CAI analysis + Delisting + Chip industry + Xiaomi + Car market + Bjoern Etgen
China Telecom, China Mobile and China Unicom demand to remain on the NYSE
Chip industry as brake on growth
CAI does not replace bilateral agreements
Xiaomi: litmus test for Biden
Miners rescued in Qixia
German car manufacturers: record sales in China
Heads: Bjoern Etgen
Dear reader,
Everyone is talking about the CAI. The text has been available since Friday. Over the weekend, Amelie Richter perused the text and discovered that the agreement will not replace the 26 existing investment protection agreements between China and individual EU member states. Is this what European unity looks like?
The International Labor Organization (ILO) describes four core labor standards with two conventions each: prohibition of discrimination, child labor, forced labor and the right to collective bargaining. The standards are one of the central topics at the CAI. Let’s take a look at who has ratified the standards so far: 138 countries have committed to all eight conventions, China to four – and the USA to two.
You can’t build a functioning chip industry with subsidies alone. Ning Wang and Finn Mayer-Kuckuk look into how Beijing wants to make up for lost ground.
Biden revises Trump – The pictures from the Oval Office went around the world as soon as the new US president was in office. Beijing is waiting with bated breath to see whether the new president will also reverse the decreed delisting of the major Chinese mobile phone companies from the New York Stock Exchange and remove the cell phone giant Xiaomi from the list of companies with which US citizens will not be allowed to do business or invest in the future.
It is the season for reversing the resolutions of Donald Trump. China’s big three telecom companies are also hoping for that. China Telecom, China Mobile, and China Unicom were targets of Trump’s attacks toward the end of his term. Now they are jointly addressing theNew York Stock Exchange (NYSE). Their request: reconsidering the decision to delist their shares in the US. In a notice to the Hong Kong Stock Exchange, however, the three companies concede that their maneuver may not succeed, despite the change in administration. In any case, the legal situation is currently very unclear.
In his effort to show toughness towards China, Trump ordered in November: US institutions must not contribute to financing Chinese companies with ties to the military. That applies to China Mobile, China Telecom, and China Unicom, as well as virtually every other major company in the country. On New Year’s Eve, the New York Stock Exchange announced it was removing the shares of the three corporations from trading. Due to enormous criticism of the damage to American investors and legal doubts, the exchange operator reversed that decision in early January. Two days later, however, the NYSE reaffirmed the delisting plan.
NYSE hopes for turnaround
Now the three Chinese telecom giants are hoping for another turnaround and, thus, a final reversal of the decision.The depositary receipts with which they are listed on the NYSE could then remain in trading. In fact, there were doubts even within the US government: Are the landline and mobile phone companies really a threat to US security? And what about the interests of American companies in China? For their part, these are now subject to extended reviews.
China Telekom, China Mobile, and China Unicom are among the largest companies of their kind. China Mobile has 950 million customers with mobile phone contracts, including 150 million with 5G contracts as of December. They are among the large state-owned enterprises that report directly to the central government – making them an ideal target for Trump.
So far, it’s unclear how the new administration under Joe Biden will position itself. Biden also wants to negotiate firmly with China but more rationally. The NYSE will now probably wait until the situation clears up a bit. According to its own rules, it has 25 days to decide on the applications of Chinese companies.
Donald Trump
Finance
NYSE
Technology
Telecommunications
Chip industry as brake on growth
It is a decision that has little to do with price – but all the more with experience and reliability. Its effect, however, is all the greater. “Anyone who builds IT infrastructure for the financial industry will rarely opt for microchips from China,” says a manager from the semiconductor industry. Since we are talking about competitors, he does not want to be named. But he reveals, “Even if their products are cheaper and perform the same, they’re more likely to choose vendors with whom there’s been a relationship of trust for years.”
China, the quintessential growth country, is having a hard time surviving in the booming semiconductor market. According to World Semiconductor Trade Statistics data, the semiconductor market will grow 8.4 percent this year. Last year, the figure was five percent. Meanwhile, the industry accounts for more than $450 billion in annual sales. But while Chinese companies consume 60 percent of the world’s manufactured chips, only just under 16 percent of the units processed there come from within the country. The entire Chinese semiconductor industry makes about as much as a single US supplier, AMD.
Little independence of the chip industry
This lack of independence is now taking its toll on China as well as Germany. On the one hand, the Covid pandemic has driven up demand; on the other, it has disrupted supply chains. Computers for the home office, game consoles for the next generation, the expansion of the Internet, and the IT infrastructure in companies, public authorities, and education – all of this needs chips.
In extreme cases, the current peak in demand means that carmakers have to put their employees on short-time work. Most recently affected was Audi: The premium manufacturer sent 10,000 workers home in Neckarsulm and Ingolstadt because the supply of chips stalled. Many automotive suppliers in Germany have realized too late that the chip market has dried up worldwide.
Companies from the entertainment industry, in particular, have seized the opportunity to buy up stocks from chip producers. Now German carmakers are waiting for their semiconductor orders – possibly for a few more months. After all, it takes about that long for manufacturers to deliver once orders have been received.
The events in the global automotive industry are a warning to Beijing: if you can’t control your supply of semiconductor elements, you’re vulnerable. This was already evident in the Donald Trump era when he used sanctions to stall production at electronics manufacturers like Huawei and ZTE. There is also currently an acute shortage of chips in China.
Training program for professionals
Although the country’s own share is expected to rise to 19.4 percent by 2025, growth will average around one percentage point per year, even that would fall far short of the targets set out in Beijing’s “Made in China 2025” plan. China would like to produce 70 percent of its own chip consumption by then.
In 2020, the Chinese government spent $100 billion to subsidize the industry with tax breaks, cheap loans, and other incentives. According to the Economist business magazine, 50,000 companies that “did something with semiconductors” registered last year alone. And universities in the People’s Republic are retooling their Scurriculato trainthe next generation for the chip industry. Previously, Chinese semiconductor companies such as SMIC had lured away employees, especially from TSMC of Taiwan, the world’s largest semiconductor producer, with salaries up to three times higher than the norm in their home country. Last year alone, 100 managers and engineers from TSMC left for semiconductor plants on the mainland.
China’s semiconductor manufacturers have realized, above all, that they haveto improve technically. They have thus invested primarily in research and development. However, significant problems remain – especially in terms of compatibility. Internationally used software does not run smoothly on Chinese chips. Since there has hardly been any international exchange so far, the Chinese chips lack the necessary ecosystem “to get the best out of them.”
But they have almost no other choice due to US sanctions. The major telecommunications equipment and mobile phone manufacturer Huawei has concluded the overall situation and is meanwhile expanding its investments in Chinese chip manufacturers. Huawei has acquired stakes in 20 different semiconductor companies over the past two years, according to data from the Chinese business service Qichacha published by the Japanese business newspaper Nikkei.
These companies in mainland China are likely to one-day offer products of the kind that Huawei has so far sourced from the USA, Japan, South Korea, and Taiwan. Huawei has set up an investment arm specifically to be able to act effectively here. The investment company is called Hubble Technology Investment.
Huawei, for example, is in talks with SiEn (Qingdao) from Shandong province. The local government is already praising its own player as a future chips champion and is visibly trying to join forces with SiEn. This is according to reports in the local press. The household appliance manufacturers Haier and Aucma, based in Qingdao, are also currently investing in SiEn.
However, feverish activity on the part of the private sector and the state also has undesirable side effects. It invites misuse of funds and mismanagement. For example, Tsinghua Unigroup, one of China’s largest manufacturers of Semiconductors, defaulted on its loans last year – and the state saw so little remaining potential that it forced the company into insolvency. Even if China’s subsidy economy works to some extent, it proves inefficient time and again. Finn Mayer-Kuckuk/Ning Wang
The 70 pages will be the subject of many discussions: For the first time since the political agreement in principle between the EU and China at the end of December, the EU Commission has made the preliminary text of the investment agreement with Beijing (CAI) available to the public. The annexes to the controversial deal, which are important in terms of content, remain under wraps for the time being; they are to be published in February.
The text of the agreement that has been published so far shows that the European Union achieved success above all in the area of market access. Improved legal certainty for European investors and a ban on forced technology transfer are also a win. There continues to be massive criticism of the chapter entitled “sustainable development” – in addition to agreements on climate issues, this chapter also contains agreements on the subject of workers’ rights, which critics believe binds Beijing too little from a human rights perspective.
Further negotiations on investment protection
But this is far from being the final word. The talks on details and also the so-called legal scrubbing are not yet over, as a senior EU representative in Brussels explained. Negotiations on investment protection are continuing. The aim is to reach an agreement within two years of the signing of the investment agreement. In addition, the agreement must be seen as part of a comprehensive China strategy, the representative stressed. There are other EU instruments to address human rights issues, for example. The Brussels-based authority does not expect the entire deal to be ratified before the end of the year.
German business associations are currently holding back on passing judgment on the published part of the agreement. Circles of German business representatives in Brussels said over the weekend that they want to take some time to examine the paper. “Of course, the information policy is not sufficient and the publication of the entire negotiation result must happen quickly,” said the Chairman of the trade committee of the European Parliament, Bernd Lange, to China.Table. He also said it was regrettable that there was no chapter on EU investment protection, leaving the 26 bilateral investment protection agreements – all EU states except Ireland have one with China – in place. The European SPD politician welcomed the prospect of a multilateral investment court.
More transparency in state-owned enterprises
The CAI comprises three major pillars: Market access, a level playing field, and sustainable development. With the agreement, China is granting European investors more access than ever before, emphasizes the EU Commission. However, economic experts criticize that it is almost exclusively a transposition of earlier opening agreements, which had come about, for example, under WTO auspices or through the issuance of several negative lists for foreign investments. That China is not getting any significant new openings in the European market is not really surprising – the EU market was already more open than the Chinese anyway. One of the new features is that, in the case of state-owned companies or private companies with state influence, the EU can ask China to disclose the organizational structure.
For the first time, CAI also includes a ban on forced technology transferunder the heading of the level playing field– until now, the text said: Such transfer or licensing of technology must be “voluntary” with mutual agreement. How this is to be verified is not explained in more detail.
Vague commitments against forced labor
There is a lot of criticism particularly of the third pillar, entitled ‘sustainable development.’ It contains provisions on climate, corporate social responsibility – and workers’ rights. The good thing is that, for the first time, China accepted rules on workers’ rights, says European politician Lange.
But experts see the rather vaguely formulated agreements on forced labor in particular as a significant shortcoming regarding human rights. The CAI text so far states that China should “make lasting and sustained efforts on its own initiative to pursue the ratification of ILO fundamental Conventions Nos. 29 and 105.” Experts doubt Beijing has the willingness to implement anything without a firm commitment or set deadline.After the publication of the preliminary CAI text, a representative of the European Trade Union Confederation put it even more drastically: For workers’ representatives, the chapter had “realized all their fears.” Important ILO regulations were not addressed. It is precisely in this area that the European Parliament wants to bring about changes.
A lot will happen before the final text of the agreement is on the table – because during the legal scrubbing, i.e., the formal legal examination of the paper, several changes can still be made, as trade policy expert Bettina Müller from the non-governmental organization Powershift explains. After the negotiation of the agreement, it goes to the legal service of the EU Commission. There, Müller explains, everything is checked to ensure that it is legally sound, not open to attack, and does not contain any loopholes.
During this process, standing brackets are still being filled in the text but there are also linguistic changes that can lead to tightening or watering down of the content, as Müller says. The final version of the text, which still has to be translated into every EU language after the formal scrubbing by the lawyers, will thus be long in coming. with Nico Beckert
For a very long time, Xiaomi was one of the big winners of the US embargo on Chinese companies. In the third quarter of 2020, Xiaomi made more than half of its revenue (55 percent) outside of China for the first time in its ten-year history. Partly because many Huaweiusers switched to a Xiaomi phone in recent months. The most important reason: Huawei, just on its way to becoming the world leader in smartphone sales, was hit hard by the US sanctions. In Europe – Huawei’s biggest overseas market – shipments fell 25 percent in the third quarter of 2020. Meanwhile, they rose 88 percent at Xiaomi. People at Xiaomi were rejoicing in early November when it became apparent that Trump would lose the election. But executives didn’t expect Trump to lash out in freefall. On Jan. 14 this year, he had them blacklisted along with a number of other companies. On the list, the US Department of Defense designates nine Chinese companies as “Communist Chinese military contractors.”
According to this blocking list, US corporations would be prohibited from investing in these companies starting Nov. 11, 2021. Xiaomi shares fell by more than 15 percent on the Hong Kong stock exchange after the announcement. Xiaomi rejects the accusations: It only manufactures products for civilian use, the company said.
Therefore, Xiaomi hopes for a quick solution. The most important argument: Xiaomi is not on the military blacklist, the so-called EntityList, on which Huawei was listed in May 2019. Xiaomi is still allowed to do business with US companies.
Beneficiaries of the US embargo against Huawei
Xiaomi’s share price slump also sounds worse than it is. Since the end of June 2020, the company has doubled its stock market value and most recently reached a valuation of around €100 billion. Of the 100 percent gain, 15 percent have now been lost again at the peak. The share has already made up for part of the losses. Last Friday, the share price was already back at the level of Dec. 22 last year because of the good substance of the company.
Also last Friday, Xiaomi could even announce a new sales record. One million units of the new M11 smartphone, only available in China so far, were sold within 21 days. With the M10, this took more than two months. It is estimated that a third of these went over the counter in the first 15 minutes. Internationally, things are also going well. In Spain, Xiaomi is already in first place with a market share of 34 percent. In India, the most important emerging market for smartphones, Xiaomi and Samsung have been going head-to-head for months for the first place of the most successful mobile phones.
The brand founded in 2010, whose name means “small grain of rice,” has long since achieved a similar status to Apple in China. A smart move was to rely, similar to Apple, on its own digital ecosystem with numerous “Mi” services right from the start, including fintech services such as its own payment service (MI Pay) or microloans (MI Credit).
15 percent of Xiaomi owned by US
Most important psychologically, however, is that Xiaomi passed Apple for the first time at the end of 2020, in third place in the world rankings behind Samsung and Huawei.
The question now is how the Biden administration will assess this success. Trump’s goal was to weaken the biggest challengers to the US as a technological world power and, if necessary, to force them out of the market. The fear of being left behind by China in the technological competition has been internalized by Democrats and Republicans alike. So it’s not an easy decision for Biden. Domestically, the decision to keep Xiaomi on the blacklist could win him points, but regarding foreign policy, it could negatively affect his attempt to bring the world closer together again under US leadership. “The Chinese side will take necessary measures to protect the interests of Chinese enterprises,” a Chinese foreign ministry spokesman meanwhile said. “The Xiaomi case is important because it will indicate the direction in which the American government will move,” a Chinese diplomat said.
What speaks for a more relaxed approach to Xiaomi: The North American market accounts for only 0.1 percent of Xiaomi’s total shipments so far. More than two-thirds of Xiaomi phones use semiconductors from the Californian chip giant. Orders that the US economy desperately needs. Adding to that is the fact that 15 percent of Xiaomi’s stock is still owned by American investors.
Geopolitics
Joe Biden
News
Miners rescued in Qixia
Eleven miners were rescued on Sunday afternoon (local time) in Qixia near Yantai in Shandong province two weeks after a mining accident. At first, one miner was found in a section closer to the surface and could be rescued, Chinese state broadcaster CCTV reported. Ten other miners were rescued from a depth of more than 500 meters. Another died underground from his injuries and could only be recovered dead.
Rescue in Qixia as a race against time
The rescue workers had drilled a rescue shaft under difficult conditions. During the drilling, the water level rose underground. It is considered rather unlikely that survivors can be rescued after so many days following a mining accident. The race against time was also complicated because the mining company did not inform the authorities until two days after the incident. Last week, the mayor of Qixia as well as the party chief were held accountable and removed from office. On Jan. 10, at least two explosions buried the exit from the mine shaft. There is still no sign of life from another ten buried men.
It is still unclear how the explosions in the mine occurred. For Beijing, the accident comes at a bad time. Only a few days before the accident, the Ministry of Emergency Management reported that occupational accidents and fatalities in 2020 had fallen by 15.5 and 8.3 percent compared with the previous year.
In China, accidents in mining are due to poor safety precautions and working conditions. According to official data, 573 people died in mining accidents last year. According to the National Mine Safety Administration, twenty years ago, there were about 5,000 deaths niw
Mining
German car manufacturers: record sales in China
What is the importance of the Chinese market for Germany’scar manufacturers? A recent study by the Center Automotive Research came to the following conclusion: Of the 14.16 million cars sold worldwide last year by Volkswagen, Daimler, and the BMWGroup, 38.2 percent were sold in China. In the Augsburger Allgemeine Zeitung, car expert and study author Ferdinand Dudenhoeffer sums up: “The German automakers’ China share has never been this high – and it will continue to rise.”
According to the study, China’s share increased significantly for all three car companies in 2020. BMW sold 33.4 percent of its new cars to China, up from just 28.5 percent in 2019. At Daimler,it was 30.6 percent, up from 25.3 percent last year, and at VW Group, it was 41.4 percent, up from 38.6 percent last year.
Sales of German car manufacturers on the rise
Even if their market share in China remains constant, German manufacturers’ sales in the country could increase by 3.27 million vehicles to 8.68 million a year by 2030 – “that is roughly equivalent to the size of the German car market,” the study said.
Given the high and growing dependency, Dudenhoeffer urges a “realistic” trade policy by the German government and the Europeans towards China and warns that the new Asian free trade agreement RCEP gives Korean and Japanese manufacturers advantages that should be kept in mind. European carmakers could quickly fall behind as a result of RCEP’s market access improvements. Toyota, Honda, and Nissan had already been able to achieve “significant sales gains” in China in 2020. asi
BMW
Car Industry
Trade
Volkswagen
Heads
Bjoern Etgen
Lawyer (commercial law firm Graf von Westphalen) – focus on arbitration proceedings between companies.
He has withdrawal symptoms, says Bjoern Etgen. Due to the Covid crisis, the lawyer has not been back in China for over a year. “You just miss a lot of things.” Yet he deals with China almost daily at work: Etgen is considered a pioneer of legal advice to German companies in China and is an expert in international trade and investment law.
Bjoern Etgen has been fascinated by China since his youth: “At the end of the 70s, the beginning of the 80s, great upheavals happened in China, and it became apparent that a lot was going to happen in the country – also in the legal field.”
Bjoern Etgen’s specialty is arbitration proceedings between German and Chinese companies. They now account for a large part of his work. He is listed as an arbitrator with various arbitration institutions in China, including the China International Economic and Trade Arbitration Commission. “Arbitration is an effective way for companies to get money and justice in the absence of relevant international agreements,” he says. He is driven by fairness: Both parties should find an equitable solution when a dispute arises. “The idea of someone being ripped off is repugnant to me.”
Bjoern Etgen as an arbitrator
As an arbitrator, Bjoern Etgen often resolves conflicts on foreign terrain. Understanding the country and its people is an essential prerequisite for this. Etgen has experienced China’s rise to a world power himself; he knows the mechanisms of Chinese companies, be they start-ups or state-owned enterprises. “You always have to keep in mind that the party is watching over everything in the background,” he says.
His clients feel that a different political course has been taken since Xi Jinping acceded to power: “German companies in China are hindered in many areas today. Everything has become less predictable.” The investment agreement between China and the EU will probably do little to change that. It must be acknowledged that China has undoubted economic success with its authoritarian leadership system, he says. “That Europe doesn’t have much to counter this worries me.”
Bjoern Etgen experienced China’s economic policy and commercial law heyday in the 1990s firsthand. After studying sinology and law at the University of Muenster, Etgen worked for one of the first German law firms in China in 1995. Between 1997 and 2016, he headed the Beijing, Shanghai and Hong Kong offices for the law firm Beiten Burkhardt for almost 20 years. He then moved to the commercial law firm Graf von Westphalen in Munich as Senior China Counsel. While the air is much better than in Beijing, he says, “I still miss the special atmosphere in China, the encounters with the people.” Adrian Meyer
Dessert
A list containing the names of 1.9 million members of the Chinese Communist Party from the Shanghai region has been leaked. Now Switzerland notes that an employee of the consulate in Shanghai is among them, and officials ask: Is Beijing infiltrating diplomatic and consular missions in this way and skimming off sensitive information?
China Telecom, China Mobile and China Unicom demand to remain on the NYSE
Chip industry as brake on growth
CAI does not replace bilateral agreements
Xiaomi: litmus test for Biden
Miners rescued in Qixia
German car manufacturers: record sales in China
Heads: Bjoern Etgen
Dear reader,
Everyone is talking about the CAI. The text has been available since Friday. Over the weekend, Amelie Richter perused the text and discovered that the agreement will not replace the 26 existing investment protection agreements between China and individual EU member states. Is this what European unity looks like?
The International Labor Organization (ILO) describes four core labor standards with two conventions each: prohibition of discrimination, child labor, forced labor and the right to collective bargaining. The standards are one of the central topics at the CAI. Let’s take a look at who has ratified the standards so far: 138 countries have committed to all eight conventions, China to four – and the USA to two.
You can’t build a functioning chip industry with subsidies alone. Ning Wang and Finn Mayer-Kuckuk look into how Beijing wants to make up for lost ground.
Biden revises Trump – The pictures from the Oval Office went around the world as soon as the new US president was in office. Beijing is waiting with bated breath to see whether the new president will also reverse the decreed delisting of the major Chinese mobile phone companies from the New York Stock Exchange and remove the cell phone giant Xiaomi from the list of companies with which US citizens will not be allowed to do business or invest in the future.
It is the season for reversing the resolutions of Donald Trump. China’s big three telecom companies are also hoping for that. China Telecom, China Mobile, and China Unicom were targets of Trump’s attacks toward the end of his term. Now they are jointly addressing theNew York Stock Exchange (NYSE). Their request: reconsidering the decision to delist their shares in the US. In a notice to the Hong Kong Stock Exchange, however, the three companies concede that their maneuver may not succeed, despite the change in administration. In any case, the legal situation is currently very unclear.
In his effort to show toughness towards China, Trump ordered in November: US institutions must not contribute to financing Chinese companies with ties to the military. That applies to China Mobile, China Telecom, and China Unicom, as well as virtually every other major company in the country. On New Year’s Eve, the New York Stock Exchange announced it was removing the shares of the three corporations from trading. Due to enormous criticism of the damage to American investors and legal doubts, the exchange operator reversed that decision in early January. Two days later, however, the NYSE reaffirmed the delisting plan.
NYSE hopes for turnaround
Now the three Chinese telecom giants are hoping for another turnaround and, thus, a final reversal of the decision.The depositary receipts with which they are listed on the NYSE could then remain in trading. In fact, there were doubts even within the US government: Are the landline and mobile phone companies really a threat to US security? And what about the interests of American companies in China? For their part, these are now subject to extended reviews.
China Telekom, China Mobile, and China Unicom are among the largest companies of their kind. China Mobile has 950 million customers with mobile phone contracts, including 150 million with 5G contracts as of December. They are among the large state-owned enterprises that report directly to the central government – making them an ideal target for Trump.
So far, it’s unclear how the new administration under Joe Biden will position itself. Biden also wants to negotiate firmly with China but more rationally. The NYSE will now probably wait until the situation clears up a bit. According to its own rules, it has 25 days to decide on the applications of Chinese companies.
Donald Trump
Finance
NYSE
Technology
Telecommunications
Chip industry as brake on growth
It is a decision that has little to do with price – but all the more with experience and reliability. Its effect, however, is all the greater. “Anyone who builds IT infrastructure for the financial industry will rarely opt for microchips from China,” says a manager from the semiconductor industry. Since we are talking about competitors, he does not want to be named. But he reveals, “Even if their products are cheaper and perform the same, they’re more likely to choose vendors with whom there’s been a relationship of trust for years.”
China, the quintessential growth country, is having a hard time surviving in the booming semiconductor market. According to World Semiconductor Trade Statistics data, the semiconductor market will grow 8.4 percent this year. Last year, the figure was five percent. Meanwhile, the industry accounts for more than $450 billion in annual sales. But while Chinese companies consume 60 percent of the world’s manufactured chips, only just under 16 percent of the units processed there come from within the country. The entire Chinese semiconductor industry makes about as much as a single US supplier, AMD.
Little independence of the chip industry
This lack of independence is now taking its toll on China as well as Germany. On the one hand, the Covid pandemic has driven up demand; on the other, it has disrupted supply chains. Computers for the home office, game consoles for the next generation, the expansion of the Internet, and the IT infrastructure in companies, public authorities, and education – all of this needs chips.
In extreme cases, the current peak in demand means that carmakers have to put their employees on short-time work. Most recently affected was Audi: The premium manufacturer sent 10,000 workers home in Neckarsulm and Ingolstadt because the supply of chips stalled. Many automotive suppliers in Germany have realized too late that the chip market has dried up worldwide.
Companies from the entertainment industry, in particular, have seized the opportunity to buy up stocks from chip producers. Now German carmakers are waiting for their semiconductor orders – possibly for a few more months. After all, it takes about that long for manufacturers to deliver once orders have been received.
The events in the global automotive industry are a warning to Beijing: if you can’t control your supply of semiconductor elements, you’re vulnerable. This was already evident in the Donald Trump era when he used sanctions to stall production at electronics manufacturers like Huawei and ZTE. There is also currently an acute shortage of chips in China.
Training program for professionals
Although the country’s own share is expected to rise to 19.4 percent by 2025, growth will average around one percentage point per year, even that would fall far short of the targets set out in Beijing’s “Made in China 2025” plan. China would like to produce 70 percent of its own chip consumption by then.
In 2020, the Chinese government spent $100 billion to subsidize the industry with tax breaks, cheap loans, and other incentives. According to the Economist business magazine, 50,000 companies that “did something with semiconductors” registered last year alone. And universities in the People’s Republic are retooling their Scurriculato trainthe next generation for the chip industry. Previously, Chinese semiconductor companies such as SMIC had lured away employees, especially from TSMC of Taiwan, the world’s largest semiconductor producer, with salaries up to three times higher than the norm in their home country. Last year alone, 100 managers and engineers from TSMC left for semiconductor plants on the mainland.
China’s semiconductor manufacturers have realized, above all, that they haveto improve technically. They have thus invested primarily in research and development. However, significant problems remain – especially in terms of compatibility. Internationally used software does not run smoothly on Chinese chips. Since there has hardly been any international exchange so far, the Chinese chips lack the necessary ecosystem “to get the best out of them.”
But they have almost no other choice due to US sanctions. The major telecommunications equipment and mobile phone manufacturer Huawei has concluded the overall situation and is meanwhile expanding its investments in Chinese chip manufacturers. Huawei has acquired stakes in 20 different semiconductor companies over the past two years, according to data from the Chinese business service Qichacha published by the Japanese business newspaper Nikkei.
These companies in mainland China are likely to one-day offer products of the kind that Huawei has so far sourced from the USA, Japan, South Korea, and Taiwan. Huawei has set up an investment arm specifically to be able to act effectively here. The investment company is called Hubble Technology Investment.
Huawei, for example, is in talks with SiEn (Qingdao) from Shandong province. The local government is already praising its own player as a future chips champion and is visibly trying to join forces with SiEn. This is according to reports in the local press. The household appliance manufacturers Haier and Aucma, based in Qingdao, are also currently investing in SiEn.
However, feverish activity on the part of the private sector and the state also has undesirable side effects. It invites misuse of funds and mismanagement. For example, Tsinghua Unigroup, one of China’s largest manufacturers of Semiconductors, defaulted on its loans last year – and the state saw so little remaining potential that it forced the company into insolvency. Even if China’s subsidy economy works to some extent, it proves inefficient time and again. Finn Mayer-Kuckuk/Ning Wang
The 70 pages will be the subject of many discussions: For the first time since the political agreement in principle between the EU and China at the end of December, the EU Commission has made the preliminary text of the investment agreement with Beijing (CAI) available to the public. The annexes to the controversial deal, which are important in terms of content, remain under wraps for the time being; they are to be published in February.
The text of the agreement that has been published so far shows that the European Union achieved success above all in the area of market access. Improved legal certainty for European investors and a ban on forced technology transfer are also a win. There continues to be massive criticism of the chapter entitled “sustainable development” – in addition to agreements on climate issues, this chapter also contains agreements on the subject of workers’ rights, which critics believe binds Beijing too little from a human rights perspective.
Further negotiations on investment protection
But this is far from being the final word. The talks on details and also the so-called legal scrubbing are not yet over, as a senior EU representative in Brussels explained. Negotiations on investment protection are continuing. The aim is to reach an agreement within two years of the signing of the investment agreement. In addition, the agreement must be seen as part of a comprehensive China strategy, the representative stressed. There are other EU instruments to address human rights issues, for example. The Brussels-based authority does not expect the entire deal to be ratified before the end of the year.
German business associations are currently holding back on passing judgment on the published part of the agreement. Circles of German business representatives in Brussels said over the weekend that they want to take some time to examine the paper. “Of course, the information policy is not sufficient and the publication of the entire negotiation result must happen quickly,” said the Chairman of the trade committee of the European Parliament, Bernd Lange, to China.Table. He also said it was regrettable that there was no chapter on EU investment protection, leaving the 26 bilateral investment protection agreements – all EU states except Ireland have one with China – in place. The European SPD politician welcomed the prospect of a multilateral investment court.
More transparency in state-owned enterprises
The CAI comprises three major pillars: Market access, a level playing field, and sustainable development. With the agreement, China is granting European investors more access than ever before, emphasizes the EU Commission. However, economic experts criticize that it is almost exclusively a transposition of earlier opening agreements, which had come about, for example, under WTO auspices or through the issuance of several negative lists for foreign investments. That China is not getting any significant new openings in the European market is not really surprising – the EU market was already more open than the Chinese anyway. One of the new features is that, in the case of state-owned companies or private companies with state influence, the EU can ask China to disclose the organizational structure.
For the first time, CAI also includes a ban on forced technology transferunder the heading of the level playing field– until now, the text said: Such transfer or licensing of technology must be “voluntary” with mutual agreement. How this is to be verified is not explained in more detail.
Vague commitments against forced labor
There is a lot of criticism particularly of the third pillar, entitled ‘sustainable development.’ It contains provisions on climate, corporate social responsibility – and workers’ rights. The good thing is that, for the first time, China accepted rules on workers’ rights, says European politician Lange.
But experts see the rather vaguely formulated agreements on forced labor in particular as a significant shortcoming regarding human rights. The CAI text so far states that China should “make lasting and sustained efforts on its own initiative to pursue the ratification of ILO fundamental Conventions Nos. 29 and 105.” Experts doubt Beijing has the willingness to implement anything without a firm commitment or set deadline.After the publication of the preliminary CAI text, a representative of the European Trade Union Confederation put it even more drastically: For workers’ representatives, the chapter had “realized all their fears.” Important ILO regulations were not addressed. It is precisely in this area that the European Parliament wants to bring about changes.
A lot will happen before the final text of the agreement is on the table – because during the legal scrubbing, i.e., the formal legal examination of the paper, several changes can still be made, as trade policy expert Bettina Müller from the non-governmental organization Powershift explains. After the negotiation of the agreement, it goes to the legal service of the EU Commission. There, Müller explains, everything is checked to ensure that it is legally sound, not open to attack, and does not contain any loopholes.
During this process, standing brackets are still being filled in the text but there are also linguistic changes that can lead to tightening or watering down of the content, as Müller says. The final version of the text, which still has to be translated into every EU language after the formal scrubbing by the lawyers, will thus be long in coming. with Nico Beckert
For a very long time, Xiaomi was one of the big winners of the US embargo on Chinese companies. In the third quarter of 2020, Xiaomi made more than half of its revenue (55 percent) outside of China for the first time in its ten-year history. Partly because many Huaweiusers switched to a Xiaomi phone in recent months. The most important reason: Huawei, just on its way to becoming the world leader in smartphone sales, was hit hard by the US sanctions. In Europe – Huawei’s biggest overseas market – shipments fell 25 percent in the third quarter of 2020. Meanwhile, they rose 88 percent at Xiaomi. People at Xiaomi were rejoicing in early November when it became apparent that Trump would lose the election. But executives didn’t expect Trump to lash out in freefall. On Jan. 14 this year, he had them blacklisted along with a number of other companies. On the list, the US Department of Defense designates nine Chinese companies as “Communist Chinese military contractors.”
According to this blocking list, US corporations would be prohibited from investing in these companies starting Nov. 11, 2021. Xiaomi shares fell by more than 15 percent on the Hong Kong stock exchange after the announcement. Xiaomi rejects the accusations: It only manufactures products for civilian use, the company said.
Therefore, Xiaomi hopes for a quick solution. The most important argument: Xiaomi is not on the military blacklist, the so-called EntityList, on which Huawei was listed in May 2019. Xiaomi is still allowed to do business with US companies.
Beneficiaries of the US embargo against Huawei
Xiaomi’s share price slump also sounds worse than it is. Since the end of June 2020, the company has doubled its stock market value and most recently reached a valuation of around €100 billion. Of the 100 percent gain, 15 percent have now been lost again at the peak. The share has already made up for part of the losses. Last Friday, the share price was already back at the level of Dec. 22 last year because of the good substance of the company.
Also last Friday, Xiaomi could even announce a new sales record. One million units of the new M11 smartphone, only available in China so far, were sold within 21 days. With the M10, this took more than two months. It is estimated that a third of these went over the counter in the first 15 minutes. Internationally, things are also going well. In Spain, Xiaomi is already in first place with a market share of 34 percent. In India, the most important emerging market for smartphones, Xiaomi and Samsung have been going head-to-head for months for the first place of the most successful mobile phones.
The brand founded in 2010, whose name means “small grain of rice,” has long since achieved a similar status to Apple in China. A smart move was to rely, similar to Apple, on its own digital ecosystem with numerous “Mi” services right from the start, including fintech services such as its own payment service (MI Pay) or microloans (MI Credit).
15 percent of Xiaomi owned by US
Most important psychologically, however, is that Xiaomi passed Apple for the first time at the end of 2020, in third place in the world rankings behind Samsung and Huawei.
The question now is how the Biden administration will assess this success. Trump’s goal was to weaken the biggest challengers to the US as a technological world power and, if necessary, to force them out of the market. The fear of being left behind by China in the technological competition has been internalized by Democrats and Republicans alike. So it’s not an easy decision for Biden. Domestically, the decision to keep Xiaomi on the blacklist could win him points, but regarding foreign policy, it could negatively affect his attempt to bring the world closer together again under US leadership. “The Chinese side will take necessary measures to protect the interests of Chinese enterprises,” a Chinese foreign ministry spokesman meanwhile said. “The Xiaomi case is important because it will indicate the direction in which the American government will move,” a Chinese diplomat said.
What speaks for a more relaxed approach to Xiaomi: The North American market accounts for only 0.1 percent of Xiaomi’s total shipments so far. More than two-thirds of Xiaomi phones use semiconductors from the Californian chip giant. Orders that the US economy desperately needs. Adding to that is the fact that 15 percent of Xiaomi’s stock is still owned by American investors.
Geopolitics
Joe Biden
News
Miners rescued in Qixia
Eleven miners were rescued on Sunday afternoon (local time) in Qixia near Yantai in Shandong province two weeks after a mining accident. At first, one miner was found in a section closer to the surface and could be rescued, Chinese state broadcaster CCTV reported. Ten other miners were rescued from a depth of more than 500 meters. Another died underground from his injuries and could only be recovered dead.
Rescue in Qixia as a race against time
The rescue workers had drilled a rescue shaft under difficult conditions. During the drilling, the water level rose underground. It is considered rather unlikely that survivors can be rescued after so many days following a mining accident. The race against time was also complicated because the mining company did not inform the authorities until two days after the incident. Last week, the mayor of Qixia as well as the party chief were held accountable and removed from office. On Jan. 10, at least two explosions buried the exit from the mine shaft. There is still no sign of life from another ten buried men.
It is still unclear how the explosions in the mine occurred. For Beijing, the accident comes at a bad time. Only a few days before the accident, the Ministry of Emergency Management reported that occupational accidents and fatalities in 2020 had fallen by 15.5 and 8.3 percent compared with the previous year.
In China, accidents in mining are due to poor safety precautions and working conditions. According to official data, 573 people died in mining accidents last year. According to the National Mine Safety Administration, twenty years ago, there were about 5,000 deaths niw
Mining
German car manufacturers: record sales in China
What is the importance of the Chinese market for Germany’scar manufacturers? A recent study by the Center Automotive Research came to the following conclusion: Of the 14.16 million cars sold worldwide last year by Volkswagen, Daimler, and the BMWGroup, 38.2 percent were sold in China. In the Augsburger Allgemeine Zeitung, car expert and study author Ferdinand Dudenhoeffer sums up: “The German automakers’ China share has never been this high – and it will continue to rise.”
According to the study, China’s share increased significantly for all three car companies in 2020. BMW sold 33.4 percent of its new cars to China, up from just 28.5 percent in 2019. At Daimler,it was 30.6 percent, up from 25.3 percent last year, and at VW Group, it was 41.4 percent, up from 38.6 percent last year.
Sales of German car manufacturers on the rise
Even if their market share in China remains constant, German manufacturers’ sales in the country could increase by 3.27 million vehicles to 8.68 million a year by 2030 – “that is roughly equivalent to the size of the German car market,” the study said.
Given the high and growing dependency, Dudenhoeffer urges a “realistic” trade policy by the German government and the Europeans towards China and warns that the new Asian free trade agreement RCEP gives Korean and Japanese manufacturers advantages that should be kept in mind. European carmakers could quickly fall behind as a result of RCEP’s market access improvements. Toyota, Honda, and Nissan had already been able to achieve “significant sales gains” in China in 2020. asi
BMW
Car Industry
Trade
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Bjoern Etgen
Lawyer (commercial law firm Graf von Westphalen) – focus on arbitration proceedings between companies.
He has withdrawal symptoms, says Bjoern Etgen. Due to the Covid crisis, the lawyer has not been back in China for over a year. “You just miss a lot of things.” Yet he deals with China almost daily at work: Etgen is considered a pioneer of legal advice to German companies in China and is an expert in international trade and investment law.
Bjoern Etgen has been fascinated by China since his youth: “At the end of the 70s, the beginning of the 80s, great upheavals happened in China, and it became apparent that a lot was going to happen in the country – also in the legal field.”
Bjoern Etgen’s specialty is arbitration proceedings between German and Chinese companies. They now account for a large part of his work. He is listed as an arbitrator with various arbitration institutions in China, including the China International Economic and Trade Arbitration Commission. “Arbitration is an effective way for companies to get money and justice in the absence of relevant international agreements,” he says. He is driven by fairness: Both parties should find an equitable solution when a dispute arises. “The idea of someone being ripped off is repugnant to me.”
Bjoern Etgen as an arbitrator
As an arbitrator, Bjoern Etgen often resolves conflicts on foreign terrain. Understanding the country and its people is an essential prerequisite for this. Etgen has experienced China’s rise to a world power himself; he knows the mechanisms of Chinese companies, be they start-ups or state-owned enterprises. “You always have to keep in mind that the party is watching over everything in the background,” he says.
His clients feel that a different political course has been taken since Xi Jinping acceded to power: “German companies in China are hindered in many areas today. Everything has become less predictable.” The investment agreement between China and the EU will probably do little to change that. It must be acknowledged that China has undoubted economic success with its authoritarian leadership system, he says. “That Europe doesn’t have much to counter this worries me.”
Bjoern Etgen experienced China’s economic policy and commercial law heyday in the 1990s firsthand. After studying sinology and law at the University of Muenster, Etgen worked for one of the first German law firms in China in 1995. Between 1997 and 2016, he headed the Beijing, Shanghai and Hong Kong offices for the law firm Beiten Burkhardt for almost 20 years. He then moved to the commercial law firm Graf von Westphalen in Munich as Senior China Counsel. While the air is much better than in Beijing, he says, “I still miss the special atmosphere in China, the encounters with the people.” Adrian Meyer
Dessert
A list containing the names of 1.9 million members of the Chinese Communist Party from the Shanghai region has been leaked. Now Switzerland notes that an employee of the consulate in Shanghai is among them, and officials ask: Is Beijing infiltrating diplomatic and consular missions in this way and skimming off sensitive information?
