So far, heat pumps have been heating up debates in Germany – but hardly any apartments or houses. But that will come – six million units are expected to be installed by 2030. Will contractors be more likely to opt for products made in China or Germany? There are fears that the industry could suffer the same fate as Germany’s solar industry, which received support early on but then lost out to Chinese manufacturers.
The defense company Rheinmetall is raising hopes after having received a contract to supply compressors – the heart of the heat pump and a component that does not have a particularly large number of suppliers worldwide. The 770 million euro deal is Rheinmetall’s largest single order to date in the non-military sector and outside the traditional automotive business. It will significantly contribute to reducing dependencies on international supply chains, writes Nico Beckert in his analysis.
China’s tightened anti-espionage law is a source of concern for foreign nationals working in China. The wording of the law is so vague that normal activities can quickly lead to suspicion. But the concept of espionage was already vague before. As Frank Sieren writes, the law’s wording has been common practice for years. He has found formulations in the amendment that actually strengthen the rights of the accused. At least on paper.
Your Julia Fiedler
Feature
Rheinmetall does not fear China’s heat pumps
German Chancellor Scholz visited the heat pump producer Viessmann in 2022.
The defense and technology group Rheinmetall has won a 770 million euro contract for the production of heat pump compressors. The company is thus investing in an important new business field and could simultaneously reduce the dependence of the European heat pump industry on international supply chains. The company has already been awarded the contract in late 2022 – but it only became recently known that the order is for heat pump compressors.
Rheinmetall’s investments are an “important decision“, Thomas Nowak, Secretary General of the European Heat Pump Association (EHPA) told Table.Media. There is a strong dependence on Asia for compressors, according to Nowak. Rheinmetall’s investment would give heat pump manufacturers another purchase option for key components and create “a sourcing point within Europe”, Nowak said. The creation of globally distributed production standard locations would be useful to make the heat pump ramp-up “resilient”, the expert said.
Compressors are often the most expensive component of heat pumps. They account for over a quarter of the costs and are responsible for compressing and heating the coolant.
Reducing import dependencies
The Rheinmetall example and the current dependence on imported compressors raise a fundamental question: Will China, with its advantages in the mass production of industrial goods, also force European manufacturers out of the booming heat pump market by offering low prices? Will the story of the solar manufacturing industry, which has practically completely migrated to China, repeat itself?
So far, experts do not see any clear indications of this. It is not certain that the People’s Republic will take over the next market for energy transition products. There are several reasons for this, which show some differences to the rise of the solar industry:
A large part of Chinese production is assembled in the People’s Republic. So far, only a fraction is being exported.
The market is already established worldwide.
The international heat pump trade is more challenging than for solar cells.
Consumers prefer domestic products. Contractors have close ties to local manufacturers.
Overall, European manufacturers are heavily dependent on China and Asia for some components. “There can be shortages of certain products here,” says Jan Rosenow, European CEO of the think tank Regulatory Assistance Project. During the Covid pandemic, for example, microchips were in short supply, as were unremarkable goods such as the rubber feet that heat pumps stand on. The current dependence on Asia, however, mainly concerns compressors, says Nowak.
China’s exports rise – but on a low level
China is also one of the world’s most important manufacturers of heat pumps. It holds a market share of 40 percent of global production. European imports of Chinese heat pumps and components more than quadrupled between 2018 and 2022, from 327 million euros to 1.37 billion euros (both heat pumps and “reversible heat pumps”). According to the International Energy Agency (IEA), China is one of the few manufacturers with a “significant share” of heat pump exports. The European market is booming. By 2030, six million heat pumps are expected to be installed in Germany alone – an increase of 500,000 units per year. The heat pump industry is currently investing far too little in new production facilities to meet global demand, the IEA writes.
The heat pumps market is different from the solar market
According to experts, China will not shake up the heat pump market in the near future. “I can hardly imagine a similar development of dependencies as in the solar industry,” says Jan Rosenow, for example. This has multiple reasons:
The market for heat pumps is already very mature. “China does produce cheaper” than Western manufacturers, says Rosenow. However, he says the biggest cost reductions in the future will be in the installation. “Thus, China cannot make good use of its advantages of low-cost mass production,” says the heat pump expert. However, Martin Sabel, Managing Director of the German Heat Pump Association, sees “considerable potential for cost reductions, particularly for the monoblock heat pumps widely used in Germany.” Larger quantities would make more efficient production methods and reduced margins possible, he said. Heat pump manufacturer Bosch also sees “potential for economies of scale” that European companies could harness by building up additional capacities, according to a spokesperson.
Trading heat pumps globally is not easy: They are bulky products that – unlike solar cells and modules – are not easy to transport. In addition, each sales market has different regulations and technical requirements for heat pumps, as the IEA writes in a recent report. One example: The EU recently banned the use of F-gases as coolants. “Here, the European industry has a head start on Chinese competitors, who have less experience in using CO2 or propane as coolants,” Rosenow says. China, however, is adapting to international standards in an attempt to increase exports, the IEA writes. Rosenow also assumes that the Chinese are “likely to catch up quickly.”
Nor are heat pumps a uniform product like solar cells. The three largest markets – the US, Asia and Europe – have different preferences. Air-to-air heat pumps are common in the US. In Europe, air-to-water and brine-to-water heat pumps are the common types – and here, a majority are manufactured in Europe. And heat pumps that can be used for both cooling and heating (“reversible heat pumps”) dominate the market in China and other parts of Asia.
Customers also place great importance on the quality of heat pumps, says Rosenow. Trust in domestic manufacturers is very high accordingly. In addition, contractors often have many years of experience with domestic products and tend to recommend them over imports from Asia.
The tightening of the anti-espionage lawcontinues to cause unease in business and society. The EU ambassador to China warned of an “intensification” of criminal prosecution in the name of national security. The EU Chamber of Commerce sees the law as a “worrying signal”, and the US Chamber expressed similar sentiments. The backdrop are investigations against consulting firms. Even collecting information can be problematic – even if it does not involve state secrets. The impact of the law has been a heated topic in China circles of Western capitals. Foreign investors already feel deterred.
Despite the commotion, however, experts do not currently expect a higher risk for foreign citizens. “The law is bad, but it has always been bad,” said Jeremy Daum, a lawyer and researcher at the Paul Tsai Law Center at Yale University in the US, sarcastically summing up the situation.
After all, China’s Supreme People’s Court already laid down the path in 2001: Not only the transfer of security-classified materials or information is punishable. But also everything that the offender knew or “could have known” to be of “national interest”. This means that for more than 20 years, the door to an almost limitless interpretation of public security has been wide open.
Common practice became law
What is a matter of national interest has always been decided by the Communist Party. Now it has published in legal form what has been standard practice for decades. “The unfortunate reality is that the scope of ‘espionage’ has already been so broad that it isn’t immediately clear what the impact of the expanded definition will be,” explains Daum. Above all, he says, amendments, some of which have been in place for years, were incorporated into the existing 2014 law.
The broad definition of espionage creates problems, especially in market research, data and company research and the like. For example, anyone who is interested in the business model of a Chinese biotechnology company as part of legal due diligence may be suspected of illegally gathering information.
The West has legal remedies
Espionage activities “outside the PRC borders” are now also punishable. And it is not only punishable to be part of espionage organizations, but also “seeking to align with an espionage organization and its agents.” This has been practiced before. But to explicitly formulate it this way now is a new quality.
Such interpretational leeway sometimes exists in Western law, too. For example, Meng Wanzhou, the top executive and daughter of the founder of Huawei, was kept under house arrest in Canada for almost three years based on a flimsy interpretation of US law. Until it turned out that there was no evidence against her. The US and other Western societies have more reliable rule-of-law remedies.
More rights for accused
Most of the following amendments concern the development and structure of counter-intelligence in detail. However, the amendment also includes formulations that strengthen the rights of the accused. The questioning of summoned suspects is limited to eight hours, and in exceptional cases to 24 hours. Food and “sufficient time” are to be provided: “Continuous summons are strictly prohibited”.
The authorities “shall promptly notify the family of the summoned person”. Families should also be informed of the reasons for detention. The questioning is to be “recorded” and “retained for future reference”. While these are certainly positive developments, the question arises if these rights can be exercised. Nevertheless, it is better that they are written down than not. Overall, the likelihood remains very high that there will be no immediate noticeable change for foreigners, for better or worse, summarizes US lawyer Daum: “The revisions to the Espionage Law themselves, however, are probably less consequential than some imagine.”
Focus on Xi
There are a number of reasons to speculate about why the law is coming now, when the established practice of the past years has not been that different from the new law.
China wants to consolidate its power claim against the USA and to this end, it wants to step up its active espionage. This marks another point where Xi Jinping is turning away from the more passive policy set by Deng Xiaoping in the late 1970s. Deng did not want to challenge the West. Xi wants to prove that his China can rise to any challenge.
Xi also consistently focuses the activities of the security apparatus on the interests of the Party’s inner circle. The law states that the goal is to “uphold the centralized and unified leadership of the Party center”. In short: Whatever the boss wants goes.
After the introduction of the Security Law, the perception quickly grew that China wanted to further economically isolate itself. But that is probably not the goal. Following the end of the Covid pandemic, the leadership actually wants to attract more foreign investors. At the same time, however, China does not want the West to continue to hinder its rise. Depending on the perspective, this can be either seen as excessive nationalism or as self-confidence commensurate with the country’s new position of power. In the end, it is both.
But it is also clear that those who support the West in this are taking great risks, the law indirectly states.
Geopolitics
Security
Spy
Events
May 15, 2023; 9:30 a.m. CET (3:30 p.m. CST) Asia and Pacific Research Centre / Asia Study Centre, Webinar:Chinese Investments in Maritime Ports – Poland in Global PerspectiveMore
May 15, 2023; 2 p.m. CET (8 p.m. CST) SOAS London, Webinar:Cadre Country: How China became the Chinese Communist PartyMore
May 16, 2023; 3:30 p.m. CET (9:30 CST) Fairbank Center for Chinese Studies, Webinar:Visiting Scholars Present: Taiwan StudiesMore
May 16, 2023; 4 p.m. CET (10 p.m. CST) Center for Strategic & International Studies, Webcast:Chinese Assessments of Countersanctions StrategiesMore
News
German divided over Cosco approval
The final approval for the entry of the Chinese Cosco Group into the Hamburg container terminal Tollerort is apparently disputed within the German government. “There were divergent assessments in the evaluation of the shareholding acquisition,” said a spokeswoman for the German Ministry for Economic Affairs and Climate Action (BMWK). The ministry led by Robert Habeck initiated a re-examination of the planned transaction due to the new classification of the terminal as critical infrastructure.
As part of its review, the BMWK proposed further lowering the approved shareholding threshold. But to do so, the government would have had to change its cabinet decision on the partial prohibition in October, granting Cosco a 24.9 percent stake in Tollerort. However, the unanimity required to change the cabinet decision had not been reached. Cosco originally wanted to acquire 35 percent of Tollerort, which was also what had been agreed with the operator, Hamburger Hafen und Logistik AG (HHLA).
There were also critical voices from the Free Democratic Party (FDP). “China is buying itself more influence over German infrastructure through Cosco and is playing us strategically off against each other,” criticized Frank Mueller-Rosentritt, an FDP member of parliament and member of the Committee on Foreign Affairs. Politicians from the Christian Democratic Union (CDU) and the Green Party also voiced criticism. The mood in Hamburg is more positive. The Greens and CDU in the city government welcomed the approval. According to German broadcaster NDR, Dirk Kienscherf, head of the SPD parliamentary group in Hamburg, complained that the discussion had been “very unobjective in parts.”
Positive words also came from the Federation of German Industries (BDI). “Germany’s and the EU’s economic competitiveness and technological sovereignty require a fundamental openness to foreign investment in our location, including from China,” said BDI Chief Executive Tanja Goenner. Expanding economic relations with China is sensible – “even in the face of growing geopolitical tensions.”
Cosco’s final confirmation of the stake in Tollerort is now pending. ck/rtr
Cosco
Hamburg port
Infrastructure
Habeck wants to review China business
With new trade agreements, Germany’s Economy Minister Robert Habeck wants to brace Europe and Germany for the rising conflict between the rival major powers, the USA and China. “Europe is at risk of being pulverized or at least paralyzed in between,” said the Green politician at an event of the German Chambers of Commerce Abroad (AHKs) in Berlin. This must be prevented, he stressed. “New trade agreements are part of this, in my view.” Germany should not make itself dependent on one superpower or another for critical infrastructure and important goods such as medicines or semiconductors, Habeck said.
At the same time, Habeck advocated not cutting ties with China as Germany’s most important trading partner, regardless of existing conflicts. “An economic decoupling from China is not in our interest,” he said. “Nevertheless, we must reassess the opportunities and risks of our trade relations with China and reduce one-sided dependencies in key areas of our economy as quickly as possible.”
Habeck also argued that investments by German companies in China should be examined to ensure that knowledge is not transferred in process. He said it must be prevented that technology can only be developed in China and is lost in Germany. He recommended a so-called “outbound screening.” rtr
Geopolitics
Investments
Robert Habeck
Berlin does not want to extend sanctions to China
According to diplomatic circles, Germany has expressed reservations about plans made by the EU Commission to include Chinese companies in Russia sanctions. In a first discussion among representatives of the 27 EU countries, Germany urged caution regarding China under the new punitive measures against Russia over its Ukraine war, five diplomats said in Brussels.
A government representative in Berlin said that the German government was fundamentally skeptical about the extraterritorial sanctions often applied by the USA. The sanctions against Russia should primarily aim to prevent the existing sanctions from being undermined. Germany argues that this would tend to target companies in countries such as Turkey, Kazakhstan or Armenia, which suddenly import many more goods from the EU.
The EU is currently discussing its 11th round of sanctions over Russia’s invasion of Ukraine. The Commission proposed blacklisting several Chinese companies and introducing a new mechanism restricting EU exports to countries that ignore sanctions. There are objections to this from Germany, but also other states. For example, Italy favors targeting foreign companies rather than countries if sanctions are circumvented.
The German government warned China not to supply Russia with weapons. The dispute concerns so-called dual-use goods, civilian goods that can also be used for military production, for example. rtr
EU
Geopolitics
Sanctions
EU foreign ministers to discuss China strategy in Stockholm
EU foreign ministers will discuss the EU’s new strategic orientation regarding China at their informal meeting in Stockholm. The topic is on the agenda of the Gymnich meeting in the Swedish capital on Friday afternoon. EU High Representative of the Union for Foreign Affairs Josep Borrell, who will chair the meeting, has repeatedly called for a recalibration of the EU’s China strategy. However, it is considered unlikely that Brussels will abandon the familiar triad of classifying China as “competitor, partner, rival.”
Brussels is currently trying to find a common position vis-à-vis Beijing. According to informed circles in Berlin, Borrell has forwarded a paper containing proposals for China-related measures to the member states. Among other things, the paper reportedly warns of Beijing’s new claim to supremacy.
Meanwhile, there could be progress on the Comprehensive Agreement on Investment (CAI). As EU circles told Table, the Chinese side is supposedly ready to drop the sanctions against European MPs, researchers and think tanks.Media. The German business newspaper Handelsblatt first reported on the new development.
The EU foreign ministers will then meet with colleagues from the Indo-Pacific region in Stockholm on Saturday. Among others, the foreign ministers of India, Japan and Sri Lanka will attend. Representatives from Taiwan and China will not participate. The meeting will discuss cooperation in various areas. Projects of the “Global Gateway” infrastructure initiative will also be addressed. ari
Inflation too low
While most Western countries are struggling with high inflation, China has the opposite problem, with inflation dropping to 0.1 percent in April from 0.7 percent in March, according to data from the National Bureau of Statistics (NBS) on Wednesday. This is the lowest increase since February 2021. Producer prices simultaneously fell by 3.6 percent, the sharpest drop since May 2020. Ex-factory prices are considered a leading indicator for consumer price trends. The fact that producer prices have now fallen for seven months in a row is an alarm signal.
Although the economy of the People’s Republic recovered in the first quarter from the economic slump during zero-Covid, recent data show that the industrial sector has gone into a tailspin, the real estate sector remains in crisis and the economy thus remains fragile overall. Falling producer prices highlight the difficulties many producers in the Middle Kingdom are facing, who had hoped for an upswing after the virus restrictions were lifted in December, but now continue to face weak demand.
This new data could pressure the People’s Bank of China (PBoC) to lower interest rates or inject more liquidity into the financial system. In March, the central bank has already given financial institutions more room for lending by lowering the reserve requirement ratio (RRR) for commercial banks by a quarter of a percentage point. The lower this ratio is, the more loans banks can grant. rtr/flee
Inflation
Trade
Foxconn profit collapses
Apple supplier Foxconn is feeling the impact of slumping demand for consumer electronics. According to information on Thursday, profits in the first quarter plummeted by 56 percent to 12.8 billion Taiwanese dollars (equivalent to 381 million euros). Analysts surveyed by Refinitiv had not anticipated such a sharp decline.
Foxconn Chairman Liu Young Way attributed the decline to an unspecified write-down. Foxconn predicted a further drop in sales for its consumer electronics business in the second quarter. The company generates more than half of its revenue from producing smartphones and other devices. About 70 percent of all iPhones are manufactured at the company’s plants. rtr
Apple
Foxconn
Technology
Harsh sentence for human rights lawyer
With the public completely excluded, a People’s Court in the southern Chinese metropolis of Guangzhou has sentenced human rights lawyer, activist, and writer Guo Feixiong to eight years in prison. He is accused of publishing government-critical texts and encouraging others to incite against the government.
Not even the diplomats dispatched on Thursday morning, including a representative of Germany, were allowed to attend the trial. Their appearance is nevertheless a symbolic gesture of solidarity, which, however, remains silent: The embassies do not want to comment publicly on the case – fearing that their support may be used against Guo Feixiong.
However, massive criticism is coming from abroad. “We are appalled by this sentence,” commented Mary Lawlor, UN Special Rapporteur on Human Rights. It again “demonstrates China’s total disregard for so many of the values contained in the Universal Declaration of Human Rights in a year we celebrate its 75th anniversary”.
The case is particularly tragic because Guo had just served an eleven-year prison sentence a few years ago and was scarred by torture and hunger strikes. His renewed battle with the authorities was triggered by his wish two years ago to bid farewell to his wife, who lived in the US with their children and was suffering from terminal colon cancer. But the Chinese authorities refused to let Guo leave the country, instead arresting him at the airport. His wife has since passed away. fkr
Human Rights
Opinion
Kung fu charlatans
Academy Award winner Michelle Yeoh, who stars in numerous kung-fu movies, once said her fellow kung-fu star Jackie Chan is a “male chauvinist pig.” But he dared not make sexist comments in front of her because he knew she would “kick his butt.”
After applauding her for it, some couldn’t help but imagine how Michelle would take on Jackie. Would she be able to stand up to him? And what if Jet Li and Lucy Liu joined in as well? Who would emerge from this kung fu spectacle as champion?
Kung fu stars without fighting experience
Probably Jet Li, who is the only one of them who has received professional kung-fu training. Li already won multiple titles in China’s national Wu-shu competitions as a teenager. Kung-fu is in China often called Wu-shu (武术), which means martial art, or Wu-gong (武功), which literally means Kung-fu.
Chan was trained to be a Chinese opera singer in martial roles that also perform stunts, but that is far from real Kung-fu; Liu took a form of martial art as one of her hobbies as a little girl; Yeoh had no kung-fu training at all before her debut in the film industry. What she got was many years of serious ballet training. The spectacular Kung-fu moves they performed in movies are almost all thanks to filming techniques, which immensely helped Li, too.
Now, what if Jet Li faces a professional boxer, a practitioner of mixed martial arts (MMA), or simply an experienced street thug? Can he win or, at least, defend himself? Not very likely. Smart as he is, he would run. Li himself has actually said in interviews that he had no real fighting experience and also admitted that real mixed martial arts fighters could easily beat him.
No use in actual fights
But he did not spell out the stark truth: Kung-fu’s power in real-life combat is, sadly, a myth. Until a few years ago, there were still believers in China for Kung-fu’s effectiveness in fights. From time to time, some “masters” would also appear in Internet videos showing them breezily knocking down attackers with one or two simple moves.
Then a boxer named Xu Xiaodong (徐晓冬) appeared and dealt a fatal blow to the propaganda. Between 2017 and 2019, he challenged many “masters” to an open fight. Five of them faced him – he defeated them all. Xu defeated most of them within minutes, in one case, even in 47 seconds.
In doing so, he not only destroyed the fame and livelihood of the charlatans, but also angered authorities, who accused him of defaming an important cultural legacy. He was subsequently banned from China’s cyberspace until today.
Apologists said Kung-fu’s effectiveness in real-life combats was real, citing historical records. There might be some truth in it. But the accounts are more like legendary stories that are hard to be substantiated.
Then what about Bruce Lee, the father of the Kung-fu saga? Lee is undoubtedly a master as well as a great artist. He single-handedly changed the image of the Chinese in the world. But there are few credible records about his might in an actual fight, either.
Waning popularity among young people
Despite the lack of practical usefulness, Kung-fu, or Wu-shu, is still a great sport. It is an excellent exercise for strength, flexibility, agility, stamina and breathing. It also has high aesthetic value. Watching a well-performed Wu-shu routine of beautifully choreographed swift movements is no less enjoyable than watching gymnastics. And Jet Li, by the way, was the real champion for this when he was young.
But few young Chinese nowadays would like to learn it. A fundamental reason is that it is a very demanding sport that requires years of tough training to grasp even the basics.
The only thing close to Kung-fu still practiced by a decent amount of people in China is Tai-chi, also known as shadow boxing. It originated from a school of Kung-fu, but has evolved into mild physical exercise that doesn’t even look like sport, let alone martial art. And it is now practiced predominantly by the elderly.
The legend lives on
But in the world of fantasy, things are quite different. There is a massive Chinese audience for Kung-fu movies and Wuxia novels (Wuxia 武侠 means martial arts and chivalry). They are fantasy art for the Chinese.
Wuxia writer Jin Yong (金庸 1924-2018), referred to as China’s J.R. Tolkien, is one of the top bestseller authors in the Chinese language. Deng Xiaoping was also an avid reader of his. Jin Yong, whose real name is Cha Leung-yung, published a total of 15 Wuxia novels. All of them were set in specific eras in ancient Chinese history with both real and fictional characters.
A key element of the novels is the different, fascinating kung fu skills of its characters, the most extraordinary being that they kill not by kicking, punching, or using a weapon, but by giving the enemy just a few fleeting glances.
As told in his books, the secret of these unbelievable feats is the use of Qi, the same Qi in Qigong, which can mean breath, air and energy, or all of them.
Wuxia novels by Jin Yong and other writers inspired generations of creators of films, comics and video games. So, despite worries by Chinese officials, this magnificent cultural legacy of Kung-fu lives on, at least in the imaginary world.
Executive Moves
Caiwei Chen joins the US media outlet Rest of the World, based in New York, as a China reporter focusing on technology. Chen previously reported for Wired and the South China Morning Post, among others.
Li Yunze has been appointed Party Secretary of the newly established National Financial Regulatory Administration (NFRA), making him the top regulator in the People’s Republic’s financial sector. The 52-year-old was previously Vice Governor of Sichuan province.
Is something changing in your organization? Let us know at heads@table.media!
Dessert
Mission accomplished: Loaded with 70 kilograms of fresh fruit, spare parts and 600 kilograms of fuel, the unmanned cargo ship “Tianzhou-6” successfully docked at the Chinese space station “Tiangong” (Heavenly Palace) on Thursday. The station’s crew unloaded the cargo – and can now bite into an apple again for the first time in months.
So far, heat pumps have been heating up debates in Germany – but hardly any apartments or houses. But that will come – six million units are expected to be installed by 2030. Will contractors be more likely to opt for products made in China or Germany? There are fears that the industry could suffer the same fate as Germany’s solar industry, which received support early on but then lost out to Chinese manufacturers.
The defense company Rheinmetall is raising hopes after having received a contract to supply compressors – the heart of the heat pump and a component that does not have a particularly large number of suppliers worldwide. The 770 million euro deal is Rheinmetall’s largest single order to date in the non-military sector and outside the traditional automotive business. It will significantly contribute to reducing dependencies on international supply chains, writes Nico Beckert in his analysis.
China’s tightened anti-espionage law is a source of concern for foreign nationals working in China. The wording of the law is so vague that normal activities can quickly lead to suspicion. But the concept of espionage was already vague before. As Frank Sieren writes, the law’s wording has been common practice for years. He has found formulations in the amendment that actually strengthen the rights of the accused. At least on paper.
Your Julia Fiedler
Feature
Rheinmetall does not fear China’s heat pumps
German Chancellor Scholz visited the heat pump producer Viessmann in 2022.
The defense and technology group Rheinmetall has won a 770 million euro contract for the production of heat pump compressors. The company is thus investing in an important new business field and could simultaneously reduce the dependence of the European heat pump industry on international supply chains. The company has already been awarded the contract in late 2022 – but it only became recently known that the order is for heat pump compressors.
Rheinmetall’s investments are an “important decision“, Thomas Nowak, Secretary General of the European Heat Pump Association (EHPA) told Table.Media. There is a strong dependence on Asia for compressors, according to Nowak. Rheinmetall’s investment would give heat pump manufacturers another purchase option for key components and create “a sourcing point within Europe”, Nowak said. The creation of globally distributed production standard locations would be useful to make the heat pump ramp-up “resilient”, the expert said.
Compressors are often the most expensive component of heat pumps. They account for over a quarter of the costs and are responsible for compressing and heating the coolant.
Reducing import dependencies
The Rheinmetall example and the current dependence on imported compressors raise a fundamental question: Will China, with its advantages in the mass production of industrial goods, also force European manufacturers out of the booming heat pump market by offering low prices? Will the story of the solar manufacturing industry, which has practically completely migrated to China, repeat itself?
So far, experts do not see any clear indications of this. It is not certain that the People’s Republic will take over the next market for energy transition products. There are several reasons for this, which show some differences to the rise of the solar industry:
A large part of Chinese production is assembled in the People’s Republic. So far, only a fraction is being exported.
The market is already established worldwide.
The international heat pump trade is more challenging than for solar cells.
Consumers prefer domestic products. Contractors have close ties to local manufacturers.
Overall, European manufacturers are heavily dependent on China and Asia for some components. “There can be shortages of certain products here,” says Jan Rosenow, European CEO of the think tank Regulatory Assistance Project. During the Covid pandemic, for example, microchips were in short supply, as were unremarkable goods such as the rubber feet that heat pumps stand on. The current dependence on Asia, however, mainly concerns compressors, says Nowak.
China’s exports rise – but on a low level
China is also one of the world’s most important manufacturers of heat pumps. It holds a market share of 40 percent of global production. European imports of Chinese heat pumps and components more than quadrupled between 2018 and 2022, from 327 million euros to 1.37 billion euros (both heat pumps and “reversible heat pumps”). According to the International Energy Agency (IEA), China is one of the few manufacturers with a “significant share” of heat pump exports. The European market is booming. By 2030, six million heat pumps are expected to be installed in Germany alone – an increase of 500,000 units per year. The heat pump industry is currently investing far too little in new production facilities to meet global demand, the IEA writes.
The heat pumps market is different from the solar market
According to experts, China will not shake up the heat pump market in the near future. “I can hardly imagine a similar development of dependencies as in the solar industry,” says Jan Rosenow, for example. This has multiple reasons:
The market for heat pumps is already very mature. “China does produce cheaper” than Western manufacturers, says Rosenow. However, he says the biggest cost reductions in the future will be in the installation. “Thus, China cannot make good use of its advantages of low-cost mass production,” says the heat pump expert. However, Martin Sabel, Managing Director of the German Heat Pump Association, sees “considerable potential for cost reductions, particularly for the monoblock heat pumps widely used in Germany.” Larger quantities would make more efficient production methods and reduced margins possible, he said. Heat pump manufacturer Bosch also sees “potential for economies of scale” that European companies could harness by building up additional capacities, according to a spokesperson.
Trading heat pumps globally is not easy: They are bulky products that – unlike solar cells and modules – are not easy to transport. In addition, each sales market has different regulations and technical requirements for heat pumps, as the IEA writes in a recent report. One example: The EU recently banned the use of F-gases as coolants. “Here, the European industry has a head start on Chinese competitors, who have less experience in using CO2 or propane as coolants,” Rosenow says. China, however, is adapting to international standards in an attempt to increase exports, the IEA writes. Rosenow also assumes that the Chinese are “likely to catch up quickly.”
Nor are heat pumps a uniform product like solar cells. The three largest markets – the US, Asia and Europe – have different preferences. Air-to-air heat pumps are common in the US. In Europe, air-to-water and brine-to-water heat pumps are the common types – and here, a majority are manufactured in Europe. And heat pumps that can be used for both cooling and heating (“reversible heat pumps”) dominate the market in China and other parts of Asia.
Customers also place great importance on the quality of heat pumps, says Rosenow. Trust in domestic manufacturers is very high accordingly. In addition, contractors often have many years of experience with domestic products and tend to recommend them over imports from Asia.
The tightening of the anti-espionage lawcontinues to cause unease in business and society. The EU ambassador to China warned of an “intensification” of criminal prosecution in the name of national security. The EU Chamber of Commerce sees the law as a “worrying signal”, and the US Chamber expressed similar sentiments. The backdrop are investigations against consulting firms. Even collecting information can be problematic – even if it does not involve state secrets. The impact of the law has been a heated topic in China circles of Western capitals. Foreign investors already feel deterred.
Despite the commotion, however, experts do not currently expect a higher risk for foreign citizens. “The law is bad, but it has always been bad,” said Jeremy Daum, a lawyer and researcher at the Paul Tsai Law Center at Yale University in the US, sarcastically summing up the situation.
After all, China’s Supreme People’s Court already laid down the path in 2001: Not only the transfer of security-classified materials or information is punishable. But also everything that the offender knew or “could have known” to be of “national interest”. This means that for more than 20 years, the door to an almost limitless interpretation of public security has been wide open.
Common practice became law
What is a matter of national interest has always been decided by the Communist Party. Now it has published in legal form what has been standard practice for decades. “The unfortunate reality is that the scope of ‘espionage’ has already been so broad that it isn’t immediately clear what the impact of the expanded definition will be,” explains Daum. Above all, he says, amendments, some of which have been in place for years, were incorporated into the existing 2014 law.
The broad definition of espionage creates problems, especially in market research, data and company research and the like. For example, anyone who is interested in the business model of a Chinese biotechnology company as part of legal due diligence may be suspected of illegally gathering information.
The West has legal remedies
Espionage activities “outside the PRC borders” are now also punishable. And it is not only punishable to be part of espionage organizations, but also “seeking to align with an espionage organization and its agents.” This has been practiced before. But to explicitly formulate it this way now is a new quality.
Such interpretational leeway sometimes exists in Western law, too. For example, Meng Wanzhou, the top executive and daughter of the founder of Huawei, was kept under house arrest in Canada for almost three years based on a flimsy interpretation of US law. Until it turned out that there was no evidence against her. The US and other Western societies have more reliable rule-of-law remedies.
More rights for accused
Most of the following amendments concern the development and structure of counter-intelligence in detail. However, the amendment also includes formulations that strengthen the rights of the accused. The questioning of summoned suspects is limited to eight hours, and in exceptional cases to 24 hours. Food and “sufficient time” are to be provided: “Continuous summons are strictly prohibited”.
The authorities “shall promptly notify the family of the summoned person”. Families should also be informed of the reasons for detention. The questioning is to be “recorded” and “retained for future reference”. While these are certainly positive developments, the question arises if these rights can be exercised. Nevertheless, it is better that they are written down than not. Overall, the likelihood remains very high that there will be no immediate noticeable change for foreigners, for better or worse, summarizes US lawyer Daum: “The revisions to the Espionage Law themselves, however, are probably less consequential than some imagine.”
Focus on Xi
There are a number of reasons to speculate about why the law is coming now, when the established practice of the past years has not been that different from the new law.
China wants to consolidate its power claim against the USA and to this end, it wants to step up its active espionage. This marks another point where Xi Jinping is turning away from the more passive policy set by Deng Xiaoping in the late 1970s. Deng did not want to challenge the West. Xi wants to prove that his China can rise to any challenge.
Xi also consistently focuses the activities of the security apparatus on the interests of the Party’s inner circle. The law states that the goal is to “uphold the centralized and unified leadership of the Party center”. In short: Whatever the boss wants goes.
After the introduction of the Security Law, the perception quickly grew that China wanted to further economically isolate itself. But that is probably not the goal. Following the end of the Covid pandemic, the leadership actually wants to attract more foreign investors. At the same time, however, China does not want the West to continue to hinder its rise. Depending on the perspective, this can be either seen as excessive nationalism or as self-confidence commensurate with the country’s new position of power. In the end, it is both.
But it is also clear that those who support the West in this are taking great risks, the law indirectly states.
Geopolitics
Security
Spy
Events
May 15, 2023; 9:30 a.m. CET (3:30 p.m. CST) Asia and Pacific Research Centre / Asia Study Centre, Webinar:Chinese Investments in Maritime Ports – Poland in Global PerspectiveMore
May 15, 2023; 2 p.m. CET (8 p.m. CST) SOAS London, Webinar:Cadre Country: How China became the Chinese Communist PartyMore
May 16, 2023; 3:30 p.m. CET (9:30 CST) Fairbank Center for Chinese Studies, Webinar:Visiting Scholars Present: Taiwan StudiesMore
May 16, 2023; 4 p.m. CET (10 p.m. CST) Center for Strategic & International Studies, Webcast:Chinese Assessments of Countersanctions StrategiesMore
News
German divided over Cosco approval
The final approval for the entry of the Chinese Cosco Group into the Hamburg container terminal Tollerort is apparently disputed within the German government. “There were divergent assessments in the evaluation of the shareholding acquisition,” said a spokeswoman for the German Ministry for Economic Affairs and Climate Action (BMWK). The ministry led by Robert Habeck initiated a re-examination of the planned transaction due to the new classification of the terminal as critical infrastructure.
As part of its review, the BMWK proposed further lowering the approved shareholding threshold. But to do so, the government would have had to change its cabinet decision on the partial prohibition in October, granting Cosco a 24.9 percent stake in Tollerort. However, the unanimity required to change the cabinet decision had not been reached. Cosco originally wanted to acquire 35 percent of Tollerort, which was also what had been agreed with the operator, Hamburger Hafen und Logistik AG (HHLA).
There were also critical voices from the Free Democratic Party (FDP). “China is buying itself more influence over German infrastructure through Cosco and is playing us strategically off against each other,” criticized Frank Mueller-Rosentritt, an FDP member of parliament and member of the Committee on Foreign Affairs. Politicians from the Christian Democratic Union (CDU) and the Green Party also voiced criticism. The mood in Hamburg is more positive. The Greens and CDU in the city government welcomed the approval. According to German broadcaster NDR, Dirk Kienscherf, head of the SPD parliamentary group in Hamburg, complained that the discussion had been “very unobjective in parts.”
Positive words also came from the Federation of German Industries (BDI). “Germany’s and the EU’s economic competitiveness and technological sovereignty require a fundamental openness to foreign investment in our location, including from China,” said BDI Chief Executive Tanja Goenner. Expanding economic relations with China is sensible – “even in the face of growing geopolitical tensions.”
Cosco’s final confirmation of the stake in Tollerort is now pending. ck/rtr
Cosco
Hamburg port
Infrastructure
Habeck wants to review China business
With new trade agreements, Germany’s Economy Minister Robert Habeck wants to brace Europe and Germany for the rising conflict between the rival major powers, the USA and China. “Europe is at risk of being pulverized or at least paralyzed in between,” said the Green politician at an event of the German Chambers of Commerce Abroad (AHKs) in Berlin. This must be prevented, he stressed. “New trade agreements are part of this, in my view.” Germany should not make itself dependent on one superpower or another for critical infrastructure and important goods such as medicines or semiconductors, Habeck said.
At the same time, Habeck advocated not cutting ties with China as Germany’s most important trading partner, regardless of existing conflicts. “An economic decoupling from China is not in our interest,” he said. “Nevertheless, we must reassess the opportunities and risks of our trade relations with China and reduce one-sided dependencies in key areas of our economy as quickly as possible.”
Habeck also argued that investments by German companies in China should be examined to ensure that knowledge is not transferred in process. He said it must be prevented that technology can only be developed in China and is lost in Germany. He recommended a so-called “outbound screening.” rtr
Geopolitics
Investments
Robert Habeck
Berlin does not want to extend sanctions to China
According to diplomatic circles, Germany has expressed reservations about plans made by the EU Commission to include Chinese companies in Russia sanctions. In a first discussion among representatives of the 27 EU countries, Germany urged caution regarding China under the new punitive measures against Russia over its Ukraine war, five diplomats said in Brussels.
A government representative in Berlin said that the German government was fundamentally skeptical about the extraterritorial sanctions often applied by the USA. The sanctions against Russia should primarily aim to prevent the existing sanctions from being undermined. Germany argues that this would tend to target companies in countries such as Turkey, Kazakhstan or Armenia, which suddenly import many more goods from the EU.
The EU is currently discussing its 11th round of sanctions over Russia’s invasion of Ukraine. The Commission proposed blacklisting several Chinese companies and introducing a new mechanism restricting EU exports to countries that ignore sanctions. There are objections to this from Germany, but also other states. For example, Italy favors targeting foreign companies rather than countries if sanctions are circumvented.
The German government warned China not to supply Russia with weapons. The dispute concerns so-called dual-use goods, civilian goods that can also be used for military production, for example. rtr
EU
Geopolitics
Sanctions
EU foreign ministers to discuss China strategy in Stockholm
EU foreign ministers will discuss the EU’s new strategic orientation regarding China at their informal meeting in Stockholm. The topic is on the agenda of the Gymnich meeting in the Swedish capital on Friday afternoon. EU High Representative of the Union for Foreign Affairs Josep Borrell, who will chair the meeting, has repeatedly called for a recalibration of the EU’s China strategy. However, it is considered unlikely that Brussels will abandon the familiar triad of classifying China as “competitor, partner, rival.”
Brussels is currently trying to find a common position vis-à-vis Beijing. According to informed circles in Berlin, Borrell has forwarded a paper containing proposals for China-related measures to the member states. Among other things, the paper reportedly warns of Beijing’s new claim to supremacy.
Meanwhile, there could be progress on the Comprehensive Agreement on Investment (CAI). As EU circles told Table, the Chinese side is supposedly ready to drop the sanctions against European MPs, researchers and think tanks.Media. The German business newspaper Handelsblatt first reported on the new development.
The EU foreign ministers will then meet with colleagues from the Indo-Pacific region in Stockholm on Saturday. Among others, the foreign ministers of India, Japan and Sri Lanka will attend. Representatives from Taiwan and China will not participate. The meeting will discuss cooperation in various areas. Projects of the “Global Gateway” infrastructure initiative will also be addressed. ari
Inflation too low
While most Western countries are struggling with high inflation, China has the opposite problem, with inflation dropping to 0.1 percent in April from 0.7 percent in March, according to data from the National Bureau of Statistics (NBS) on Wednesday. This is the lowest increase since February 2021. Producer prices simultaneously fell by 3.6 percent, the sharpest drop since May 2020. Ex-factory prices are considered a leading indicator for consumer price trends. The fact that producer prices have now fallen for seven months in a row is an alarm signal.
Although the economy of the People’s Republic recovered in the first quarter from the economic slump during zero-Covid, recent data show that the industrial sector has gone into a tailspin, the real estate sector remains in crisis and the economy thus remains fragile overall. Falling producer prices highlight the difficulties many producers in the Middle Kingdom are facing, who had hoped for an upswing after the virus restrictions were lifted in December, but now continue to face weak demand.
This new data could pressure the People’s Bank of China (PBoC) to lower interest rates or inject more liquidity into the financial system. In March, the central bank has already given financial institutions more room for lending by lowering the reserve requirement ratio (RRR) for commercial banks by a quarter of a percentage point. The lower this ratio is, the more loans banks can grant. rtr/flee
Inflation
Trade
Foxconn profit collapses
Apple supplier Foxconn is feeling the impact of slumping demand for consumer electronics. According to information on Thursday, profits in the first quarter plummeted by 56 percent to 12.8 billion Taiwanese dollars (equivalent to 381 million euros). Analysts surveyed by Refinitiv had not anticipated such a sharp decline.
Foxconn Chairman Liu Young Way attributed the decline to an unspecified write-down. Foxconn predicted a further drop in sales for its consumer electronics business in the second quarter. The company generates more than half of its revenue from producing smartphones and other devices. About 70 percent of all iPhones are manufactured at the company’s plants. rtr
Apple
Foxconn
Technology
Harsh sentence for human rights lawyer
With the public completely excluded, a People’s Court in the southern Chinese metropolis of Guangzhou has sentenced human rights lawyer, activist, and writer Guo Feixiong to eight years in prison. He is accused of publishing government-critical texts and encouraging others to incite against the government.
Not even the diplomats dispatched on Thursday morning, including a representative of Germany, were allowed to attend the trial. Their appearance is nevertheless a symbolic gesture of solidarity, which, however, remains silent: The embassies do not want to comment publicly on the case – fearing that their support may be used against Guo Feixiong.
However, massive criticism is coming from abroad. “We are appalled by this sentence,” commented Mary Lawlor, UN Special Rapporteur on Human Rights. It again “demonstrates China’s total disregard for so many of the values contained in the Universal Declaration of Human Rights in a year we celebrate its 75th anniversary”.
The case is particularly tragic because Guo had just served an eleven-year prison sentence a few years ago and was scarred by torture and hunger strikes. His renewed battle with the authorities was triggered by his wish two years ago to bid farewell to his wife, who lived in the US with their children and was suffering from terminal colon cancer. But the Chinese authorities refused to let Guo leave the country, instead arresting him at the airport. His wife has since passed away. fkr
Human Rights
Opinion
Kung fu charlatans
Academy Award winner Michelle Yeoh, who stars in numerous kung-fu movies, once said her fellow kung-fu star Jackie Chan is a “male chauvinist pig.” But he dared not make sexist comments in front of her because he knew she would “kick his butt.”
After applauding her for it, some couldn’t help but imagine how Michelle would take on Jackie. Would she be able to stand up to him? And what if Jet Li and Lucy Liu joined in as well? Who would emerge from this kung fu spectacle as champion?
Kung fu stars without fighting experience
Probably Jet Li, who is the only one of them who has received professional kung-fu training. Li already won multiple titles in China’s national Wu-shu competitions as a teenager. Kung-fu is in China often called Wu-shu (武术), which means martial art, or Wu-gong (武功), which literally means Kung-fu.
Chan was trained to be a Chinese opera singer in martial roles that also perform stunts, but that is far from real Kung-fu; Liu took a form of martial art as one of her hobbies as a little girl; Yeoh had no kung-fu training at all before her debut in the film industry. What she got was many years of serious ballet training. The spectacular Kung-fu moves they performed in movies are almost all thanks to filming techniques, which immensely helped Li, too.
Now, what if Jet Li faces a professional boxer, a practitioner of mixed martial arts (MMA), or simply an experienced street thug? Can he win or, at least, defend himself? Not very likely. Smart as he is, he would run. Li himself has actually said in interviews that he had no real fighting experience and also admitted that real mixed martial arts fighters could easily beat him.
No use in actual fights
But he did not spell out the stark truth: Kung-fu’s power in real-life combat is, sadly, a myth. Until a few years ago, there were still believers in China for Kung-fu’s effectiveness in fights. From time to time, some “masters” would also appear in Internet videos showing them breezily knocking down attackers with one or two simple moves.
Then a boxer named Xu Xiaodong (徐晓冬) appeared and dealt a fatal blow to the propaganda. Between 2017 and 2019, he challenged many “masters” to an open fight. Five of them faced him – he defeated them all. Xu defeated most of them within minutes, in one case, even in 47 seconds.
In doing so, he not only destroyed the fame and livelihood of the charlatans, but also angered authorities, who accused him of defaming an important cultural legacy. He was subsequently banned from China’s cyberspace until today.
Apologists said Kung-fu’s effectiveness in real-life combats was real, citing historical records. There might be some truth in it. But the accounts are more like legendary stories that are hard to be substantiated.
Then what about Bruce Lee, the father of the Kung-fu saga? Lee is undoubtedly a master as well as a great artist. He single-handedly changed the image of the Chinese in the world. But there are few credible records about his might in an actual fight, either.
Waning popularity among young people
Despite the lack of practical usefulness, Kung-fu, or Wu-shu, is still a great sport. It is an excellent exercise for strength, flexibility, agility, stamina and breathing. It also has high aesthetic value. Watching a well-performed Wu-shu routine of beautifully choreographed swift movements is no less enjoyable than watching gymnastics. And Jet Li, by the way, was the real champion for this when he was young.
But few young Chinese nowadays would like to learn it. A fundamental reason is that it is a very demanding sport that requires years of tough training to grasp even the basics.
The only thing close to Kung-fu still practiced by a decent amount of people in China is Tai-chi, also known as shadow boxing. It originated from a school of Kung-fu, but has evolved into mild physical exercise that doesn’t even look like sport, let alone martial art. And it is now practiced predominantly by the elderly.
The legend lives on
But in the world of fantasy, things are quite different. There is a massive Chinese audience for Kung-fu movies and Wuxia novels (Wuxia 武侠 means martial arts and chivalry). They are fantasy art for the Chinese.
Wuxia writer Jin Yong (金庸 1924-2018), referred to as China’s J.R. Tolkien, is one of the top bestseller authors in the Chinese language. Deng Xiaoping was also an avid reader of his. Jin Yong, whose real name is Cha Leung-yung, published a total of 15 Wuxia novels. All of them were set in specific eras in ancient Chinese history with both real and fictional characters.
A key element of the novels is the different, fascinating kung fu skills of its characters, the most extraordinary being that they kill not by kicking, punching, or using a weapon, but by giving the enemy just a few fleeting glances.
As told in his books, the secret of these unbelievable feats is the use of Qi, the same Qi in Qigong, which can mean breath, air and energy, or all of them.
Wuxia novels by Jin Yong and other writers inspired generations of creators of films, comics and video games. So, despite worries by Chinese officials, this magnificent cultural legacy of Kung-fu lives on, at least in the imaginary world.
Executive Moves
Caiwei Chen joins the US media outlet Rest of the World, based in New York, as a China reporter focusing on technology. Chen previously reported for Wired and the South China Morning Post, among others.
Li Yunze has been appointed Party Secretary of the newly established National Financial Regulatory Administration (NFRA), making him the top regulator in the People’s Republic’s financial sector. The 52-year-old was previously Vice Governor of Sichuan province.
Is something changing in your organization? Let us know at heads@table.media!
Dessert
Mission accomplished: Loaded with 70 kilograms of fresh fruit, spare parts and 600 kilograms of fuel, the unmanned cargo ship “Tianzhou-6” successfully docked at the Chinese space station “Tiangong” (Heavenly Palace) on Thursday. The station’s crew unloaded the cargo – and can now bite into an apple again for the first time in months.
