The discussions about the shape of EU-China relations are missing the export dependency angle. Value chain analysis provides insights into both direct and indirect trade relations with China, which in turn point to specific policy tools.
French President Emmanuel Macron’s recent trip to China has resulted in stirring up a pan-European debate on the nature of China-EU relations. Macron’s conciliatory advances toward the Chinese leadership have been met both with praise as well as pushback, particularly loudly professed by the Central and Eastern European nations.
The punditry has since glossed over the diminished position of the traditional Franco-German motor of the EU, a core-periphery split, a divide between presentism and future-oriented thinking, as well as a divergence in the positions on the strategic autonomy and the nature of transatlantic relations.
While the majority of the disagreement was focused on the questions of diplomacy, security, and international relations, Macron’s large entourage of businesspeople has also brought economic relations under scrutiny. The French appetite for increased trade and investment with China contradicts the EU Commission’s desire to “de-risk,” a Brussels codeword for decreasing trade and investment dependencies on China.
The de-risking narrative has been enthusiastically embraced by the Baltic states, Poland, and Czechia, all of which seek to re-evaluate their trade and supply chain exposures to China. However, as the 2021 events in Lithuania demonstrate, complex trade relations in the 21st century may prove more difficult to disentangle than expected.
In the widely publicized case of the Sino-Lithuanian spat, the Lithuanian government opted for a high-profile falling out with China after having assessed the potential economic damage to be low and manageable. However, China’s unprecedented weaponization of supply chains in order to attack Lithuania has revealed a weakness: the reliance on bilateral trade data has not shown the full picture of Lithuania’s economic exposure towards China, and the Baltic state’s politicians based their decisions on imprecise figures.
Had they derived their decisions from the analysis of global value chains, their choices might have been different. As the recently published econometric analysis by the Central European Institute of Asian Studies shows, when counting indirect trade linkages, Lithuania is almost 250% more exposed to Chinese demand as the official records show.
Figure 1: Countries within the European supply chain have a higher indirect trade relations than what bilateral statistics indicate.
The debate on China in the wider region of Central and Eastern Europe (CEE) has been awash with contradictions since its inception due to the ignorance of value chain data. Neither the China-friendly nor the more critical politicians had reflected indirect exposures in their rhetoric. Although the indirect trade data clearly positions China as a more important export destination than what the traditionally used bilateral data would have us think, China enthusiasts never used this as an argument in the debate and often conceded defeat when the counterparty put bilateral data on the table. China hawks, on the other hand, constantly underestimate the extent of exposure and dependence on China, which in turn further emboldens them in pursuing China-critical symbolic actions. Paradoxically, the CEE region – or 16+1 in Beijing’s parlance – has been professing a growing disappointment over the meager trade volumes with China just as the indirect trade linkages were deepening.
An analysis of global value chains may also prove useful in the current heated debate on the nature of Sino-European relations. The often-repeated figure of the EU countries conducting more than two-thirds of trade among themselves is only true to some extent. A large part of these trade exchanges is a cross-border movement of intermediate goods within a manufacturing supply chain. A component can traverse borders multiple times back and forth before production is complete, which leads to double counting and inflating the intra-EU trade figures.
When the movement of components is removed from the equation and only the final demand is considered, the picture changes rapidly. The intra-European trade proportion falls by several percentage points, which is mostly compensated by the rise of the importance of US and Chinese consumption. The final demand analysis thus allows us to assess the effectiveness of certain policy tools. For instance, the recent focus on reshoring or near-shoring may result in boosting the supply chain resilience; however, it will not decrease the dependence on extra-European markets for exports and production. Protecting production chains does not address final demand dependence.
Take any other trade policy tool recently discussed and adopted by the EU, and you will find that they are primarily concerned with the European dependence on imports from China. This is certainly a significant issue; nevertheless, the vulnerabilities running in the opposite direction – export dependence on the Chinese market – seem secondary for policymakers.
This is likely related to the fact that mitigating export dependence using a palette of trade policy tools has its limits. Achieving robust risk management of export dependence would, in the long run, entail significant changes in the economic structure, a politically highly salient topic in the EU. In particular, Germany’s economic model of depending on export manufacturing and a relatively subdued domestic consumption would require a shakeup that no one dares to picture, let alone pursue.
Speaking of Germany, it has a special position as an anchor within the European supply chain. A high proportion of the indirect trade between the EU countries and China is routed via Germany. This was one of the reasons the Lithuanian officials did not see the full scope of their trade linkages to China. It was also the avenue that China chose to exert pressure on the Baltic country – German companies that were summoned and threatened by Chinese officials to drop their Lithuanian suppliers.
The complex web of Germany-centred supply chain networks increases other EU countries’ indirect exposure to China, obfuscates these linkages for most observers, and makes it difficult for individual countries to implement effective policies.
This has implications for both sides of the Macron-in-China debate. The supporters of the French president’s renewed economic foray into China need to recognize the supply chain-embedded vulnerabilities and the potential for their exploitation. On the other hand, the decouplers’ agenda can only be pursued in partnership with Germany, while the Central European industrial behemoth does not seem too keen to reduce its linkages with China.
The low priority of this agenda in Brussels, coupled with the East-West divide on this topic, indicates that the problem of Europe’s export dependence will most likely be dealt with by muddling through unless China’s exploits cause a stronger call to action.
Austerity, corruption, and neglect: How the Greek railway became Europe’s deadliest
“Aren’t trains supposed to be safe?” This was the question on the minds of most Greeks after the fatal collision between a passenger and a freight train that took place on February 28th in the Tempi area of Central Greece. The crash cost the lives of 57 people, mostly young students returning home after the Clean Monday holiday. As it turned out, the trains in Greece were not safe at all. In fact, according to a 2022 report by the European Union Agency for Railways, Greece had the deadliest railway among 29 European nations even before the Tempi catastrophe.
The official inquiry into the disaster concluded that the station master had committed a series of critical errors that night; however it also highlighted that there were no safety systems in place to prevent or correct human errors. In the days following the catastrophe, the phrase “a serious accident was waiting to happen” was used many times by those working at the Greek railway.
Thanasis, 22, a driver for Hellenic Train, had the same opinion. Despite its name, Hellenic Train is a subsidiary of Trenitalia and is responsible for the operation of passenger and freight trains on the Greek railway lines. The state-owned Hellenic Railways Organization (OSE) is responsible for running and maintaining the lines as well as the accompanying infrastructure and systems (signals, stations, etc.).
That fateful night, Thanasis drove the IC62 passenger train from Athens up to Larisa, one station before the disaster. There, he changed shifts with his colleagues, who had to drive the IC62 to Thessaloniki. Approximately one hour later, they died from the collision. Thanasis learned about the accident on his way back to Athens.
“Shortly before we reached Thiva, we learned that something had happened because they called us from the Rentis train depot to ask if we were OK. At first, we did not give it much thought because we were told it was a derailment and derailments happen a lot. Afterwards, we learned that it was a head-on collision and that there were deaths. Shortly before we arrived in Athens, we began to see the first photos and videos [from the place of the accident],”he said.
According to the inquiry report, the absence of the European Train Control System (ETCS) played a central role in the disaster. ETCS is being used by the majority of European countries and it would have automatically stopped both trains after they entered a collision course. ETCS was installed gradually on Greek train engines from 2007 to 2018, but in order for it to be operational, the railway signals on the lines need to work.
However, copper thieves have been stealing cables from the railway lines for years. The theft and selling of copper are predominately dominated by criminal gangs called the “copper mafia”, but in some instances OSE employees have also been implicated. In 2017, a high-ranking OSE director and seven other employees were arrested after they were found to have taken tens of thousands of euros in bribes from these gangs. Due to its limited budget, OSE does not replace the stolen and damaged cables; as a result, the signaling system that is essential for the operation of ETCS is constantly out of order. The lack of signaling has resulted in the Greek railway relying on an obsolete system of station masters. This leaves no margin for human error, especially when all the traffic takes place on a single line, as was the case on the night of the Tempi disaster.
Another railway driver, who spoke on the condition of anonymity due to fear of reprisals, described how vulnerable the Greek railway system really is to criminal organizations taking advantage of it.
“There are extensive copper wire thefts. Even a few days after the accident, wires for the signaling system were installed in Katerini; they were stolen the same night, a few hours after installation. There is a serious problem. The system started to gradually get out of order,” he said. The driver also spoke of human smuggling rings active on the railway.
During the last few years, the Greek railway system has become one of the main means of transport used by migrants and refugees attempting to reach Western Europe. This has attracted human smugglers, creating a dangerous environment for workers and migrants. In August 2022, three migrants were killed in their sleep near Drama after they got hit by a train.
“There is a trafficking problem within the organization (OSE), migrants have inside information such as the train and route numbers, they know each train’s destination and they are prepared. People have come into the cab and offered me 2.000 euros to hide them inside. Obviously I refused because I would be arrested.” stated the driver.
“Migrants sometimes hide even beneath the trains, when we find out, we immediately stop the train and call OSE, but they often tell us “What do you want us to do?”. Even the police do not come. If it arrives, it is usually just one run-down police cruiser with one police officer inside. Sometimes a train may have 90–100 people (migrants) on it,” he added.
Although copper theft and human smuggling are significant issues, the primary factor responsible for the decline of Greek railway is the severe budget cuts that have been implemented on OSE since 2010 as part of wider austerity policies. As a result, OSE gradually became underfunded and understaffed. It is telling that OSE went from employing around 6.000 people in 2010 to less than 1.000 people in 2021. This has led to many stations being left unmanned, while OSE employees sometimes have to work long hours, which makes them more prone to mistakes. Furthermore, the lack of funds means that damaged equipment and infrastructure cannot be easily repaired or replaced.
To make matters worse, the political clientelism that has plagued the Greek public sector for decades has also been present in OSE, with inexperienced individuals being given important positions within the organization simply because of their political ties. According to several reports in the Greek press, the station master charged with causing the Tempi tragedy was a political appointee of the ruling New Democracy party. He had been given the job in 2022 after a few months of training, despite being 60 years old and lacking prior experience.
Moreover, OSE seems to be afflicted by a culture of silence. Every OSE employee we tried to contact refused to talk, with some of them implying their upper-ups had forbidden them to speak publicly. A couple of weeks after the accident, this culture became evident during the visit of the ex-deputy minister of transportation, Michalis Papadopoulos, to the Larisa station. Papadopoulos, while addressing the press, made some inaccurate remarks regarding the station’s control board. When a station master stepped in and corrected the deputy minister, making him visibly uncomfortable, a high-ranking OSE director intervened, tapped the station master on the shoulder and coldly told him, “End it.” The station master complied and stopped talking at once.
A few days after the disaster, Prime Minister Kyriakos Mitsotakis referred to it as a “sacrifice” that would help the state to prevent similar disasters in the future. However, if someone roamed the streets during the almost daily large demonstrations in the weeks following the Tempi catastrophe, the word that he would see mostly written on placards and banners was “murder.” This shows that a sizable part of society did not attribute the accident to the convenient explanation of human error but considered the Greek state responsible for the dreadful condition of the country’s infrastructure, including its railway system.
Following the catastrophe, the Mitsotakis government, which managed to secure reelection in June with an impressive 41% of the vote, increased the OSE’s annual funding from 45 million euros to 75 million euros and accelerated construction work, with the goal of having ETCS and signaling installed on the majority of the Athens-Thessaloniki line by November 2023.
Nevertheless, the disintegration of the Greek state’s capacity after 13 years of austerity makes it impossible to close one gap without opening another. In early September, catastrophic floods in Central Greece washed away the new constructions and destroyed a large part of the old railway infrastructure, once again highlighting the authorities’ lack of preparedness.
As a result, the work now has to start from scratch. “It will probably take us many months to return the railway to the point it was 15 days ago [before the floods],” admitted the newly appointed Infrastructure and Transport Minister, Christos Staikouras, in a recent interview. “The work [on the railway] will have been completed by 2026,” he concluded, attempting to reassure the citizens. However, a lot of them will probably be skeptical of the minister’s reassurances
Nurturing Sino-EU Ties through Multilateralism
Considering the fact that relations between China and the EU are shifting, they will continue since China’s position as a crucial economic powerhouse for the EU cannot be understated, especially as the EU confronts a real and technical economic downturn. In the Eurozone, countries such as the Czech Republic, Lithuania, and Germany are experiencing a deceleration in economic growth, which requires immediate consideration. The primary reason for this is the industry-related crisis caused by the collapse of export operations on both domestic and global markets due to a lack of purchasing power.
If this mild downturn becomes a full-blown crisis, the economies of both the European Union and the United States could stagnate. Because of these challenges, the European Union (EU) must strike a fine balance between resolving the current crisis and accommodating U.S. demands. The recent summit of European Union leaders holds great importance as the EU determined its policy towards China. The EU’s economic prospects are highly dependent on developing strong ties with China.
When combined with China’s growing consumer market and massive expenditures in infrastructure, the European Union’s economy has a once-in-a-generation chance to rebound and thrive. The European Union (EU) stands to gain from closer economic connections with China due to the opportunities it presents for increased collaboration, broader trade, and the infusion of much-needed Chinese investment into the EU’s flagging industrial sectors.
Recognizing this undeniable potential, the EU must priorities capitalizing on the benefits of its partnership with China, whilst likewise making sure that the relationship remains mutually beneficial and sustainable. The path towards achieving such equilibrium, however, is fraught with obstacles, mainly due to external pressures from the United States. Notably, the United States has imposed tariffs and trade restrictions on a number of European products, creating financial challenges for European companies. These actions are frequently used as pressure to influence Europe’s approach to China.
The EU is in a precarious position, compelled to navigate an environment where financial goals, geopolitical issues, and common values intersect. Maintaining a delicate equilibrium is essential. The pressure exerted by the United States highlights the necessity for Europe to assert its own interests and independence in international affairs. It is essential that the EU devise an independent and principled strategy that protects its own interests while approaching China with a productive discussion.
European Council President Charles Michel’s recent statement that it is in the EU’s best interest to maintain “stable and constructive” ties with China has, in a sense, confirmed the continuation of EU-China relations. In a latest commentary, Josep Borrell, the EU’s high representative for foreign affairs, pointed to how the EU could modify its policy towards China. However, he advocated for “vigorous engagement” between the EU and Beijing.
Under the weight of US pressure, maintaining a delicate balance in EU-China relations requires careful handling. European leaders will have the opportunity to define the EU’s position on China at the upcoming EU summit, ushering in a future of balanced, constructive, and mutually beneficial engagement. It is essential that European leaders seize this opportunity and set a course that protects their economic interests and fundamental values. In this manner, the EU can promote stability, resilience, and sustainable growth in the face of changing global dynamics.
At this critical juncture, leaders must engage in exhaustive dialogues that incorporate the many facets of the EU’s relationship with China. The promotion of human rights should be coupled with economic considerations. Considerations such as trade disparities, rights to intellectual property protection, and the development of equitable market practices must be addressed in an open discussion. This strategy will ensure an equitable playing field for EU and Chinese businesses, fostering an environment conducive to healthy competition and long-term economic growth.
The foundation of Sino-EU relations should base on mutual interest and respect, multilateralism, and economic exchanges, and they should be exempt from illicit US interference and pressures. By navigating these complexities and forging a path that safeguards economic interests and fundamental values, the EU can promote stability, resilience, and sustainable growth in the face of changing global dynamics.
China-Germany Win-Win Cooperation
The China-Germany cooperation exemplifies the transformative potential of collaboration based on mutual regard, shared objectives, and complementary strengths. This exceptional partnership has spawned a domino effect that extends beyond bilateral relations, inspiring other nations to pursue similarly mutually beneficial partnerships.
As the world becomes more interconnected, countries can learn from the China-Germany model of cooperation, which fosters economic development, technological advancement, environmental stewardship, and cultural exchange. By adhering to the principles of win-win cooperation, nations can construct a more prosperous, sustainable, and harmonious global community.
China and Germany’s dynamic and mutually beneficial cooperation is a shining example of win-win collaboration on the global stage. Both nations have nurtured strong economic and diplomatic ties over the years, resulting in enormous advances and benefits for their respective societies.
Strong and coordinated global action is needed immediately to combat climate change and advance sustainable development. There is still a lot to be done, but China and Germany have already shown their dedication to environmentally friendly and low-carbon development. By aligning their strategies and exchanging best practices, they can expedite the transition to a low-carbon, sustainable economy.
China’s pledge to peak carbon emissions before 2030 and achieve carbon neutrality before 2060 shows its commitment to a deep low-carbon transformation of its economy and society. Through the International Climate Initiative (IKI) administered by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, the German Federal Government supports Sino-German climate change cooperation.
Collaboration in areas such as energy efficiency, renewable energy, the circular economy, and sustainable transportation can lead the way for a greener future, mitigating the effects of climate change and nurturing ecological equilibrium.
China and Germany have established a strong economic partnership that has benefited both countries significantly. Germany’s main commercial partner is China, and vice versa, and this strong bilateral commerce has led to significant economic growth and employment creation. This collaboration has given German businesses access to the sizable Chinese market.
Notably, the exchange of products, services, and knowledge between the two nations has fostered innovation, productivity, and economic resiliency, thereby laying the groundwork for long-term cooperation. This commitment to cooperation has yielded an array of beneficial effects, strengthening the conviction that win-win partnerships can drive progress and prosperity in an interdependent world.
The dynamic economic partnership that has grown between the two nations is one of the pillars of China-Germany cooperation. Germany, known for its scientific prowess, inventiveness, and precision engineering, found a favourable market in China, with its enormous customer base and rapidly expanding economy.
On the other hand, China’s manufacturing expertise and devotion to infrastructure development have presented German businesses with incredible possibilities to expand their operations and enter new markets. Entrepreneurs from both nations could keep pursuing openness, inclusiveness, and win-win cooperation, as well as keep the stability of industrial and supply chains with high-level practical cooperation. This symbiotic relationship has allowed both nations to capitalize on their respective strengths, resulting in economic expansion and job creation for both countries.
China and Germany have also established cooperation in the fields of innovation and research, recognizing that advancements in these fields are crucial agents of economic and societal progress. Through joint research initiatives, academic exchanges, and institution-to-institution collaboration, both nations have been able to pool their intellectual resources, foster innovation, and address global challenges. This cooperation has not only led to revolutionary scientific discoveries, but it has also set the groundwork for future innovations in technology that will benefit all of humanity.
China and Germany have fostered cultural exchange and people-to-people diplomacy in addition to their economic and technological cooperation. By encouraging education exchanges, cultural events, and intercultural dialogue, both countries have built bridges of appreciation, understanding, and friendship. Not only do these interactions enrich the lives of individuals, but they also strengthen the bilateral relationship as a whole. They facilitate dialogue, eliminate preconceived notions, and set the groundwork for mutually beneficial relationships and respect.
By expanding on these accomplishments and upholding a spirit of mutual respect and shared objectives, the China-Germany partnership can continue to advance progress and inspire global collaboration.
The China-Germany model of win-win cooperation provides valuable lessons for nations seeking to forge prosperous partnerships. It emphasizes the significance of mutual respect, trust, and open communication as the foundations for productive collaboration. It also emphasizes the importance of recognizing and capitalizing on balance in strengths and resources, which allows nations to maximize the positive effects of cooperation.
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