EU-China trade tensions brewing, Ukraine makes advance
- EU-China trade tensions are brewing with an EU probe into Chinese EV subsidies. US weapons sale to Taiwan under sovereign-nation program feeds new tensions. China has increased the intensity of military exercises around Taiwan lately.
- Ukraine has made significant advance in the battlefield, successfully breaking through the first Russian line of defence in the south. If they are able to push further, they could eventually be able to attack key Russian logistics routes.
Recent developments related to China
Are EU and China heading for a trade war? At least we are seeing increased tensions in the trade area, which need to be followed over the coming year(s). EU’s trade deficit with China has increased sharply in recent years, partly due to exports within green tech, where China is leading. The EU Commission President Ursula von der Leyen on Wednesday announced that a probe into Chinese EV subsidies will be launched. China responded with a sharp rebuke saying China’s competitive advantage in the EV space had nothing to do with subsidies. Imports of Chinese EVs have increased significantly and was likely to become a flash point of tension sooner or later, not least as it challenges the German auto sector significantly.
Chinese President Xi Jinping stayed away from the G20 meeting in India earlier this month and instead sent his premier Li Qiang. There has been a lot of speculation about why Xi chose not to go. A few reasons suggested were: 1) it was a snub of India’s Prime Minister Narandra Modi, 2) Xi did not want to meet with US President Joe Biden, 3) Xi is delegating more of the global affairs relations to his Premier Li Qiang, who is shaping up to be the strongest Premier China has seen since Zhu Rongji in the 1990’s. A sign that Xi now has a premier who he has a lot of confidence in. And 4) Xi is now prioritising domestic affairs more with all the internal challenges China is facing. We don’t really know the real explanation. Li Qiang also represented China at the ASEAN Summit in Jakarta earlier this month where the US was represented by Vice President Kamala Harris.
The big question is now whether Xi Jinping will show up for the annual APEC Summit to be held in San Francisco in mid-November. If he doesn’t it suggests he is not willing to have a meeting with Joe Biden. The two met at the G20 meeting in November last year in Bali where apparently a consensus was reached on a number of points. But relations soured fast when the US shot down the alleged Chinese spy balloon three months later. China often stresses that the US needs to show more sincerity and not just say the right things but also follow through in action. A recent weapons sale to Taiwan may complicate a new meeting between the two leaders. The sale was for the first time made under a program so far only used for sovereign nations. It signals the US is increasingly treating Taiwan as a sovereign nation even if the official policy is still a one China policy.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
