As China and the EU enact new laws to protect their companies’ interests, some of them are in opposition to each other and companies from both sides say it is becoming almost impossible to comply with both. “We risk being caught up in issues that are strictly speaking unrelated to what we do as companies,” said Jens Eskelund, Chairman of the EU Chamber of Commerce in China, of the messier picture. “It creates a new set of risk factors that companies need to develop a position on and possibly also prepare for.” The EU is opposed to Chinese companies having remote technical access to their products as under Chinese law companies may be forced to assist state authorities. This pushed the EU into response mode with a series of regulations of its own.
Last month, the EU halted all EU funding for Chinese-made inverters – the electronic devices that sit in the middle of critical infrastructure grids and are used in solar, wind and EV charging systems – out of fear of being hacked and disabled. Security concerns also served to galvanize the EU’s sweeping new attempt at industrial policy, eager to entice Chinese manufacturers to produce in Europe under stringent local standards. This in turn drew a response from China, which vowed to retaliate against EU companies. Joseph Dellatte, Dean of Energy and Climate Studies at Institut Montaigne, a French think tank, said that “perhaps, you could have a backstop at some point in Shanghai that could stop some windmills producing power on the shores of Germany. If you need to use Chinese technology, at the very least, some key components should be made in Europe in order for them not to be covered by China’s intelligence law,” said Dellatte.
In the new regulatory battlefield, companies from China and the EU increasingly find themselves falling between a rock and a hard place. In Luxembourg last month, Nuctech, the Chinese maker of airport scanning machines, sued the European Commission in a foreign subsidies regulation case. In a statement, the company accused the EU of “breaching public international law” by requiring it to “provide documents located in the People’s Republic of China, while being fully aware that such transfers are prohibited under Chinese law”. In China, meanwhile, European companies are fretting over new and existing laws that they fear will be impossible to square with regulations back in Europe but which they are convinced will be used to strengthen Beijing’s geo-strategic position.
Sweeping new supply-chain legislation could see businesspeople banned from leaving China if they conduct “investigations and other information collection activities related to industrial and supply chains” there. This is despite the fact that EU authorities are requiring their firms to conduct supply-chain audits to show they comply with European standards abroad. “There is a risk that the information that needs to be collected as part of this process could be interpreted as violating Chinese law,” the EU Chamber of Commerce in China said in a statement. At the same time, new regulations on “countering improper extraterritorial jurisdiction by foreign states” seek to prevent foreign businesses in China from complying with extraterritorial rules set abroad. “Foreign companies and individuals will increasingly find themselves caught between their home countries’ export controls and other policies, and Beijing’s demands not to comply with them, under the threat of countermeasures,” said Helena Legarda, head of the foreign relations program at the Mercator Institute for China Studies, a German think tank.
These add to continuing unease that China’s export controls on rare earths are being used to extract sensitive business information including on product design from companies that apply for licenses to ship them. While Beijing complains about U.S. export controls preventing Dutch lithographic equipment going to China, it is now doing the same on critical minerals, according to Oliver Richtberg, Manager of the Foreign Trade Department at Germany’s Mechanical Engineering Industry Association (VDMA). “They are telling our companies, ‘If you want to use rare earths, I want to know what the application is’,” Richtberg added. “This is exactly what they don’t want in the other direction. So, it’s really schizophrenic.” A recent EU Chamber report on the controls flagged concerns about China’s ability “to map critical dependencies from the geographical level, all the way down to the industry, company and individual component levels”. “This also provides China with the ability to inflict significant damage on a company or industry in a highly targeted way should the need arise in the future,” the report stated.
For its part, Beijing has sought to head off EU efforts to build new laws de-risking from its dependencies on China. “In the case of Europe, they are doing it to de-risk from China and to some extent the U.S.; in the case of China, it doesn’t want the others to de-risk from China.” Chinese businesses argue the legislation complicates an elaborate web of rules that makes the European market less hospitable, the South China Morning Post reports.
