I am writing on the eve of Xi Jinping’s arrival in Europe: it is his first trip in almost five years, in the midst of which there was the pandemic, the war in Ukraine, the war in the Middle East. He will visit France Hungary Serbia. The Chinese president will find a changed Europe, less well disposed towards him. Italy’s choice not to renew membership of its Belt and Road Initiative (also known by us as the “New Silk Roads”) is just one of the many signs of a review of relations. Europeans seem to be opening their eyes (perhaps with an irreparable delay?) to imbalances, unfair competition, excessive levels of dependence.
The case of Nuctech, which monitors the borders
The case of Nuctech, a Chinese company recently placed under investigation by European authorities, is instructive: its offices in the Netherlands and Poland were searched. Nuctech is a name unknown to the general public, yet who knows how many times we have “crossed paths” with it without knowing it, especially if we are travellers. It produces X-ray scanner machines used in security checks: for example on airport conveyor belts, to indicate whether a baggage contains explosives or other prohibited objects; similar, even larger and more sophisticated machinery supplied to ports to check ship loads and container contents. There is also a version of the Nuctech equipment used at land borders, to remotely control the contents of trucks and cars crossing a border. Recently, according to a report from the Wall Street Journal, Finland bought one of these devices to strengthen border controls with Russia, under pressure from a growing entry of illegal immigrants. Another Nuctech infrastructure was bought by Ireland on the Northern Ireland border, after Brexit. According to the US State Department, at the end of 2020 Nuctech had captured 90% of the European market in maritime transport control equipment, 50% in the airport security sector for baggage and cargo. Based on these data, it is not an exaggeration to say that European border security is in the hands of the technology of a Chinese company. Digital Big Brother, which monitors 1.4 billion people in China, is also an exportable product.
Dynastic capitalism, and state-owned companies
The Nuctech case is significant for many reasons. This isn’t just any company. It was founded as a start-up by none other than the son of Xi Jinping’s predecessor, President Hu Jintao in office from 2003 to 2013. Hu’s son created and ran it from a research center at Tsinghua University in Beijing, following the model of California’s Silicon Valley where many innovative start-ups are born on university campuses. Then in 2019 the majority of Nuctech shares were sold to the China National Nuclear Corporation, a state industrial giant that manages nuclear power plants. There are many interesting aspects of this story, starting from the involvement of Hu Jintao’s family. It was a typical trait of the 2000s that wives and children of communist leaders played prominent roles in Chinese capitalism, resulting in the accumulation of enormous private wealth in the hands of the party nomenclature. Since 2012, Xi Jinping has officially declared war on that system, with his anti-corruption campaigns he has also beheaded part of the party leaders and the armed forces. Xi himself’s family had been “talked about” a lot before he came to the top of power twelve years ago. Subsequently, it appears that the Xi clan has at least reduced its visibility in business. As for Hu Jintao, his sad exit from the scene at the last party congress remains memorable, when he was “escorted” from the exit by the guards, according to the official version for health reasons, while Xi blatantly ignored him.
Brussels’ suspicions and the ongoing investigation
Nuctech, however, had left the confines of dynastic capitalism to end up in the sphere of state capitalism, thus following a typically Chinese trajectory. How did you manage to gain technological leadership and a dominant position on the European market, to the point of having a strategic role in border security? Executives at rival companies in the West have long suspected that Nuctech violated their trade secrets. Its penetration into Europe occurred by applying a proven method: the prices of its supplies are systematically lower than those of the competition. In certain cases, since airports, ports and customs launch public tenders, Nuctech was the only one or almost the only one to submit its offers, so its prices were lower than all the others. Now the EU Commission has gathered enough evidence to open investigations into Nuctech for unfair competition, linked to state subsidies.
The Nuctech case is just one of the many dossiers that signal a deterioration of the climate between Europe and China.
Auto, biomedical: other EU actions against China
Recent actions promoted by the EU Commission also include investigations into two key sectors for the invasion of “made in China”: electric cars and biomedical equipment. In both cases, Europe suffers an invasion of low-cost imports. In both cases, Brussels suspects that Chinese companies are dumping, that is, selling their products at prices even lower than production costs, thanks to the aid they receive from their government. This type of behavior, if proven, is a violation of international trade laws and makes retaliation legitimate. Finally, in both cases, Europe has placed itself or is placing itself in a situation of dependence and vulnerability. This had already happened in past years, and still remains valid, for solar panels: where Chinese competition has caused a large number of European companies to go bankrupt, so it is not clear whether Europe would be able to return to producing at home exactly what he needs.
Ukraine in talks with Macron and Ursula von der Leyen
Xi arrives in France at a time when the worsening of relations goes beyond the economic and commercial sphere. The climate of relations with Beijing was first decisively influenced by the pandemic (the lies and omissions with which the People’s Republic delayed prevention measures in the rest of the world), then by the war in Ukraine where Chinese support was decisive for Putin. In recent months, the Biden Administration has become convinced that China has even increased its support for Russia. It is not possible to find a justification for Xi’s unconditional support for Putin, other than the common hostility against the West and the desire to weaken NATO. The Ukrainian issue will be at the forefront of the talks Xi will have with Emmanuel Macron and Ursula von der Leyen.
The Chinese president for his part will complain about Europe’s growing “protectionism”. Possible EU duties are in the offing, with environmentalist motivations, which should especially affect imports from China. Furthermore, Europe is following the United States, albeit slowly and with lesser means, in adopting industrial policies based on state aid to strengthen its companies. Everything that Beijing denounces as “protectionism” actually belongs to a recipe that the People’s Republic used before all the others.
Opening up to Chinese investments
On other issues the European attitude is more flexible and available. An example is the issue of Chinese investments. The Meloni government has explored the interest of a Chinese car manufacturer (Dongfeng) in producing cars in Italy. Germany is considering easing some controls and restrictions on investments by Chinese companies on its territory. The logic recalls the one that inspired American President Ronald Reagan in the 1980s towards Japan: stop the invasion of imports that destroyed American jobs, instead welcome the investments of Japanese multinationals that built factories in America and created new jobs there. The Chinese case has many differences from the Japanese one – starting with geopolitical antagonism – but a differentiated attitude between commercial invasion and productive investments may be sensible.
Finally, on Xi’s trip, I draw attention to the stop in Belgrade. It will coincide with the 25th anniversary of the Kosovo war, when the Chinese embassy in Serbia suffered an American bombing that left three dead. It was May 7, 1999. I will return to that historical episode, its meaning and its legacy.
