Both Democrats and Republicans in the US agree that China is a threat. Together, US senators have presented the “Lex China”, as Felix Lee reports. Its goal is to curb the global influence of the People’s Republic. To this end, Washington plans to spend a lot of money, emphasizing above all, its support for Taiwan and demanding clarification of the gender-specific violence against the Uyghur minority in Xinjiang.
When the market regulator calls, it’s over with laissez-faire. Christiane Kühl examines how the two biggest tech platforms, Alibaba and Tencent, are settling their previous trench warfare to at least appear remorseful within the antitrust agency’s grace period.
Montenegro can’t repay its debt to China. But the cries for help from the small state in the Western Balkans are falling on deaf ears at the EU Commission. Marcel Grzanna has asked why Beijing has financed the cost of a motorway from the Adriatic coast to Serbia and how this could further divide the EU.
Have a good start to the day.
It’s still a draft but it is already making waves. The recent military maneuvers by the Chinese People’s Liberation Army in Taiwan’s airspace may be a first response. At issue is the so-called “Strategic Competition Act“, a bill that the influential chairman of the Senate Foreign Relations Committee, Bob Menendez (Democrat), along with Senator Jim Risch (Republican), bipartisanly introduced last week. The bill is expected to pass first in committee next week, then be debated in the Senate.
The bill has its work cut out for it. Should it actually pass through both chambers of Congress in the near future, it would be a law explicitly designed to counter China’s global influence. And it would do so on several levels.
Specifically, it is about several billion US dollars that the US government is to provide for a number of initiatives. Of that, $655 million is to go to the US military for rearmament in the Indo-Pacific. Some $450 million is earmarked in the bill to ensure freedom of navigation, particularly in the South China Sea.
In addition, around $475 million are to flow into an infrastructure program in the Indo-Pacific – as a kind of counterweight to the Chinese Belt and Road Initiative. Another $100 million or so could go to a program that primarily promotes digital infrastructure in the region – guaranteed data-proof from China, at least that’s how it’s worded in the draft.
The law also aims to increase pressure on Beijing over the alleged theft of intellectual property. Among other things, the US Secretary of State is to be required to publish a list of all Chinese state-owned enterprises that profit from intellectual property theft and thus harm the US every year in the future.
All these points sound less than spectacular at first – especially since China is spending hundreds, if not thousands, of times as much on expanding its globally planned infrastructure in the coming years. But, according to the authors, this should only be a start.
What makes the push by the two influential senators, so explosive is that the bill contains some clear political components. For example, it would require the US government to investigate reports of gender-based violence against the Uyghurs in Xinjiang province. Until now, this has only applied to detentions and other abuses of the Muslim minority.
According to human rights organizations, at least one million members of the Uyghur and other Muslim minorities are imprisoned in detention camps in Xinjiang. There, they are reportedly forced to give up their religion, culture, and language, and are sometimes mistreated. The bill also provides for greater US support for Taiwan – which is a particular thorn in the side of the Chinese leadership (China.Table reported).
In addition, some $300 million is to go into a special fund that explicitly opposes the Communist Party’s efforts to promote its authoritarian model abroad. And $15 million is to help make it easier for US companies to exit the Chinese market. They can use the subsidies to recruit suppliers in other countries and move to alternative markets. Unabashed, Senator Menendez also states his motive: “The US government must take a clear and sober look at Beijing’s intentions and actions, and adjust our policies and strategies accordingly.”
Whether the two senators’ 280-page bill will pass in exactly this form cannot be answered unequivocally at this point.
President Joe Biden has initiated a departure from the policies of his predecessor Donald Trump in many areas. But on China policy, he, too, is sticking to a hard line. In the Washington policy establishment itself, there is a bipartisan consensus that China, under its current leadership, poses a serious threat to US values and interests.
Biden’s Democratic party base, however, seems more divided on the issue than Republicans. According to a recent Pew Research Center poll, 54 percent of Republicans consider China an “enemy.” Among Democrats, the figure is only 20 percent.
Alibaba was just the beginning. On Tuesday, the three main regulators for the technology sector summoned 34 of China’s largest internet companies for a shake-down – warnings included. No mercy will be shown for misconduct, officials told market giants such as Tencent, Meituan, and Bytedance. The companies were asked to review and adjust their business practices. Beijing has been gradually adjusting once-loose monopoly rules since November 2020. Now the direct pressure on the companies is increasing.
Alibaba must pay a penalty of four percent of its 2019 domestic revenue for abusing its dominant position: around €2.3 billion. Earlier this week, its financial subsidiary Ant Group filed a forced petition to convert into a financial holding company. Bloomberg news agency, citing anonymous sources, reported that Alibaba’s arch-rival Tencent was next.
Twelve companies – including JD.com, Meituan, and Bytedance – vowed publicly yesterday to comply with the new rules. Tencent and Alibaba are still silent. However, they appear to be taking steps in response to pressure from Beijing. For example, they plan to open up to each other’s services for the first time. This would fulfill one of the demands – namely, that merchants and services must not be forced into exclusivity.
Tencent and Alibaba have always operated separate ecosystems. Direct links between the two are impossible – a link that appears on Tencent’s apps must be copy-pasted into Alibaba’s – as is using each other’s online payment systems. Alibaba comes from an online retail background, while Tencent grew up with video games and social media.
But both have been pushing into opposing territory for years. In 2017, Tencent’s mega app WeChat entered the e-commerce space when it launched its mini-programs for shops and cafés. WeChat has more than a billion users who use it to chat, pay, buy train tickets, pay for electricity, and even shop in e-shops through its mini-programs.
Now Alibaba has signed up two of its shopping platforms, Taobao Deals and Xinyu, for exactly these mini-programs on Tencent’s WeChat – and has already tested them. Alibaba has already invited online retailers to join, Bloomberg reports.
The real breakthrough here is: Alibaba has to accept that payment with WeChat Pay is possible. On Alibaba’s web-based online shopping malls Tmall and Taobao, only Alipay, managed by Alibaba subsidiary Ant Financial, works. That’s exactly what regulators want to break up. WeChat Pay and Alipay dominate well over 90 percent of China’s online payment market. Tencent must now approve Alibaba’s applications. Neither company initially commented on the matter.
“Regulators just gave a one-month window for Chinese online platforms to rectify their unfair practices (eg. choose one from two) and enhance compliance, I guess that’s a form of leniency?” Hong Kong law professor Angela Zhang wrote on Twitter. She has just written a book on the subject called Chinese Antitrust Exceptionalism. It’s a reprieve.
According to final antitrust guidelines for the platform industry released in early February, dominant firms violate antitrust rules if they use technical barriers, algorithms, traffic restrictions, or other punitive measures to limit transactions with competitors. These include – as the market regulator announced Tuesday after meeting with the 34 firms – “pick one of two” gag agreements. They include such things as tying online stores to just one platform, abusing a dominant position, hostile takeovers of top players in market niches, sharing customer data, tax evasion, and misusing Big Data for the purpose of charging unfair prices to certain customers. It sounds like the accusations against US tech giants.
Alibaba and Tencent have bought or invested in heaps of promising start-ups over the years to expand their reach. Few companies – including Tiktok owner Bytedance – have made it big even without an alliance with either giant. Bytedance sued Tencent in February for violating antitrust laws – alleging Tencent blocked access to content from Douyin – Tiktok’s Chinese counterpart – on WeChat and chat app QQ.
Meanwhile, these purchases and investments further fueled the rivalry between Tencent and Alibaba. Tencent has invested in JD.com and Pinduoduo, whose e-commerce marketplaces compete directly with Alibaba. The company also backs the jack-of-all-trades app Meituan, which offers everything from restaurant bookings to movie tickets and rental bikes – and competes with Alibaba’s restaurant delivery service Ele.me.
In 2020, a user sued Meituan, accusing it of preventing customers from paying on the platform with Alipay. The lawsuit is still ongoing, according to Bloomberg. Alibaba’s Taobao Deals app – now possibly soon to be available on WeChat – meets growing consumer needs in China’s smaller cities with its cheaper deals – while also aiming to fend off Tencent-backed rival Pinduoduo in those markets.
Tencent had been fined ¥500,000 on Friday along with other tech companies, including the likes of ride-hailing firm DiDi, for failing to properly report 2018 acquisition deals. “We will continue to work to adapt to changes in the regulatory environment that we consider beneficial to the industry – and seek to ensure full compliance,” Tencent promised in a response to the fine. That’s where Tencent, like Alibaba, will have its work cut out for it.
However, all this should not mean the end for the private platform economy, according to experts. “The Chinese Gov uses antitrust to exert influence on its tech giants rather than to sabotage them,” Angela Zhang tweeted. Premier Li Keqiang stressed at the National People’s Congress in March that Beijing continues to support “innovation and development of platform companies” – as long as they abide by the law.
Milo Djukanovic has been arguably the most influential figure in his home country of Montenegro for decades. He has been prime minister several times and is currently president for the second time. His big dream is apparently to bequeath the small country in the Western Balkans a motorway that runs from the Adriatic coast right across the country to the Serbian border, some 170 kilometers long.
The plan may backfire. Instead of a free ride towards prosperity, Montenegro risks losing part of its economic sovereignty. The beneficiary could be the People’s Republic of China, which is financing part of the controversial construction and now wants to collect its debts. Montenegro will have to repay from July. The problem: The highway is far from finished. Revenues from tolls and higher economic output from accelerated logistics are still a long way off. The tourism industry on the coast also has a long way to go before it can benefit from the motorway, especially since COVID is currently imposing extreme restrictions on travel anyway.
Montenegro, therefore, fears that it will not be able to meet its payment obligations and will have to make painful concessions to the Chinese as a contractual penalty. Like Sri Lanka, for example, which has to hand over large parts of its Hambantota port to the People’s Republic for 99 years in return for a leasing fee because it has been unable to service its debts adequately. Montenegro’s new government, which has been in office since December of last year, therefore turned to the EU Commission in Brussels with a request for help. But the Commission apparently sees no reason to grant the request – on Monday, Brussels rejected it. It says it is ready to help Montenegro and the region, but it won’t take over the debts it owes to another country.
Viola von Cramon, the Greens’ Balkans expert in the European Parliament’s Foreign Affairs Committee, believes the decision is wrong. She fears the EU Commission is playing into the Chinese’ hands. Speaking to China.Table, von Cramon says: “The request was made to Brussels by the pro-European faction within the new Montenegrin government. It would be important to find a way to help these pro-European forces. Especially since this help could be tied to conditions that are in the EU’s interest.”
Montenegro is one of the most promising EU accession candidates in the region, which could become part of the Union in just a few years. The country is supported by the EU through the so-called IPA funds. These are pre-accession funds that are to be used to promote democratic structures and the rule of law. A total of €9 billion will flow into the Western Balkans for the period 2021 to 2027, although it may not be used to repay debt.
At present, Montenegro is considered a hybrid state which has both democratic and authoritarian elements. Von Cramon sees an opportunity to accelerate Montenegro’s development into a full democracy if additional aid were tied to strict conditions: “But with such a drastic rejection from Brussels, Montenegro has a problem internally, and so do we in the long term.
For China, political influence in Montenegro is of great interest not only because of its access to the Mediterranean. With the possible admission of the country to the EU, Beijing would bind another member state much closer to it than Brussels would like. The Greek port of Piraeus has already been increasingly under Chinese control since the financial crisis more than a decade ago. “Back then, the EU completely slept through its support for Greece, and is paying a heavy price for it by now pursuing primarily Chinese rather than European trade interests there. The EU could make a similar mistake again now,” warns von Cramon.
The chairman of the Foreign Affairs Committee in the European Parliament, David McAllister (CDU), basically shares the concern. He told China.Table: “There is no doubt that other countries, such as China and Russia, are trying to increase their geopolitical influence in the region, sometimes by questionable means.” Nevertheless, McAllister believes the EU’s chosen path is the right one. “The EU is counting on accompanying investments with reform efforts to promote sustainable stability.”
Perhaps defiance may also play a certain role in Brussels. The EU once refused to fund the controversial motorway project. The same two feasibility studies had concluded in 2006 and 2012 that building the motorway would not only be too expensive but also economically unviable. Montenegro’s former head of government Djukanovic remained stubborn and turned to the People’s Republic of China in 2014. There, his request fell on receptive ears. The state-owned Export-Import Bank made €944 million available as a loan, about a quarter of Montenegro’s national debt. The construction was undertaken by the China Road and Bridge Corporation, another state-owned company. The opposition complained that details of the deal had been concealed and suspected corruption.
This week even the Chinese embassy in Montenegro’s capital Podgorica felt compelled to reject all blame from the People’s Republic in a statement. The geological nature of the route runs counter to rapid construction and is the reason for the high cost of the construction. In addition, the terms of the loan had been very favorable, with interest rates as low as two percent. More than half of the motorway section financed by China requires the construction of tunnels and bridges.
“At first glance, the EU has a choice between two bad decisions,” says Matej Šimalčík, director of the Central European Institute of Asian Studies in Bratislava. “If it intervenes, other states in the region might get the idea of having Europe finance parts of their debt. If it doesn’t, it may soon have a bankrupt state on its external border.” But Šimalčík also thinks a positive scenario is within the realm of possibility. “On the other hand, if the EU plays it right, it can build an image as a savior in need in a region where it faces a lot of skepticism. And it now has a concrete example to point to that Chinese financial aid is not necessarily a good solution. Until now, it’s been more of an abstract scenario.”
In September of last year, researchers from northern Macedonia, another candidate for EU membership in the Western Balkans, came to a critical conclusion in a study for the Institute for Democracy “Societas Civilis” (IDSCS) in Skopje regarding the financing by Chinese capital in the country. The “corrosive capital” from China threatens democratically established institutions and the market economy, it says. “It seems that China’s modus operandi is contrary to the political and economic model and liberal values that North Macedonia wants to achieve through its alliances (NATO) and prospective membership in the EU.”
Early last month, China’s rubber-stamp legislature, the National People’s Congress, officially approved the country’s 14th Five-Year Plan. The strategy was supposed to demonstrate that China has a long-term economic vision that will enable it to thrive, despite the country’s geopolitical contest with the United States. But before the ink on the NPC’s stamp could dry, China had already begun sabotaging the plan’s chances of success.
The 14th Five-Year Plan’s centerpiece is the “dual-circulation” strategy, according to which China will aim to foster growth based on domestic demand and technological self-sufficiency. This will not only reduce China’s reliance on external demand; it will also increase the reliance of its major trading partners – except the US – on access to its market and increasingly high-tech manufactures.
China has been laying the groundwork for this strategy for a while. Notably, at the end of last year, President Xi Jinping concluded the Comprehensive Agreement on Investment (CAI) with the European Union. He had to make some concessions to get there, but it was worth it: the deal had the potential not only to deepen EU-China ties, but also to drive a wedge between Europe and the US.
But Xi is now undermining his own good work, by poisoning relations with critical trading partners. Over the last couple of weeks, China has blacklisted several members of the European Parliament, British and Canadian lawmakers, and academics and research institutions in Europe and the United Kingdom.
To be sure, the sanctions were retaliatory: the EU, the UK, and Canada had sanctioned a small number of Chinese officials who are implicated in ongoing human-rights abuses against the largely Muslim Uyghur minority in Xinjiang province. While these abuses are nothing new, recent reports that forced Uyghur labor is being used to harvest cotton have brought them to the fore.
China is sanctioning its critics to display its indignation at these accusations, which it insists are politically motivated lies. But whatever message the sanctions are supposed to send, they are unlikely to be worth the cost.
Canada, Europe, and the UK have so far remained relatively neutral in the Sino-American rivalry – and it is in China’s interests that they stay that way. China can afford an economic decoupling with the US (though it will be costly). It cannot afford a simultaneous decoupling with the rest of the major Western economies.
Already, the CAI is under threat. The agreement still needs to be approved by the European Parliament. But, to protest Chinese sanctions against some of its members, the Parliament canceled a recent meeting to discuss it. Some lawmakers now argue that China should ratify the International Labor Organization’s conventions on forced labor before the CAI is ratified.
Further undermining its economic prospects, China is attacking private corporations for having expressed concerns over forced-labor allegations. Last year, the Swedish apparel retailer H&M announced that it would no longer use cotton sourced in Xinjiang, because it was too difficult to conduct “credible due diligence” there. As the conversation about Xinjiang cotton has heated up, H&M’s statement has resurfaced – and drawn a barrage of criticism. China’s leading e-commerce companies have pulled H&M products from their platforms, and Chinese celebrities have canceled deals with the brand. And, encouraged by state media, a movement to boycott H&M – as well as other Western brands that refuse Xinjiang cotton, including Nike, New Balance, and Burberry – is gathering steam.
China seems confident that its bullying tactics will succeed. After all, Western multinationals don’t want to be driven out of China, an important growth market. And, indeed, H&M has already released a new statement highlighting its “long-term commitment” to China and expressing its dedication to “regaining the trust and confidence” of its “customers, colleagues, and business partners” there.
Nonetheless, China may be overplaying its hand. Just as Western multinationals want to sell their goods to Chinese consumers, Chinese firms need these companies to keep sourcing inputs from them. These are mutually dependent relationships.
Moreover, while the size of China’s market may be appealing enough to draw concessions from multinationals, it is not worth jeopardizing their reputations in the West, which still accounts for the vast majority of their revenues. For example, H&M’s top two markets are the US and Germany; China is its third-largest market, but accounted for about only 5% of its total revenue in 2020. In other words, H&M can afford to lose access to the Chinese market. But its 621 Chinese suppliers may not be able to afford losing H&M as a buyer. More broadly, an exodus of Western multinationals from China would inevitably force the supply chains that serve them to move as well, resulting in the closure of Chinese factories and the loss of millions of jobs.
There is still time for China’s government to reverse course. That means, for starters, allowing independent experts to conduct an investigation of cotton farms in Xinjiang. If China really isn’t using forced labor, this is the best way to prove it – and improve relations with Western businesses and governments. But such a sensible response seems unlikely, not least because China’s leaders remain convinced that its market is simply too important to abandon. They should recall that, not too long ago, they were absolutely certain that the US could not afford an economic decoupling from China. They were wrong then, and they may well be wrong now. The difference is that, this time, China cannot afford a decoupling, either.
Minxin Pei is Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States. Copyright: Project Syndicate, 2021. www.project-syndicate.org
The People’s Map project tracks China’s international activities – where is the People’s Republic involved in building a railway line? Where in power plants or pipelines? The map’s creators are also collecting data from civil society. Using an interactive open-access and online map format, they are working with non-governmental organizations, journalists, trade unions, academics, and the public to show the dimensions of China’s global activities in the regions.
Both Democrats and Republicans in the US agree that China is a threat. Together, US senators have presented the “Lex China”, as Felix Lee reports. Its goal is to curb the global influence of the People’s Republic. To this end, Washington plans to spend a lot of money, emphasizing above all, its support for Taiwan and demanding clarification of the gender-specific violence against the Uyghur minority in Xinjiang.
When the market regulator calls, it’s over with laissez-faire. Christiane Kühl examines how the two biggest tech platforms, Alibaba and Tencent, are settling their previous trench warfare to at least appear remorseful within the antitrust agency’s grace period.
Montenegro can’t repay its debt to China. But the cries for help from the small state in the Western Balkans are falling on deaf ears at the EU Commission. Marcel Grzanna has asked why Beijing has financed the cost of a motorway from the Adriatic coast to Serbia and how this could further divide the EU.
Have a good start to the day.
It’s still a draft but it is already making waves. The recent military maneuvers by the Chinese People’s Liberation Army in Taiwan’s airspace may be a first response. At issue is the so-called “Strategic Competition Act“, a bill that the influential chairman of the Senate Foreign Relations Committee, Bob Menendez (Democrat), along with Senator Jim Risch (Republican), bipartisanly introduced last week. The bill is expected to pass first in committee next week, then be debated in the Senate.
The bill has its work cut out for it. Should it actually pass through both chambers of Congress in the near future, it would be a law explicitly designed to counter China’s global influence. And it would do so on several levels.
Specifically, it is about several billion US dollars that the US government is to provide for a number of initiatives. Of that, $655 million is to go to the US military for rearmament in the Indo-Pacific. Some $450 million is earmarked in the bill to ensure freedom of navigation, particularly in the South China Sea.
In addition, around $475 million are to flow into an infrastructure program in the Indo-Pacific – as a kind of counterweight to the Chinese Belt and Road Initiative. Another $100 million or so could go to a program that primarily promotes digital infrastructure in the region – guaranteed data-proof from China, at least that’s how it’s worded in the draft.
The law also aims to increase pressure on Beijing over the alleged theft of intellectual property. Among other things, the US Secretary of State is to be required to publish a list of all Chinese state-owned enterprises that profit from intellectual property theft and thus harm the US every year in the future.
All these points sound less than spectacular at first – especially since China is spending hundreds, if not thousands, of times as much on expanding its globally planned infrastructure in the coming years. But, according to the authors, this should only be a start.
What makes the push by the two influential senators, so explosive is that the bill contains some clear political components. For example, it would require the US government to investigate reports of gender-based violence against the Uyghurs in Xinjiang province. Until now, this has only applied to detentions and other abuses of the Muslim minority.
According to human rights organizations, at least one million members of the Uyghur and other Muslim minorities are imprisoned in detention camps in Xinjiang. There, they are reportedly forced to give up their religion, culture, and language, and are sometimes mistreated. The bill also provides for greater US support for Taiwan – which is a particular thorn in the side of the Chinese leadership (China.Table reported).
In addition, some $300 million is to go into a special fund that explicitly opposes the Communist Party’s efforts to promote its authoritarian model abroad. And $15 million is to help make it easier for US companies to exit the Chinese market. They can use the subsidies to recruit suppliers in other countries and move to alternative markets. Unabashed, Senator Menendez also states his motive: “The US government must take a clear and sober look at Beijing’s intentions and actions, and adjust our policies and strategies accordingly.”
Whether the two senators’ 280-page bill will pass in exactly this form cannot be answered unequivocally at this point.
President Joe Biden has initiated a departure from the policies of his predecessor Donald Trump in many areas. But on China policy, he, too, is sticking to a hard line. In the Washington policy establishment itself, there is a bipartisan consensus that China, under its current leadership, poses a serious threat to US values and interests.
Biden’s Democratic party base, however, seems more divided on the issue than Republicans. According to a recent Pew Research Center poll, 54 percent of Republicans consider China an “enemy.” Among Democrats, the figure is only 20 percent.
Alibaba was just the beginning. On Tuesday, the three main regulators for the technology sector summoned 34 of China’s largest internet companies for a shake-down – warnings included. No mercy will be shown for misconduct, officials told market giants such as Tencent, Meituan, and Bytedance. The companies were asked to review and adjust their business practices. Beijing has been gradually adjusting once-loose monopoly rules since November 2020. Now the direct pressure on the companies is increasing.
Alibaba must pay a penalty of four percent of its 2019 domestic revenue for abusing its dominant position: around €2.3 billion. Earlier this week, its financial subsidiary Ant Group filed a forced petition to convert into a financial holding company. Bloomberg news agency, citing anonymous sources, reported that Alibaba’s arch-rival Tencent was next.
Twelve companies – including JD.com, Meituan, and Bytedance – vowed publicly yesterday to comply with the new rules. Tencent and Alibaba are still silent. However, they appear to be taking steps in response to pressure from Beijing. For example, they plan to open up to each other’s services for the first time. This would fulfill one of the demands – namely, that merchants and services must not be forced into exclusivity.
Tencent and Alibaba have always operated separate ecosystems. Direct links between the two are impossible – a link that appears on Tencent’s apps must be copy-pasted into Alibaba’s – as is using each other’s online payment systems. Alibaba comes from an online retail background, while Tencent grew up with video games and social media.
But both have been pushing into opposing territory for years. In 2017, Tencent’s mega app WeChat entered the e-commerce space when it launched its mini-programs for shops and cafés. WeChat has more than a billion users who use it to chat, pay, buy train tickets, pay for electricity, and even shop in e-shops through its mini-programs.
Now Alibaba has signed up two of its shopping platforms, Taobao Deals and Xinyu, for exactly these mini-programs on Tencent’s WeChat – and has already tested them. Alibaba has already invited online retailers to join, Bloomberg reports.
The real breakthrough here is: Alibaba has to accept that payment with WeChat Pay is possible. On Alibaba’s web-based online shopping malls Tmall and Taobao, only Alipay, managed by Alibaba subsidiary Ant Financial, works. That’s exactly what regulators want to break up. WeChat Pay and Alipay dominate well over 90 percent of China’s online payment market. Tencent must now approve Alibaba’s applications. Neither company initially commented on the matter.
“Regulators just gave a one-month window for Chinese online platforms to rectify their unfair practices (eg. choose one from two) and enhance compliance, I guess that’s a form of leniency?” Hong Kong law professor Angela Zhang wrote on Twitter. She has just written a book on the subject called Chinese Antitrust Exceptionalism. It’s a reprieve.
According to final antitrust guidelines for the platform industry released in early February, dominant firms violate antitrust rules if they use technical barriers, algorithms, traffic restrictions, or other punitive measures to limit transactions with competitors. These include – as the market regulator announced Tuesday after meeting with the 34 firms – “pick one of two” gag agreements. They include such things as tying online stores to just one platform, abusing a dominant position, hostile takeovers of top players in market niches, sharing customer data, tax evasion, and misusing Big Data for the purpose of charging unfair prices to certain customers. It sounds like the accusations against US tech giants.
Alibaba and Tencent have bought or invested in heaps of promising start-ups over the years to expand their reach. Few companies – including Tiktok owner Bytedance – have made it big even without an alliance with either giant. Bytedance sued Tencent in February for violating antitrust laws – alleging Tencent blocked access to content from Douyin – Tiktok’s Chinese counterpart – on WeChat and chat app QQ.
Meanwhile, these purchases and investments further fueled the rivalry between Tencent and Alibaba. Tencent has invested in JD.com and Pinduoduo, whose e-commerce marketplaces compete directly with Alibaba. The company also backs the jack-of-all-trades app Meituan, which offers everything from restaurant bookings to movie tickets and rental bikes – and competes with Alibaba’s restaurant delivery service Ele.me.
In 2020, a user sued Meituan, accusing it of preventing customers from paying on the platform with Alipay. The lawsuit is still ongoing, according to Bloomberg. Alibaba’s Taobao Deals app – now possibly soon to be available on WeChat – meets growing consumer needs in China’s smaller cities with its cheaper deals – while also aiming to fend off Tencent-backed rival Pinduoduo in those markets.
Tencent had been fined ¥500,000 on Friday along with other tech companies, including the likes of ride-hailing firm DiDi, for failing to properly report 2018 acquisition deals. “We will continue to work to adapt to changes in the regulatory environment that we consider beneficial to the industry – and seek to ensure full compliance,” Tencent promised in a response to the fine. That’s where Tencent, like Alibaba, will have its work cut out for it.
However, all this should not mean the end for the private platform economy, according to experts. “The Chinese Gov uses antitrust to exert influence on its tech giants rather than to sabotage them,” Angela Zhang tweeted. Premier Li Keqiang stressed at the National People’s Congress in March that Beijing continues to support “innovation and development of platform companies” – as long as they abide by the law.
Milo Djukanovic has been arguably the most influential figure in his home country of Montenegro for decades. He has been prime minister several times and is currently president for the second time. His big dream is apparently to bequeath the small country in the Western Balkans a motorway that runs from the Adriatic coast right across the country to the Serbian border, some 170 kilometers long.
The plan may backfire. Instead of a free ride towards prosperity, Montenegro risks losing part of its economic sovereignty. The beneficiary could be the People’s Republic of China, which is financing part of the controversial construction and now wants to collect its debts. Montenegro will have to repay from July. The problem: The highway is far from finished. Revenues from tolls and higher economic output from accelerated logistics are still a long way off. The tourism industry on the coast also has a long way to go before it can benefit from the motorway, especially since COVID is currently imposing extreme restrictions on travel anyway.
Montenegro, therefore, fears that it will not be able to meet its payment obligations and will have to make painful concessions to the Chinese as a contractual penalty. Like Sri Lanka, for example, which has to hand over large parts of its Hambantota port to the People’s Republic for 99 years in return for a leasing fee because it has been unable to service its debts adequately. Montenegro’s new government, which has been in office since December of last year, therefore turned to the EU Commission in Brussels with a request for help. But the Commission apparently sees no reason to grant the request – on Monday, Brussels rejected it. It says it is ready to help Montenegro and the region, but it won’t take over the debts it owes to another country.
Viola von Cramon, the Greens’ Balkans expert in the European Parliament’s Foreign Affairs Committee, believes the decision is wrong. She fears the EU Commission is playing into the Chinese’ hands. Speaking to China.Table, von Cramon says: “The request was made to Brussels by the pro-European faction within the new Montenegrin government. It would be important to find a way to help these pro-European forces. Especially since this help could be tied to conditions that are in the EU’s interest.”
Montenegro is one of the most promising EU accession candidates in the region, which could become part of the Union in just a few years. The country is supported by the EU through the so-called IPA funds. These are pre-accession funds that are to be used to promote democratic structures and the rule of law. A total of €9 billion will flow into the Western Balkans for the period 2021 to 2027, although it may not be used to repay debt.
At present, Montenegro is considered a hybrid state which has both democratic and authoritarian elements. Von Cramon sees an opportunity to accelerate Montenegro’s development into a full democracy if additional aid were tied to strict conditions: “But with such a drastic rejection from Brussels, Montenegro has a problem internally, and so do we in the long term.
For China, political influence in Montenegro is of great interest not only because of its access to the Mediterranean. With the possible admission of the country to the EU, Beijing would bind another member state much closer to it than Brussels would like. The Greek port of Piraeus has already been increasingly under Chinese control since the financial crisis more than a decade ago. “Back then, the EU completely slept through its support for Greece, and is paying a heavy price for it by now pursuing primarily Chinese rather than European trade interests there. The EU could make a similar mistake again now,” warns von Cramon.
The chairman of the Foreign Affairs Committee in the European Parliament, David McAllister (CDU), basically shares the concern. He told China.Table: “There is no doubt that other countries, such as China and Russia, are trying to increase their geopolitical influence in the region, sometimes by questionable means.” Nevertheless, McAllister believes the EU’s chosen path is the right one. “The EU is counting on accompanying investments with reform efforts to promote sustainable stability.”
Perhaps defiance may also play a certain role in Brussels. The EU once refused to fund the controversial motorway project. The same two feasibility studies had concluded in 2006 and 2012 that building the motorway would not only be too expensive but also economically unviable. Montenegro’s former head of government Djukanovic remained stubborn and turned to the People’s Republic of China in 2014. There, his request fell on receptive ears. The state-owned Export-Import Bank made €944 million available as a loan, about a quarter of Montenegro’s national debt. The construction was undertaken by the China Road and Bridge Corporation, another state-owned company. The opposition complained that details of the deal had been concealed and suspected corruption.
This week even the Chinese embassy in Montenegro’s capital Podgorica felt compelled to reject all blame from the People’s Republic in a statement. The geological nature of the route runs counter to rapid construction and is the reason for the high cost of the construction. In addition, the terms of the loan had been very favorable, with interest rates as low as two percent. More than half of the motorway section financed by China requires the construction of tunnels and bridges.
“At first glance, the EU has a choice between two bad decisions,” says Matej Šimalčík, director of the Central European Institute of Asian Studies in Bratislava. “If it intervenes, other states in the region might get the idea of having Europe finance parts of their debt. If it doesn’t, it may soon have a bankrupt state on its external border.” But Šimalčík also thinks a positive scenario is within the realm of possibility. “On the other hand, if the EU plays it right, it can build an image as a savior in need in a region where it faces a lot of skepticism. And it now has a concrete example to point to that Chinese financial aid is not necessarily a good solution. Until now, it’s been more of an abstract scenario.”
In September of last year, researchers from northern Macedonia, another candidate for EU membership in the Western Balkans, came to a critical conclusion in a study for the Institute for Democracy “Societas Civilis” (IDSCS) in Skopje regarding the financing by Chinese capital in the country. The “corrosive capital” from China threatens democratically established institutions and the market economy, it says. “It seems that China’s modus operandi is contrary to the political and economic model and liberal values that North Macedonia wants to achieve through its alliances (NATO) and prospective membership in the EU.”
Early last month, China’s rubber-stamp legislature, the National People’s Congress, officially approved the country’s 14th Five-Year Plan. The strategy was supposed to demonstrate that China has a long-term economic vision that will enable it to thrive, despite the country’s geopolitical contest with the United States. But before the ink on the NPC’s stamp could dry, China had already begun sabotaging the plan’s chances of success.
The 14th Five-Year Plan’s centerpiece is the “dual-circulation” strategy, according to which China will aim to foster growth based on domestic demand and technological self-sufficiency. This will not only reduce China’s reliance on external demand; it will also increase the reliance of its major trading partners – except the US – on access to its market and increasingly high-tech manufactures.
China has been laying the groundwork for this strategy for a while. Notably, at the end of last year, President Xi Jinping concluded the Comprehensive Agreement on Investment (CAI) with the European Union. He had to make some concessions to get there, but it was worth it: the deal had the potential not only to deepen EU-China ties, but also to drive a wedge between Europe and the US.
But Xi is now undermining his own good work, by poisoning relations with critical trading partners. Over the last couple of weeks, China has blacklisted several members of the European Parliament, British and Canadian lawmakers, and academics and research institutions in Europe and the United Kingdom.
To be sure, the sanctions were retaliatory: the EU, the UK, and Canada had sanctioned a small number of Chinese officials who are implicated in ongoing human-rights abuses against the largely Muslim Uyghur minority in Xinjiang province. While these abuses are nothing new, recent reports that forced Uyghur labor is being used to harvest cotton have brought them to the fore.
China is sanctioning its critics to display its indignation at these accusations, which it insists are politically motivated lies. But whatever message the sanctions are supposed to send, they are unlikely to be worth the cost.
Canada, Europe, and the UK have so far remained relatively neutral in the Sino-American rivalry – and it is in China’s interests that they stay that way. China can afford an economic decoupling with the US (though it will be costly). It cannot afford a simultaneous decoupling with the rest of the major Western economies.
Already, the CAI is under threat. The agreement still needs to be approved by the European Parliament. But, to protest Chinese sanctions against some of its members, the Parliament canceled a recent meeting to discuss it. Some lawmakers now argue that China should ratify the International Labor Organization’s conventions on forced labor before the CAI is ratified.
Further undermining its economic prospects, China is attacking private corporations for having expressed concerns over forced-labor allegations. Last year, the Swedish apparel retailer H&M announced that it would no longer use cotton sourced in Xinjiang, because it was too difficult to conduct “credible due diligence” there. As the conversation about Xinjiang cotton has heated up, H&M’s statement has resurfaced – and drawn a barrage of criticism. China’s leading e-commerce companies have pulled H&M products from their platforms, and Chinese celebrities have canceled deals with the brand. And, encouraged by state media, a movement to boycott H&M – as well as other Western brands that refuse Xinjiang cotton, including Nike, New Balance, and Burberry – is gathering steam.
China seems confident that its bullying tactics will succeed. After all, Western multinationals don’t want to be driven out of China, an important growth market. And, indeed, H&M has already released a new statement highlighting its “long-term commitment” to China and expressing its dedication to “regaining the trust and confidence” of its “customers, colleagues, and business partners” there.
Nonetheless, China may be overplaying its hand. Just as Western multinationals want to sell their goods to Chinese consumers, Chinese firms need these companies to keep sourcing inputs from them. These are mutually dependent relationships.
Moreover, while the size of China’s market may be appealing enough to draw concessions from multinationals, it is not worth jeopardizing their reputations in the West, which still accounts for the vast majority of their revenues. For example, H&M’s top two markets are the US and Germany; China is its third-largest market, but accounted for about only 5% of its total revenue in 2020. In other words, H&M can afford to lose access to the Chinese market. But its 621 Chinese suppliers may not be able to afford losing H&M as a buyer. More broadly, an exodus of Western multinationals from China would inevitably force the supply chains that serve them to move as well, resulting in the closure of Chinese factories and the loss of millions of jobs.
There is still time for China’s government to reverse course. That means, for starters, allowing independent experts to conduct an investigation of cotton farms in Xinjiang. If China really isn’t using forced labor, this is the best way to prove it – and improve relations with Western businesses and governments. But such a sensible response seems unlikely, not least because China’s leaders remain convinced that its market is simply too important to abandon. They should recall that, not too long ago, they were absolutely certain that the US could not afford an economic decoupling from China. They were wrong then, and they may well be wrong now. The difference is that, this time, China cannot afford a decoupling, either.
Minxin Pei is Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States. Copyright: Project Syndicate, 2021. www.project-syndicate.org
The People’s Map project tracks China’s international activities – where is the People’s Republic involved in building a railway line? Where in power plants or pipelines? The map’s creators are also collecting data from civil society. Using an interactive open-access and online map format, they are working with non-governmental organizations, journalists, trade unions, academics, and the public to show the dimensions of China’s global activities in the regions.
