quickly grew into five figures. By Tuesday evening, Beijing had designated two “high-risk areas” and 12 “moderate-risk areas”. That is widely considered a prelude to a lockdown that would painfully cripple China’s administrative heart (China.Table reported).
The likely scenario is that, for ideological reasons, Beijing will wait for Arcovax to be market-ready in the next two or three months and authorize BioNTech’s German product in parallel. This would prove the technical prowess of their own industry – and provide plenty of effective vaccines for the market.
China’s shopping spree in other countries seems to be history for the time being. Although Chinese investments continued to rise overall in 2021, albeit by a meager three percent, the small increase was mainly due to the construction of own factories. Spending on corporate acquisitions fell to its lowest level in 14 years, according to a new study by Rhodium Group and Mercator Institute for China Studies (Merics). “Compared with the peak periods around 2016, Chinese investment has settled at a low level,” Max Zenglein, chief economist at Merics, said on Tuesday during the presentation of the study.
The days when China invested heavily in Europe are also over for now, according to the authors of the study “Chinese FDI in Europe: 2021 Update”. It is true that Chinese foreign investment rose by a third last year. But even this fluctuation happened at a low level.
In fact, investments are a long way from their record six years ago. Back then, they still amounted to €47 billion. Most recently, it was just under €8 billion. In other words, less than a fifth of its peak. Zenglein expects things to remain difficult in the “current difficult economic and regulatory environment”.
The study finds several factors at play:
In the meantime, experts see a change not only in the quantity but also in the quality of Chinese spending. “The nature of Chinese investment in Europe has fundamentally changed in recent years,” explains Agatha Kratz, director of Rhodium Group. “The era of billion-dollar acquisitions in strategic sectors is probably over.” Chinese companies instead built factories in Europe themselves.
The most popular destination for Chinese FDI was the Netherlands. The acquisition of Philips’ home appliances business for €3.7 billion by private equity firm Hillhouse Capital made the Netherlands the largest single recipient of Chinese investment. The deal represented around 35 percent of the total amount of all investments in 2021, according to the study.
The Netherlands is followed by Germany, the United Kingdom and France, which are also popular recipient countries. Together, they accounted for a further 39 percent of Chinese investment. According to the study, the United Kingdom in particular experienced a major increase. There, FDI from China increased by a third. In France and Germany, however, the figure decreased. In Germany, FDI dropped from €2 billion to €1.5 billion – the lowest level since 2015.
The study also found that Chinese venture capital increasingly flowed into European tech startups. At €1.2 billion, the investment volume in this sector was more than double that of the previous year. E-commerce applications, fintech, game developers, AI and robotics companies in Germany and the UK were particularly popular among Chinese investors.
Where increased financial involvement by Chinese players is actually expected, however, the study found that the situation last year was lukewarm at best: In Eastern Europe, FDI declined after a strong run in 2020, coming in at €385 million. In Northern Europe, FDI flow remained stable at €1.2 billion. Here, Chinese investors show particular interest in Finland.
Chinese SOEs, in particular, appear to have become more cautious about their foreign investment. FDI by state-owned participants dropped to a 20-year low in Europe, according to the study. At €1.3 billion, it accounted for 12 percent of total investment. This was the lowest figure since 2001, note the researchers from Merics and Rhodium Group.
The only actual activity of Chinese state-owned enterprises was in Southern Europe. There, SOEs made a major investment of around €600 million in Spain’s energy sector. The energy company China Three Gorges bought renewable energy plants there.
But there is also activity on the EU side that discourages investors from the People’s Republic. In several EU states, screening for FDI is currently being reviewed and renewed. Additional new legislation from Brussels could affect market access for Chinese companies in the future and thus reduce their desire to invest, the study states.
Among them are the EU Supply Chain Act and two new drafts that passed an important legal hurdle earlier this week: The European Parliament Committee on International Trade voted on Monday on its position on a new law on foreign subsidies and on the trialogue agreement on the new International Procurement Instrument (IPI). Both will now be voted on in the EU Parliament in the near future.
Especially the law on foreign subsidies could dampen the investment enthusiasm of Chinese companies in the EU. This is because the draft law envisages that all companies operating in the European Union will have to disclose subsidies from non-EU countries – which will have a significant deterrent effect on some investors from the People’s Republic.
Sinolytics is a European consulting and analysis company specializing in China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.
Ever since the Chinese government announced the introduction of a national social credit system (SCS) in 2014, this topic has been stirring international debate. In the broadest sense, the SCS is a data-based and technology-supported assessment system that evaluates financial reliability on the one hand, and general social behavior on the other. All natural individuals, government institutions as well as companies are subjected to this assessment. International attention is generally focused on the evaluation of individual behavior based on a scoring system, which is used to derive rewards and disadvantages.
Less attention is paid to the part of the system that rates companies. As with individual behavior, the SCS also aims to reward compliant behavior and punish non-compliant behavior of companies. But unlike with individuals, this is not usually done using a scoring system, but by red and black lists which can be accessed online and show who has behaved particularly well and who has behaved particularly badly. To assess the reliability of individual players, the system collects financial and behavioral data.
Firstly, the financial and credit behavior of companies is collected in order to use it for assessing their credit risk. In particular, credit overdrafts, fraudulent behavior and embezzlement have a negative impact. In this respect, the SCS is similar to credit rating systems like Schufa or Equifax.
On the other side, data on (social) behavior is collected to “educate” companies to comply with regulations and to “behave well”. Here, rule violations such as delayed tax payments or the improper use of donations can become just as much a malus as the failure to fulfill government contracts.
The SCS has one primary goal concerning companies. It is intended to promote China’s economic development by creating trust in business partners through transparency, and thus making the Chinese market more attractive for investment. In this way, it is intended to contribute to the legitimization of the Chinese Communist Party, as it is based primarily on economic success.
The company-specific SCS also applies to foreign companies, including the approximately 8,000 local German companies, and thus has an indirect effect beyond China’s borders. However, German companies have rarely appeared on blacklists so far. This may be due to the fact that German companies in China feel compelled to comply with the law for reasons of compliance alone.
Still, according to the AHK Business Confidence Survey 2021, the SCS continues to cause concern and speculation. This is because the precise implications for (German) companies are still difficult to assess. On the one hand, there is concern that the government could instrumentalize the SCS to enforce political and/or economic goals. Closely linked to this point is the fear that the SCS could lead to selective discrimination against foreign companies. Furthermore, the SCS generates additional costs, because companies have to strategically select partner companies, suppliers and employees and continuously monitor their behavior to ensure that their own rating is not damaged by possible misconduct of their partners. Since the SCS also dictates that the misconduct of companies in one area also has an impact on other areas of the company (joint rewards and punishment mechanism), the SCS can quickly create a downward spiral – which could be fatal for the companies.
In the longer term, the question arises whether the SCS will remain a Chinese phenomenon because it is only designed to compensate for systemic deficits in China that do not exist in this form in developed industrialized countries with a rule of law. Or will the SCS spread from China to the rest of the world? One argument for the latter would be that the control and educational aspect of the SCS could be attractive to other developing countries and authoritarian nations. And even some foreign companies might welcome the transparency and global spread of the SCS. The idea that alternative data and digital scoring systems should be a viable supplement for assessing the credit risk of individuals and companies is already prevalent, and not just in China. And last but not least, various digital business models are already emerging around the SCS, which are likely to meet international demand sooner or later.
Prof. Dr. Doris Fischer holds the Chair of China Business and Economics at the Julius-Maximilian University of Wuerzburg. Lena Wassermann is a doctoral student at the Chair of China Business and Economics at the Julius-Maximilian University of Wuerzburg. The authors conduct research as part of the research project “Learning from the ‘frontrunner’? A multidisciplinary analysis of the Chinese Social Credit System and its impact on Germany”, funded by the Bavarian Research Institute for Digital Transformation (bidt), on the impact of the social credit system on German companies.
This guest article is published as part of the Global China Conversations event series of the Kiel Institute for the World Economy. On Thursday (28.04.), the topic will be: “China’s Social Credit System: How does it impact German companies?”. China.Table is a media partner of the event series.
Autonomous courier in Shanghai: A customer takes everyday goods from an unmanned vehicle. Unmanned vehicles have been in use since the beginning of April to counter food shortages during the lockdown in the metropolis – and to prevent infections with the coronavirus.
