Coronavirus News Asia

As globalisation frays, Asia frets

Hopes are rising that the global economy is over the worst of Covid-19, but fresh headwinds to trade and investment are mounting that make it rash for financial markets to bet on a smooth V-shaped recovery.

As governments in advanced economies respond to the pandemic by pledging greater self-sufficiency in key areas such as medical goods, the crisis is accelerating an unholy trinity of trends: a partial retreat from globalisation, the spread of barriers to trade and a hardening of anti-China sentiment.

These trends come together in a ground-breaking move by the European Union to slap tariffs on a country not normally associated with trade disputes – Egypt.

Why is Egypt in the firing line? Because of China. The EU announced on June 15 that it was imposing tariffs on Chinese producers of glass fibre after determining they had received preferential loans, cheap land and various tax breaks that allowed them to sell into Europe at below-market prices.

So far, so routine. What is new is that the European Commission ruled that Beijing’s subsidies were unfairly aiding two Egyptian subsidiaries of state-owned China National Building Materials Group Corp. Normally the EU considers only aid extended by the host government.

The unprecedented decision is the latest expression of concern about China’s rising economic profile in Europe. The main lightning rod, of course, is telecoms giant Huawei, and whether governments should contract it to roll out their 5G next-generation mobile phone networks.

The EU has recommended limiting but not banning Huawei. To that end,  Brussels launched a so-called 5G toolbox in January that aims to mitigate the potential risk of doing business with vendors deemed to pose a security risk.

UK Prime Minister Boris Johnson is under particular pressure from within his ruling Conservative Party to bar Huawei by reversing his decision to give the Shenzhen-based company a limited role in building Britain’s 5G grid.

EU unease

The EU’s unease about China goes well beyond telecoms. In its latest move to rein in what it sees as “systemic rival” that has failed to keep its promises to open its markets, the Commission set out steps on June 17 to prevent foreign investors from using state aid to outbid rival bidders for European assets. The proposals also aim to thwart government-subsidised foreign companies from undercutting European firms in the $2 trillion public procurement market.

As well as heightening the West’s wariness of China’s economic ambitions, the pandemic has raised awareness that too many sectors rely excessively on a single country or supplier – usually Chinese – for strategic goods and parts.

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