Holland, Europe & China: strategic questions

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American-Chinese rivalry

11/19/2019_To formulate a Dutch and European response to the increasing American-Chinese tensions, it’s perhaps helpful to again consult the June 2019 report issued by the Dutch Advisory Council on International Affairs (AIV). It didn’t make any headlines at the time and has probably disappeared into prime minister Rutte’s drawer.

What is happening in China and the Far East is of enormous importance for the future of our society and economy. Unfortunately not much attention has been paid to the impact of China and the American-Chinese rivalry, as our politicians and the media have concentrated on Brexit, Syria and the refugee issue, Trump and Russia. According to the Advisory Council, it is important to “make politicians and public opinion urgently aware of the impact of China’s steady rise in order to respond as adequately as possible to the short and medium-term choices facing the Netherlands and Europe“.

Ok, let me make my own little contribution…..

China no longer is a developing country. China’s rise represents an enormous challenge for the international order pre-dominantly built on American and European principles and values in which the Netherlands has prospered. The general Western expectation or wish that political progress would go hand in hand with economic progress in China should give way to the realization China is not going to become a liberal democracy based on a Western model in the foreseeable future. On the contrary, under Xi Jinping, the President appointed for life, the Chinese communist party has taken a very authoritarian and nationalistic path. Though political instability (refer Hong Kong) can’t be ruled out, we’d better anticipate a scenario in which China’s economy will continue to grow, while the Chinese Communist Party retains a firm grip on power.

How are we going to deal with this reality? A public discussion is long overdue: to avoid misunderstanding, I am not arguing for the exclusion of China from the international order or for thwarting its economic development. What’s needed is a more intensive public debate, including in our parliament, about the strategy to be pursued towards China.

The impact of the rivalry

In several of my earlier posts I have already highlighted some of the consequences of the American-Chinese confrontation. The Netherlands and Europe will have to make strategic choices with regard to China in the coming months and years, f.e. concerning the 5G roll-out and the participation of Huawei. On technology trade. Or with respect to the question whether or not to expand the EU to counter Chinese influence in the Balkans. Or whether to invest more in Southern Europe as a counterbalance to China’s Belt & Road Initiative, the Chinese infrastructure plan for which f.e. Greece and Italy have shown themselves highly receptive. And regarding the EU’s position on Hong Kong, Taiwan and the militarization in the South China Sea …

In March 2019, the EU’s Commissionary and High Representative already spoke of a reorientation towards China, during which the latter was described as a partner, a competitor and a system rival of the EU. The EU has started saying it aims to acknowledge and manage these normative and ideological differences between the two systems in order to guarantee cooperation in vital areas of mutual interest.

In May 2019, the Dutch government issued a China memorandum: “The Netherlands-China: a new balance “, in which trade still seemed to carry most weight, although the importance of national security was clearly identified for the first time. The new guideline of the cabinet Rutte on the China relationship officially reads: “Open where possible, protect where necessary.” In other words, it can no longer just be “business as usual” with China for the Netherlands, not even for Rutte. As the AIV report states: “this mental change involves the need for permanent strategic reflection on what and how to protect, and requires places and moments of decision-making, both national and European, to make such assessments ….” This goes beyond the traditional “trader vs preacher” debate on Dutch foreign policy, to which Dutch politicians and journalists usually allude in their comments.

Rutte and Minister of Foreign Affairs Blok have done very little to stimulate the public debate about China. Our prime minister is afraid to use the word system rival.The gentlemen apparently need more time to make the mental change suggested by the AIV. We have hardly heard them about the Huawei problem. Or about the situation in Hong Kong. Or about strategic choices in the American-Chinese conflict. They prefer to remain silent or mention it’s better to take and formulate a common position towards China together with the rest of the EU, not as an individual European member state: the latter an understandable, laudable approach in itself. Yet it is hard to imagine Rutte has suddenly turned into a complete Europhile, trusting Dutch (trade) interests vis-à-vis China can best be conveyed and protected through the EU. Morever, has the EU already drafted and implemented any common European policy against China?

Again: Huawei

If you allow me to use again the Huawei case as an example, the answer has to be no. Last week Merkel ignored advice from the Europe Commission as well as the European agency of cyber security (and her own CDU too) about banning Huawei in the 5G roll-out. Is it just a diplomatic facade by the German Chancellor or is she really completely unwilling to jeopardize trade interests with China? In the latter case a conclusion could be Germany has already made itself too dependent on China as an export market, driving Merkel to play down the national security risks of Huawei’s eventual involvement in 5G (unless she genuinely believes national security won’t be at stake at all when Huawei participates in the 5G roll out, which clearly contradicts the opinion of her own political party and the NATO, the military alliance she so much cherishes).

Others (Poland) have excluded Huawei, whereas Hungary is firmly engaged to the Chinese giant. And what is Rutte’s final position on the 5G rollout that forms the basis for our next industrial revolution? I would not know, apparently he has not been asked by our parliamentary journalists. Last week they were all too busy with the CO2 emissions’ saga. As a matter of fact, 5G will be indispensable for reducing CO2 emissions in industry and agriculture: didn’t last week offer the ideal opportunity to ask our prime minister about the 5G roll-out that is supposed to be kicked off no later than the beginning of next year? Will our government heed the advice of the European Commission on Huawei?

Ironically Trump has now become the advocate of the European companies Nokia and Ericsson for the 5G roll-out, while the German and Dutch heads of government do their utmost best not to offend China by publicly refusing to (partially) exclude Huawei (in advance). It is quite remarkable anyhow how local Dutch governments and companies in the Netherlands were able to independently kick off all kinds of IT/infrastructural projects with Huawei, a state-subsidized company from a communist country in the top 5 of state hackers, sidelining the more expensive and (perhaps) technically less advanced Nokia and Ericsson. Until recently our national government never made the public aware of any security risks, these local initiatives were allowed and conducted under our free market principles. In addition, the lack of a coordinated EU innovation & technology policy to stimulate the digital revolution in Europe and protect or strengthen strategic European companies and assets has become painfully clear too. How does Europe want to keep up with China (and America) technologically?

Public Debate

To give yet another remarkable example: in 2016, the division of RF transistors (renamed Ampleon) spun off from NXP was bought by JAC capital, a Chinese state-owned company. Ampleon is a global player for chips used in 5G transmission towers. Ampleon in a way makes the rollout of 5G possible. The purchase was essential for the Chinese ambition to become dominant in 5G. But at the same time it made the Netherlands even more dependent on Chinese companies for the construction of our critical network infrastructure.

Some unease is finally coming to the surface in Dutch society: in several municipalities a discussion about Huawei and China has erupted. I highlighted the debate in Rotterdam before. The province of Zeeland was in the news last week too: the construction of a “green” data center in the Slossele area near Borssele is being delayed because Huawei has pulled back. The Chinese telecom giant took this decision after it became clear Dutch companies were reluctant to put their cloud data/services on servers of Huawei, according to the project developer, The Green Bay … It is also encouraging to see the Huawei dilemma was the main topic of the popular TV entertainment program “Zondag met Lubach” … so who knows, something of a public debate might occur after all…. https://www.gids.tv/video/132837/zondag-met-lubach-gemist-huawei-en-5g-wanneer-zegt-nederland-bye-bye

Public awareness of the geopolitical position of the European Union is still extremely poor. This is partly due to years of skepticism by our politicians in the Hague about the desirability or feasibility of a joint EU foreign policy. The internal divisions within the European Union regarding a China strategy have already turned into a major handicap. The Netherlands should contribute to a joint European foreign policy with more conviction and commitment; it is not just a matter of professing this noble intention in Dutch parliament. The same applies to France and Germany. Without any coordinated policy and strategy, Europe’s influence will diminish, while the individual European member states are likely to be manipulated and kicked around in the growing American-Chinese rivalry. In short, there is a big urgency for a joint China approach in Europe.

The AIV has recommended that the government and parliament create more public attention for four strategic questions. Since Rutte and Blok have not followed up on this, let me take this opportunity:

Four strategic questions

What’s at stake (1)

What does each EU member state and the EU as a whole want to protect in its encounter/ relationship with China, in terms of security, values, cultural tradition or otherwise? Each member state and the EU together have to assess what we (want to) stand for, what is most dear to us as a society, and what price we are willing to pay to protect it: it requires a much more refined and sharper focus and attention in the coming years.

The geopolitical playground (2) To what extent do European countries feel the geopolitical tensions between the US and China, to what extent is a country willing and / or able to choose its own position and/or to have some room for maneuver? In general, this (public) awareness is still non-existent. The China memorandum from the Dutch government also ignores this issue, without providing any direction. This is the same for other member states. The rule of thumb was that for security topics the European choice would be for the USA, and -if possible- in economic/trade matters for China, but the question is whether and how long this can still be done given the strong links between economy, technology and security.

The European card (3) The third strategic question is the extent to which a member state is prepared to play the European card in defending/promoting its own interests and values, certainly if this could entail compromising or being overruled on occasions for the sake of a higher, common good. Is there a growing awareness, also among traditional free traders in northwestern Europe such as the Netherlands, that a purely economic view of, for example, the privatization of vital infrastructure (electricity grid, ports), or a rejection of any strategic, coordinated economic policy (eg a dedicated approach for innovation, industrial and technological development), is unwise?

Own assets/strengths and capacity to act (4) There is little strategic debate in Europe about what trump cards and leverage we have in our relationship with China. Neglecting this fourth strategic question could prove costly. It is questionable whether countries that “give” something to China will request and receive sufficient refund for it. In 2016, Greece received EUR 280 million with the sale of 51% of the shares of the port authorities’ company of Piraeus as well as additional Chinese investments in the port and – thanks to support from Chinese shipping companies – a greatly increased container throughput. That seems relatively little for what China obtained, namely the operational management of a large seaport in the EU and a big success story for the Belt and Road initiative. Moreover, the blame for the limited awareness of the strategic significance of this transaction primarily lies with the EU, which, together with the IMF, had imposed on Greece the sale of state shareholdings in the harbour installation company…..

I assume the debate in the Dutch parliament on the China strategy of our government will resume in November or December, after Minister Blok was asked in the previous debate to re-do his China homework. Unfortunately, i don’t know the exact date of such a debate. It would be wise if the Dutch parliamentarians would not only focus on the (important) human rights issue, but would also discuss the 4 strategic questions posed by the AIV …

PS1: The Belt and Road Initiative (BRI) is a large-scale Chinese initiative aimed at stimulating connections (“new silk roads”) between continents and their adjacent seas. This is done via the construction of roads, railways, ports and airports, facilitating investment and trade, financial cooperation, but also through cultural exchange and direct contact between people. China is also working on a digital version of the initiative in areas such as internet technology and online banking

PS2: Reuters, 11 Nov 2019

 “China and Greece agreed on Monday November 11 2019 to push ahead with a 600 million euros investment by COSCO Shipping into Greece’s largest port, Piraeus, as part of efforts to boost its role as a hub in rapidly growing trade between Asia and Europe. The agreement, part of 16 trade deals signed between Greece and China, came during an official visit by Chinese President Xi Jinping to Athens on Monday. The two countries have drawn closer since 2009 when COSCO won a 35-year concession to upgrade and run container cargo piers in Piraeus.

PS3: This week Dutch media reported KPN has already started placing 5G transmission towers (Huawei) despite the fact the government still has to clarify its final position on the 5G roll-out and issue the detailed, stricter security regulations/guidelines regarding 5G equipment