Two new EU procedures could hit Hungary with investigations into Chinese companies

European Union Trade Commissioner Valdis Dombrovskis arrived in Beijing today as part of a four-day trip to China, following visits to Shanghai and Suzhou over the weekend. The visit follows a recent visit by Věra Jourová, the EC's Vice President for Values and Transparency and the EU’s new digital policy chief, which adds to the growing attention on EU-China relations, Politico reports.

During his visit, Dombrovskis expressed concern that the EU's trade openness is being "abused". Speaking at the Bund summit in Shanghai on Saturday, he warned of growing competition between European companies and their Chinese counterparts, leading to a loss of market share for European firms.

In response to these challenges, the European Union is taking a stronger stance in negotiations with China. Brussels has even threatened to impose tariffs on Chinese electric cars as part of this strategy, according to two diplomats and an official.

Speaking at Beijing's Tsinghua University, Dombrovskis called on China to create a fairer business environment and warned that

European companies could withdraw from the Chinese market if problems such as lack of reciprocity, unequal access to procurement, discriminatory regulations and security requirements persist.

Dombrovskis also highlighted the complexity of EU-China relations in the light of Russia's war against Ukraine. He called it the "strongest headwind" that could potentially cause a "drift apart" between the EU and China.

Today, the EU trade chief will meet He Lifeng, China’s vice premier in charge of the economy, as part of the EU’s concerted effort to reach a fairer relationship with its biggest trade partner. A joint press conference is expected at 2 p.m. CET.

Dombrovskis is set to convey Brussels’ list of trade irritants to his Chinese counterparts.

Chief among them are Chinese restrictions against European cosmetics and medical technology products, as well as on the free flow of data.

If Dombrovskis' visit fails to produce positive results, Brussels is considering launching further investigations into sensitive sectors of the Chinese economy, including the medical and rail sectors, where EU countries have been more open to Chinese products than vice versa.

This is something that could also affect the Hungarian economy more: in the case of the Budapest-Belgrade railway line, a new EU restriction could be an unpleasant step that would make the project impossible, while 80% of the HUF 750 billion construction would be covered with Chinese loans.

In the healthcare industry, the world is awash with export-subsidised, low-quality, substandard, fraudulently licensed Chinese products. This means that even Hungarian manufacturers are finding it difficult to compete in the Hungarian market. In addition, the government has been building an increasingly strong partnership with Chinese suppliers since the start of the coronavirus outbreak.

There are some who worry about the Chinese response

German car manufacturers are nervous about possible retaliation if the EU imposes tariffs on Chinese electric vehicles following a new anti-subsidy investigation. German Economy Minister Robert Habeck is worried and highlighted the differences between Berlin and Paris regarding the trade investigation against China.

Sweden is particularly concerned about Brussels' assertiveness, as companies such as Volvo, once the pride of the Swedish car industry, have been taken over by Chinese firms. Possible EU tariffs resulting from the investigation into Chinese subsidies could affect Volvo, as well as Volkswagen and Tesla, which also export electric vehicles to the EU from China.

Despite Germany's vulnerability, Habeck called on EU countries to adopt a screening system for outbound investment to prevent sensitive technologies being shared with Beijing or problematic dependencies being created. He stressed the need for a coordinated European approach to such screening.

There are rumours that Valdis Dombrovskis may consider a bid to head the European Investment Bank from next year, adding further excitement to his visit to China.

Cover photo: EU Trade Commissioner Valdis Dombrovskis visits Beijing. Source: EU.