North Korea’s dictator Kim Jong-un has conducted more missile tests this year than in the past five years combined. And it is only March. Beijing is upset about rockets fired at its border. Regardless, China still needs North Korea as a buffer between itself and US ally South Korea. It was only in late February that China’s leader, Xi Jinping, stressed the importance of bilateral cooperation with Pyongyang. A difficult diplomatic act, notes Christiane Kuehl. On closer inspection, the similarities to Russia are striking. Both North Korea and Russia are important partners against the West. Yet both act unpredictably. And now the international community also sees Russia, like North Korea, as an aggressor. This is why the back-and-forth of Chinese communication with its difficult allies seems so similar.
The liquidation of bankrupt Chinese real estate group Evergrande also remains an unprecedented balancing act. On Tuesday, the company reported that it will miss the March 31 deadline to submit its annual balance sheet. The balance sheet, once released, will reveal the extent of its financial woes, writes Finn Mayer-Kuckuk. The stalling tactics towards its creditors, which the company has kept up for months, are only possible because Chinese law does not acknowledge delayed bankruptcy. However, using intransparency as a strategy also has its limits. Questionable lending and the accompanying cover-up of problems already caused the end of Japan’s decade-long boom at the end of the 1980s.
What cannot be, is not spoken openly, either. Chinese real estate group Evergrande has been effectively bankrupt for months (China.Table reported). Yet no company representative and no Chinese official are even uttering the word “bankruptcy”, even though the criteria has been met long ago. But resulting turmoil on the financial market would simply be too great if news of the formal bankruptcy ran through all media channels. That’s why everyone involved is still trying to scrape by somehow.
However, warning signals are becoming unmistakable lately. On Tuesday, the company announced it would miss the deadline for presenting its annual financial statements on March 31. Money reportedly went missing from a key subsidiary. The company is now talking about “complications” in the preparation of the annual financial statements. In addition, creditors collectively demand about $1.8 billion in outstanding bond payments this week. Another reason for the delay in the publication of the financial statements is clear: The presentation of Evergrande’s numbers would have revealed the extent of its financial woes.
By refusing to provide an exact amount of its problems, Evergrande would have become liable to prosecution in Europe long ago. Elske Fehl-Weileder, a specialized lawyer at the law firm Schultze & Braun, has already explained China.Table the difference between China and the legal situation in most other large economies: Delaying bankruptcy is not a criminal offense in China.
The supposed loophole for delayed bankruptcy may well be deliberate on the part of China’s leadership. Intransparency is a common characteristic of Asian economies whenever they are on the threshold from middle and higher to very high earnings. State economic engineering coupled with a credible narrative of success has always worked out well so far. A grand public disclosure of financial situations was never necessary. Instead, state officials and big business always had a knack for sweeping problems under the rug.
Japan found itself at this juncture in the late 1980s. Shady lending mixed with a belief in ever-increasing valuations in the real estate market. When its powerful economic officials realized how dubious their own financial system was, they covered up the scale of the problems. They tried to make them disappear through backroom deals. Real transparency did not come until a decade and a half later. The situation was similar in South Korea. But China, in the absence of free media and independent courts, may never get to the point of truly disclosing what is happening in its financial market.
As a matter of fact, even in Western countries, systemically important large-scale bankruptcies are avoided wherever possible. And here, too, the government lends a hand when a real heavyweight has to go through insolvency in the end. The belief in the cleansing powers of the market ends where the fear of rising unemployment and chain reactions begins.
In the communist one-party state of China, the tendency toward non-transparent but face-saving solutions runs in the DNA. Its comrades bargain it out amongst themselves. And that is precisely what is currently happening at Evergrande. However, the price for scraping by, as in Japan and South Korea at the time, is ever lower efficiency. Evergrande, too, has turned too much of its capital into concrete, which is no longer profitable at these prices.
Specifically, Evergrande’s property management subsidiary is currently going under. Its property services division was previously considered healthy. After all, it generates actual profits with tangible services. The Evergrande empire may have been built on borrowed money. But the buildings and their occupants are real. They need a compound office (“Wuye 物业”), janitorial services, cleaning, maintenance. Residents pay housing charges for these services.
But it is precisely these building services that Evergrande is now blaming for the delay of the balance sheet submission. They allegedly had almost €2 billion (¥13.4 billion) in an account. As it now turns out: the account served as collateral for a loan. Since the ability of the Evergrande Group to repay such loans is currently close to nil, the logical conclusion is: The money is gone.
The practice of pledging cash for a loan that was applied here already sounds like a balance sheet trick. Someone who is liquid could also use the money directly or simply lend it within the group. The scheme runs outside the box twice and is therefore once again: non-transparent. Evergrande itself, in feigned confusion, speaks of a “major incident” and cites Covid as a contributing factor to the disappearing account balance. In any case, the attempt to sell the property management subsidiary at a profit has failed for the time being. Guangzhou-based Hopson Development had been considered as a buyer.
At the same time, the company is coming under pressure on the international front. The company’s bonds are already being sold off on the market. Currently, there are only 13 cents per euro of bond value left. This means that Evergrande would actually have to pay the full price to the bondholders. But no one expects that anymore. Therefore, the bonds are being resold among market participants at a discount of almost 90 percent. The markdown reflects the risk that bankers currently expect for Evergrande. Needless to say, the company can no longer borrow money under these conditions.
Numerous other real estate companies have long been caught up in the maelstrom of problems. In Hong Kong, they have to submit their financial statements by March 31. Evergrande competitor Ronshine has now even lost its auditor. The company has now also announced that it will not be able to present its financial statements on time.
Meanwhile, the government’s cleanup plans are not progressing nearly as well as expected. In fact, healthy, state-backed real estate companies were supposed to take over Evergrande’s intact parts. But they are reluctant to step in, as business magazine Caixin reports. Market conditions have since become too uncertain. Managers of intact companies would rather play it safe at the moment, the magazine says. This includes not inflating their balance sheets through questionable acquisitions.
It was that time again on Sunday: North Korea reported a missile test. Last week, such a test had apparently gone wrong: debris rained from the sky near Pyongyang. So far this year, ruler Kim Jong-un has launched a whopping eleven test series with dozens of missiles, after he had already gradually increased the test frequency since the fall of 2021. Kim is experimenting as he last did in the so-called “fire and fury” era with its combination of nuclear and missile tests and particularly bellicose rhetoric from both Pyongyang and Washington. New satellite images also show activity at the Punggye-ri nuclear test site, which had been actually shut down in 2018, Reuters reported in early March. It is the only known nuclear test site. North Korea has been steadily developing its nuclear and ballistic missile programs, a UN report said in early February.
Even despite the Ukraine war, North Korea is apparently important enough to the US that National Security Adviser Jake Sullivan raised the issue at what was supposed to be a Ukraine meeting with China’s foreign policy czar Yang Jiechi in Rome, according to the White House. Sullivan expressed his “deep concern” about North Korea. Yang’s response is unknown.
Beijing is as protective of Pyongyang as ever. Most recently, in early March, Beijing and Moscow jointly blocked the UN Security Council’s condemnation of the latest missile tests. But for years, it has been an open secret that Beijing is less than enthusiastic about the Kim dynasty’s nuclear program. Now that Russia has isolated itself internationally with the Ukraine invasion, China has two pariah states as neighbors and partners. And both are brandishing their nuclear arsenal.
Experts are now noting a mutual intensification of geopolitical interference emanating from Russia and North Korea. “I think Beijing is very concerned about the instability created by Russia and the possibility that North Korea could use this as an opportunity to escalate tensions,” says Ramon Pacheco Pardo, North Korea expert at King’s College London.
The test of an intercontinental ballistic missile, in particular, could lead to an intensification of the situation. “This would be unpleasant for China,” Pardo told China.Table. Even more so because North Korea apparently wants to deploy its intercontinental ballistic missiles close to China’s territory. The US Center for Strategic and International Studies recently used satellite imagery to identify a proposed military base at Hoejung-ni, just 25 kilometers from China’s border.
The 130 missiles and 4 nuclear warheads Kim has tested since taking office a decade ago already included an intercontinental ballistic missile called Hwasong-15 that could reach the White House. In January, North Korea claimed to have launched two hypersonic missiles and a Hwasong-12 intermediate-range missile, the most powerful missile since 2017. Hwasong-12 could at least hit the US Pacific base at Guam. Medium-range ballistic missiles followed at the end of February and in early March – possibly with the intention of sending components of a spy satellite to operating altitude for testing purposes.
China puts on a good face. Head of state Xi Jinping only reiterated the importance of bilateral cooperation at the end of February. Both sides recently resumed freight train traffic across the Yalu River near Dandong, which had been suspended due to the Covid pandemic. As a result, bilateral trade in January and February was 40 times the previous year’s level at $136.5 million. The fact that this meager volume accounts for about 90 percent of North Korea’s foreign trade shows Kim’s isolation and dependence on China. Nevertheless, Kim does not allow any large interference. He knows that Beijing also supports North Korea’s ailing economy because it is an important buffer country for China.
But that is not the whole story. “North Korea has become more strategically valuable to China in recent years,” says North Korea expert Christopher Green of the Crisis Group think tank. “China and the United States are engaged in a ‘Great Game’ on China’s east coast, and this competition begins in the northeast with the Korean Peninsula,” Green told China.Table – alluding to the struggle for supremacy between great powers in Central Asia 150 years ago. “North Korea is stubborn and troublesome, but China is rightly viewed as the only country capable of influencing North Korea’s actions at all. That North Korea kept a moratorium on missile testing during the Beijing Winter Olympics suggests that Pyongyang knows when it’s best not to cause any trouble.”
For Beijing, North Korea’s function as a bulwark against the United States has since become a priority. “I think the two main reasons China supports North Korea are geopolitics and border stability,” Pardo says. “If North Korea ceases to exist, Korea will reunify on South Korean terms.” That China is wary of US soldiers at its border is a known fact. And there are still some 28,500 US troops stationed in South Korea. At the same time, it fears a wave of refugees should the regime collapse. “It would be difficult for Beijing to handle a large sudden influx of refugees,” Pardo says. So China will have to cope with Kim.
Meanwhile, military experts fear an arms race in the Far East as a result of North Korea’s missile tests. According to a recent survey, 71 percent of South Koreans are in favor of their country developing its own nuclear weapons. Fifty-six percent favor the stationing of US nuclear weapons. It is unclear how the recent presidential election in South Korea will play out. President-elect Yoon Suk-yeol is seen as a China critic and a proponent of a closer alliance with the US and groups such as Quad. Pardo expects Yoon to give “as much priority to deterrence and human rights as possible” toward North Korea.
There seems to be no solution for the time being. Pardo and Green firmly believe that North Korea will not give up its nuclear program under any circumstances. Nor, they say, is Kim currently interested in multilateral negotiations like the China-hosted Six-Party Talks of the 2000s. The Ukraine war is “a reminder to Pyongyang that North Korea’s main defense against outside interference is its nuclear weapons,” Green says. “But I think Beijing would be willing to hold talks as soon as North Korea was willing to participate.”
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.
From the end of World War II until the 2000s, the international global trading system was characterized not only by the idea of liberalization, but also by the relegation of (power-)political aspects to economic ones. Symbolic of this were, among other things, the most-favored-nation clause and the institutionalized dispute settlement mechanism of the WTO, or GATT, which at least attempted to limit the systematic discrimination of smaller nations against larger ones. Since the Trump administration took office at the latest, however, foreign and trade policy aspects have once again become more closely intertwined worldwide, and thus differences in power and size between states are once again gaining importance in trade policy. One example of this is the Chinese enactment of a de facto trade boycott against Lithuania following the opening of a Taiwanese consulate in the capital Vilnius under the name Taiwan (not Taipei, as is the usual practice).
The fact that the sanction character of these measures was not officially acknowledged by the Chinese side can be interpreted as an attempt to keep them away from multilateral standards, especially those of the WTO, and to primarily focus on a bilateral show of force against Lithuania. However, the European Union quickly expressed solidarity with Lithuania, thus restoring an essentially symmetrical constellation, even though no counter-sanctions were imposed.
The EU subsequently initiated WTO proceedings, but their potential is limited: first, WTO-based authorization for unilateral EU trade defense measures (for example, higher tariffs against illegally subsidized imported products) cannot be derived from the profile of Chinese sanctions. Second, a ruling may take considerable time. Third, even in the event of a ruling in favor of the EU, its implementation would ultimately only be possible in the form of authorized retaliatory measures.
Although such measures have only been necessary in a small minority of cases in WTO proceedings to date, they are the only way for the opposing party to seek justice in the event of non-implementation of a ruling by the defendant, which in the present case does not seem at all unrealistic for China. At the same time, they harbor a considerable potential for new conflict and delay and, in turn, bring the differences in size between conflicting parties to the fore; the value of the WTO as an institutionalized dispute settlement authority is thus considerably diminished.
The European Union itself was confronted by the Lithuanian measures with a dilemma typical for the European integration process. On the one hand, a reaction at the European level was logical because of the integrity of its internal market and the Union’s external competence in trade and investment policy. On the other hand, Lithuania’s government decided its course within the framework of the member states’ continued foreign policy sovereignty and did not coordinate with other member states. The latter thus bear the potential negative consequences of a policy on which they did not decide.
From an internal perspective, Lithuania’s stance is quite consistent. As early as the fall of 2020, the first signals towards an expansion of relations with Taiwan were made; in the spring of 2021, Lithuania left the “17+1” format of Eastern European states with China, an instrument for China to exert regional influence within the framework of the Silk Road Initiative. Lithuania also had political leeway, in the sense that its economic relations with China are of comparatively limited significance for the Lithuanian economy as a whole. This clearly distinguishes Lithuania’s position from that of Europe – for example, China is now the EU’s most important import partner and third most important export partner – and that of larger member states, for example, Germany and France. Especially since the Chinese reaction to the events in Lithuania did not come as a surprise given the decades-old “One-China-Policy,” there would certainly have been a need for deliberation and probably even a decision at the pan-European level.
This proves that, especially in the situation of a stronger power-political character of international trade policy, the (already taken) integration step of unification of trade and investment policy entails the necessity of a (future) unification of other areas of foreign policy.
The bottom line is that a unified European presence is more necessary than ever in the wake of the international politicization of trade and investment flows, not least to ensure the protection of smaller member states from external repression. If this approach is to be effective, however, European integration of broader foreign policy competencies is essential. The latest steps toward a new EU trade policy instrument against economic coercion by third countries might only be the beginning.
This guest commentary is published as part of the Global China Conversations event series of the Kiel Institute for the World Economy. On Thursday (March 24), Christian Herderer from the Technical University of Wildau and Juergen Matthes from IW Cologne will discuss the topic: “EU-China Trade Conflicts and the Case of Lithuania: What is the role of the WTO?“. The program will be moderated by our editor Amelie Richter. China.Table is a media partner of the event series.
The Tujia live in the hills of southwest China, and like many ethnic minorities in the region, have a rich tradition of colorful weaving. Many of these traditions, like those of the neighboring Miao, are gradually disappearing as young people no longer learn them. Here, women weave cloth made of xilankapu, a type of Tujia brocade, in a studio in the city of Xiaonanhai near Chongqing. Xilankapu weavings are known in China as bedspreads with floral patterns and were listed as national intangible cultural heritage in 2006.
North Korea’s dictator Kim Jong-un has conducted more missile tests this year than in the past five years combined. And it is only March. Beijing is upset about rockets fired at its border. Regardless, China still needs North Korea as a buffer between itself and US ally South Korea. It was only in late February that China’s leader, Xi Jinping, stressed the importance of bilateral cooperation with Pyongyang. A difficult diplomatic act, notes Christiane Kuehl. On closer inspection, the similarities to Russia are striking. Both North Korea and Russia are important partners against the West. Yet both act unpredictably. And now the international community also sees Russia, like North Korea, as an aggressor. This is why the back-and-forth of Chinese communication with its difficult allies seems so similar.
The liquidation of bankrupt Chinese real estate group Evergrande also remains an unprecedented balancing act. On Tuesday, the company reported that it will miss the March 31 deadline to submit its annual balance sheet. The balance sheet, once released, will reveal the extent of its financial woes, writes Finn Mayer-Kuckuk. The stalling tactics towards its creditors, which the company has kept up for months, are only possible because Chinese law does not acknowledge delayed bankruptcy. However, using intransparency as a strategy also has its limits. Questionable lending and the accompanying cover-up of problems already caused the end of Japan’s decade-long boom at the end of the 1980s.
What cannot be, is not spoken openly, either. Chinese real estate group Evergrande has been effectively bankrupt for months (China.Table reported). Yet no company representative and no Chinese official are even uttering the word “bankruptcy”, even though the criteria has been met long ago. But resulting turmoil on the financial market would simply be too great if news of the formal bankruptcy ran through all media channels. That’s why everyone involved is still trying to scrape by somehow.
However, warning signals are becoming unmistakable lately. On Tuesday, the company announced it would miss the deadline for presenting its annual financial statements on March 31. Money reportedly went missing from a key subsidiary. The company is now talking about “complications” in the preparation of the annual financial statements. In addition, creditors collectively demand about $1.8 billion in outstanding bond payments this week. Another reason for the delay in the publication of the financial statements is clear: The presentation of Evergrande’s numbers would have revealed the extent of its financial woes.
By refusing to provide an exact amount of its problems, Evergrande would have become liable to prosecution in Europe long ago. Elske Fehl-Weileder, a specialized lawyer at the law firm Schultze & Braun, has already explained China.Table the difference between China and the legal situation in most other large economies: Delaying bankruptcy is not a criminal offense in China.
The supposed loophole for delayed bankruptcy may well be deliberate on the part of China’s leadership. Intransparency is a common characteristic of Asian economies whenever they are on the threshold from middle and higher to very high earnings. State economic engineering coupled with a credible narrative of success has always worked out well so far. A grand public disclosure of financial situations was never necessary. Instead, state officials and big business always had a knack for sweeping problems under the rug.
Japan found itself at this juncture in the late 1980s. Shady lending mixed with a belief in ever-increasing valuations in the real estate market. When its powerful economic officials realized how dubious their own financial system was, they covered up the scale of the problems. They tried to make them disappear through backroom deals. Real transparency did not come until a decade and a half later. The situation was similar in South Korea. But China, in the absence of free media and independent courts, may never get to the point of truly disclosing what is happening in its financial market.
As a matter of fact, even in Western countries, systemically important large-scale bankruptcies are avoided wherever possible. And here, too, the government lends a hand when a real heavyweight has to go through insolvency in the end. The belief in the cleansing powers of the market ends where the fear of rising unemployment and chain reactions begins.
In the communist one-party state of China, the tendency toward non-transparent but face-saving solutions runs in the DNA. Its comrades bargain it out amongst themselves. And that is precisely what is currently happening at Evergrande. However, the price for scraping by, as in Japan and South Korea at the time, is ever lower efficiency. Evergrande, too, has turned too much of its capital into concrete, which is no longer profitable at these prices.
Specifically, Evergrande’s property management subsidiary is currently going under. Its property services division was previously considered healthy. After all, it generates actual profits with tangible services. The Evergrande empire may have been built on borrowed money. But the buildings and their occupants are real. They need a compound office (“Wuye 物业”), janitorial services, cleaning, maintenance. Residents pay housing charges for these services.
But it is precisely these building services that Evergrande is now blaming for the delay of the balance sheet submission. They allegedly had almost €2 billion (¥13.4 billion) in an account. As it now turns out: the account served as collateral for a loan. Since the ability of the Evergrande Group to repay such loans is currently close to nil, the logical conclusion is: The money is gone.
The practice of pledging cash for a loan that was applied here already sounds like a balance sheet trick. Someone who is liquid could also use the money directly or simply lend it within the group. The scheme runs outside the box twice and is therefore once again: non-transparent. Evergrande itself, in feigned confusion, speaks of a “major incident” and cites Covid as a contributing factor to the disappearing account balance. In any case, the attempt to sell the property management subsidiary at a profit has failed for the time being. Guangzhou-based Hopson Development had been considered as a buyer.
At the same time, the company is coming under pressure on the international front. The company’s bonds are already being sold off on the market. Currently, there are only 13 cents per euro of bond value left. This means that Evergrande would actually have to pay the full price to the bondholders. But no one expects that anymore. Therefore, the bonds are being resold among market participants at a discount of almost 90 percent. The markdown reflects the risk that bankers currently expect for Evergrande. Needless to say, the company can no longer borrow money under these conditions.
Numerous other real estate companies have long been caught up in the maelstrom of problems. In Hong Kong, they have to submit their financial statements by March 31. Evergrande competitor Ronshine has now even lost its auditor. The company has now also announced that it will not be able to present its financial statements on time.
Meanwhile, the government’s cleanup plans are not progressing nearly as well as expected. In fact, healthy, state-backed real estate companies were supposed to take over Evergrande’s intact parts. But they are reluctant to step in, as business magazine Caixin reports. Market conditions have since become too uncertain. Managers of intact companies would rather play it safe at the moment, the magazine says. This includes not inflating their balance sheets through questionable acquisitions.
It was that time again on Sunday: North Korea reported a missile test. Last week, such a test had apparently gone wrong: debris rained from the sky near Pyongyang. So far this year, ruler Kim Jong-un has launched a whopping eleven test series with dozens of missiles, after he had already gradually increased the test frequency since the fall of 2021. Kim is experimenting as he last did in the so-called “fire and fury” era with its combination of nuclear and missile tests and particularly bellicose rhetoric from both Pyongyang and Washington. New satellite images also show activity at the Punggye-ri nuclear test site, which had been actually shut down in 2018, Reuters reported in early March. It is the only known nuclear test site. North Korea has been steadily developing its nuclear and ballistic missile programs, a UN report said in early February.
Even despite the Ukraine war, North Korea is apparently important enough to the US that National Security Adviser Jake Sullivan raised the issue at what was supposed to be a Ukraine meeting with China’s foreign policy czar Yang Jiechi in Rome, according to the White House. Sullivan expressed his “deep concern” about North Korea. Yang’s response is unknown.
Beijing is as protective of Pyongyang as ever. Most recently, in early March, Beijing and Moscow jointly blocked the UN Security Council’s condemnation of the latest missile tests. But for years, it has been an open secret that Beijing is less than enthusiastic about the Kim dynasty’s nuclear program. Now that Russia has isolated itself internationally with the Ukraine invasion, China has two pariah states as neighbors and partners. And both are brandishing their nuclear arsenal.
Experts are now noting a mutual intensification of geopolitical interference emanating from Russia and North Korea. “I think Beijing is very concerned about the instability created by Russia and the possibility that North Korea could use this as an opportunity to escalate tensions,” says Ramon Pacheco Pardo, North Korea expert at King’s College London.
The test of an intercontinental ballistic missile, in particular, could lead to an intensification of the situation. “This would be unpleasant for China,” Pardo told China.Table. Even more so because North Korea apparently wants to deploy its intercontinental ballistic missiles close to China’s territory. The US Center for Strategic and International Studies recently used satellite imagery to identify a proposed military base at Hoejung-ni, just 25 kilometers from China’s border.
The 130 missiles and 4 nuclear warheads Kim has tested since taking office a decade ago already included an intercontinental ballistic missile called Hwasong-15 that could reach the White House. In January, North Korea claimed to have launched two hypersonic missiles and a Hwasong-12 intermediate-range missile, the most powerful missile since 2017. Hwasong-12 could at least hit the US Pacific base at Guam. Medium-range ballistic missiles followed at the end of February and in early March – possibly with the intention of sending components of a spy satellite to operating altitude for testing purposes.
China puts on a good face. Head of state Xi Jinping only reiterated the importance of bilateral cooperation at the end of February. Both sides recently resumed freight train traffic across the Yalu River near Dandong, which had been suspended due to the Covid pandemic. As a result, bilateral trade in January and February was 40 times the previous year’s level at $136.5 million. The fact that this meager volume accounts for about 90 percent of North Korea’s foreign trade shows Kim’s isolation and dependence on China. Nevertheless, Kim does not allow any large interference. He knows that Beijing also supports North Korea’s ailing economy because it is an important buffer country for China.
But that is not the whole story. “North Korea has become more strategically valuable to China in recent years,” says North Korea expert Christopher Green of the Crisis Group think tank. “China and the United States are engaged in a ‘Great Game’ on China’s east coast, and this competition begins in the northeast with the Korean Peninsula,” Green told China.Table – alluding to the struggle for supremacy between great powers in Central Asia 150 years ago. “North Korea is stubborn and troublesome, but China is rightly viewed as the only country capable of influencing North Korea’s actions at all. That North Korea kept a moratorium on missile testing during the Beijing Winter Olympics suggests that Pyongyang knows when it’s best not to cause any trouble.”
For Beijing, North Korea’s function as a bulwark against the United States has since become a priority. “I think the two main reasons China supports North Korea are geopolitics and border stability,” Pardo says. “If North Korea ceases to exist, Korea will reunify on South Korean terms.” That China is wary of US soldiers at its border is a known fact. And there are still some 28,500 US troops stationed in South Korea. At the same time, it fears a wave of refugees should the regime collapse. “It would be difficult for Beijing to handle a large sudden influx of refugees,” Pardo says. So China will have to cope with Kim.
Meanwhile, military experts fear an arms race in the Far East as a result of North Korea’s missile tests. According to a recent survey, 71 percent of South Koreans are in favor of their country developing its own nuclear weapons. Fifty-six percent favor the stationing of US nuclear weapons. It is unclear how the recent presidential election in South Korea will play out. President-elect Yoon Suk-yeol is seen as a China critic and a proponent of a closer alliance with the US and groups such as Quad. Pardo expects Yoon to give “as much priority to deterrence and human rights as possible” toward North Korea.
There seems to be no solution for the time being. Pardo and Green firmly believe that North Korea will not give up its nuclear program under any circumstances. Nor, they say, is Kim currently interested in multilateral negotiations like the China-hosted Six-Party Talks of the 2000s. The Ukraine war is “a reminder to Pyongyang that North Korea’s main defense against outside interference is its nuclear weapons,” Green says. “But I think Beijing would be willing to hold talks as soon as North Korea was willing to participate.”
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.
From the end of World War II until the 2000s, the international global trading system was characterized not only by the idea of liberalization, but also by the relegation of (power-)political aspects to economic ones. Symbolic of this were, among other things, the most-favored-nation clause and the institutionalized dispute settlement mechanism of the WTO, or GATT, which at least attempted to limit the systematic discrimination of smaller nations against larger ones. Since the Trump administration took office at the latest, however, foreign and trade policy aspects have once again become more closely intertwined worldwide, and thus differences in power and size between states are once again gaining importance in trade policy. One example of this is the Chinese enactment of a de facto trade boycott against Lithuania following the opening of a Taiwanese consulate in the capital Vilnius under the name Taiwan (not Taipei, as is the usual practice).
The fact that the sanction character of these measures was not officially acknowledged by the Chinese side can be interpreted as an attempt to keep them away from multilateral standards, especially those of the WTO, and to primarily focus on a bilateral show of force against Lithuania. However, the European Union quickly expressed solidarity with Lithuania, thus restoring an essentially symmetrical constellation, even though no counter-sanctions were imposed.
The EU subsequently initiated WTO proceedings, but their potential is limited: first, WTO-based authorization for unilateral EU trade defense measures (for example, higher tariffs against illegally subsidized imported products) cannot be derived from the profile of Chinese sanctions. Second, a ruling may take considerable time. Third, even in the event of a ruling in favor of the EU, its implementation would ultimately only be possible in the form of authorized retaliatory measures.
Although such measures have only been necessary in a small minority of cases in WTO proceedings to date, they are the only way for the opposing party to seek justice in the event of non-implementation of a ruling by the defendant, which in the present case does not seem at all unrealistic for China. At the same time, they harbor a considerable potential for new conflict and delay and, in turn, bring the differences in size between conflicting parties to the fore; the value of the WTO as an institutionalized dispute settlement authority is thus considerably diminished.
The European Union itself was confronted by the Lithuanian measures with a dilemma typical for the European integration process. On the one hand, a reaction at the European level was logical because of the integrity of its internal market and the Union’s external competence in trade and investment policy. On the other hand, Lithuania’s government decided its course within the framework of the member states’ continued foreign policy sovereignty and did not coordinate with other member states. The latter thus bear the potential negative consequences of a policy on which they did not decide.
From an internal perspective, Lithuania’s stance is quite consistent. As early as the fall of 2020, the first signals towards an expansion of relations with Taiwan were made; in the spring of 2021, Lithuania left the “17+1” format of Eastern European states with China, an instrument for China to exert regional influence within the framework of the Silk Road Initiative. Lithuania also had political leeway, in the sense that its economic relations with China are of comparatively limited significance for the Lithuanian economy as a whole. This clearly distinguishes Lithuania’s position from that of Europe – for example, China is now the EU’s most important import partner and third most important export partner – and that of larger member states, for example, Germany and France. Especially since the Chinese reaction to the events in Lithuania did not come as a surprise given the decades-old “One-China-Policy,” there would certainly have been a need for deliberation and probably even a decision at the pan-European level.
This proves that, especially in the situation of a stronger power-political character of international trade policy, the (already taken) integration step of unification of trade and investment policy entails the necessity of a (future) unification of other areas of foreign policy.
The bottom line is that a unified European presence is more necessary than ever in the wake of the international politicization of trade and investment flows, not least to ensure the protection of smaller member states from external repression. If this approach is to be effective, however, European integration of broader foreign policy competencies is essential. The latest steps toward a new EU trade policy instrument against economic coercion by third countries might only be the beginning.
This guest commentary is published as part of the Global China Conversations event series of the Kiel Institute for the World Economy. On Thursday (March 24), Christian Herderer from the Technical University of Wildau and Juergen Matthes from IW Cologne will discuss the topic: “EU-China Trade Conflicts and the Case of Lithuania: What is the role of the WTO?“. The program will be moderated by our editor Amelie Richter. China.Table is a media partner of the event series.
The Tujia live in the hills of southwest China, and like many ethnic minorities in the region, have a rich tradition of colorful weaving. Many of these traditions, like those of the neighboring Miao, are gradually disappearing as young people no longer learn them. Here, women weave cloth made of xilankapu, a type of Tujia brocade, in a studio in the city of Xiaonanhai near Chongqing. Xilankapu weavings are known in China as bedspreads with floral patterns and were listed as national intangible cultural heritage in 2006.
