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Europe Fights Back to Curb China’s Dominance

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Given the swiftness of China’s economic development in the past three decades, transitioning from an impoverished and insular country to one of the formidable economic powers of the world, it has taken some time for Europe to accept China’s growing power and influence. Not only does China sit on largest currency reserves worldwide, but it has also become a significant provider of foreign investments, including in EU nations. This has recently strengthened China’s influence over the EU, which has created a sense of caution amidst European policymakers.

How is Europe benefiting from China’s growing investments?

Europe-bound Chinese investments were six times higher than Chinese investments in the USA – in H1 2018, Chinese investments in Europe stood at US$ 12 billion as compared to US$ 2 billion in the USA. For some of the economically struggling EU countries, Chinese investments are critical for developing and upgrading infrastructure, including energy plants, railways, motorways, and airports.

China’s Belt and Road initiative, under which cross-border infrastructure will be developed, will reduce transportation costs across Europe and China, creating an opportunity to facilitate trade expansion, regional integration, and attract foreign investments.

Besides infrastructure development, the investments are likely to create job opportunities and enhance economic competitiveness across Europe.

Then why is China’s growing influence alarming Europe?

Europe now sees a range of threats that China’s rising dominance in the region could bring along. Recently, the European Commission labelled China as economic competitor seeking technological leadership and systemic rival encouraging alternative models of governance. Europe realizes that China pursuits to shape globalization to suit its own interests.

The EU is deeply concerned regarding China exercising divide and rule tactics to strengthen its relationship with individual member countries that are susceptible to pressure, which could eventually harm the European cohesion. Recently, Italy signed the Belt and Road initiative, a landmark move against the counsel of western European nations, such as France and Germany, thus, raising questions on cohesion of EU countries.

The other concern is China’s rising influence over key governments of EU nations, thus, empowering itself with political leverage across the continent. China has already yielded political returns by wearying EU unity, particularly, when it is related to European policy on international law and human rights. In 2017, Hungary broke EU’s consensus by refusing to sign letter on human right violation against China. During the same year, Greece blocked an EU statement, which condemned China’s human rights record, at the UN human rights council.

Besides politics, China has also spread wings across key sectors of economy such as infrastructure, high-end manufacturing (including critical segments such as electronics, semiconductors, automotive, etc.), and consumer services, among others – growing dominance of China across these sectors is another cause of worry for the EU.

Europe also condemns China’s discrimination against foreign businesses, rendering limited market access to European firms and employing a non-transparent bidding processes. European firms operating in China face several trade and investment barriers such as joint venture obligations and discriminatory technical requirements that entail forced data localization and technology transfers. On the other, European markets have been open to foreign investments leading to massive Chinese FDI. However, lack of reciprocity harms European interest and could lead to unfulfilled EU-China trade ties.

The EU also criticizes China’s Belt and Road project for its lack of respect for labor, environment, and human rights standards. Other concerns include non-transparent procurement procedures with majority of contracts being awarded to Chinese companies without issuing public tenders, meagre use of domestic labor and limited contractor participation from host country, and use of construction materials from China – all of which undermine Europe’s interests.

Europe Fights Back to Curb China’s Dominance

How is Europe responding to China’s actions?

Europe is adopting strategies to limit China’s influence and reach across Europe and beyond, in African and Pacific countries.

Development of EU-Asia Connectivity Strategy

The EU’s new initiative, EU-Asia Connectivity Strategy, is an implicit response to China’s Belt and Road initiative, signifying a crucial first step to promoting European priorities and interests in terms of connectivity. The initiative aims to improve connectivity between Europe and Asia through transport, digital, and energy networks, and simultaneously promote environmental and labor standards.

The EU’s initiative emphasizes sustainability, respect for labor rights, and not creating political or financial dependencies for the countries.

Robust FDI screening process

European nations have been increasingly alarmed due to state-owned Chinese companies acquiring too much control of critical technologies and sensitive infrastructure in the continent, while China shields its own economy.

For the same reason, EU parliament is developing an EU-level screening tool to vet foreign investments on grounds of security to protect strategic sectors and Europe’s interests. The regulation will protect key sectors such as energy, transport, communication, data, space, technology, and finance.

While the EU still remains open to FDI, the regulation will protect its essential interests. Nonetheless, stringent investment screening procedures are likely to limit foreign investments in the continent, particularly from China.

Tackling security threat posed by China

In March 2019, the EU Parliament passed resolution asking European institutions and member countries to take action on security threats arising from China’s rapidly rising technological presence in the continent.

The resolution is likely to impact the ongoing debate of whether to eliminate China’s Huawei Technologies from building European 5G networks. The EU is concerned that the Chinese 5G equipment could be used to access unauthorized data or sabotage critical infrastructure and communication systems in the continent.

To minimize dependence on Chinese technology firms (such as Huawei Technologies), EU countries would need to diversify procurement from different vendors or introduce multi-phase procurement processes.

EU countries expanding footprint to counter China’s reach

Since 2011, China has invested US$ 1.3 billion in concessionary loans and gifts across the Pacific region, and has established its supremacy by becoming the second largest donor. China has been trying to build its influence, as the Pacific is bestowed with vast expanse of resource-rich ocean and the regional countries have voting rights at international forums such as the United Nations.

To counter China’s reach and ambitions across the Pacific countries, European nations such as the UK and France plan to open new embassies, increase staffing levels, and engage with leaders in the region. The UK plans to open new high commissions in Vanuatu, Tonga, and Samoa by the end of May 2019 and France is looking to meet and engage with Pacific leaders during the year.

Investment in Africa to limit China’s influence

As a strategy to curb China’s growing influence, the EU plans to deepen ties with Africa by boosting investment, creating jobs, and strengthening economic relations. The plan is to create 10 million jobs in Africa over the next five years. Europe is also aiming to establish free trade agreement between the two continents.

In recent times, China has been blamed of neo-colonial approach towards Africa, which is aimed at emptying the continent of its raw mineral in exchange for inexpensive loans, extensive but inferior infrastructure, among others. Europe aims to curb such influence by attempting to do business ethically. 

EOS Perspective

Unnerved by flurry of Chinese investments in the continent, the EU is looking to regain its control over matters. Europe has adopted a defensive approach against China’s initiatives, reflected through measures taken to protect critical sectors using investment screening system. The EU understands the downsides of enormous Chinese investments/loans, which may seem hugely enticing in the beginning, but could saddle vulnerable countries in debt they cannot repay – for example, a Chinese-built highway in Montenegro is likely to increase the country’s debt to about 80% of its GDP.

Currently, the key issue is the fact that Europe is standing divided on the right strategy to respond to bolder and ambitious China. While countries such as Germany, France, and UK have grown skeptical of China and are revolting against it, Italy, Hungary, Portugal, Greece, among others, are generally China-friendly. Europe has certainly become stern and tougher on China, but cannot pursue its interests without standing united.

The current situation does not demand Europe opposing China outright, but rather ensuring fair business conditions and equal market access through dialogue and cooperation with China.

Nonetheless, the EU has been quite slow to wake up to the various challenges that excessively ambitious China brings to the table. However, if Europe is able to become united now, there is still a chance to build a decent Sino-European partnership that serves interests of both parties.

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EU-Mercosur FTA: Old Negotiations, New Zest

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The EU and Mercosur (a trade bloc comprising Brazil, Argentina, Uruguay, and Paraguay*) free trade agreement (FTA) negotiations date back almost two decades, to 1999. After failing to seal the deal in 1999 and again in 2004, the countries initiated new negotiations in 2010 and though started out slowly, they accelerated the process in 2016 (with hopes to finalize the deal by the end of 2017). A trade deal at this moment will be of significant importance to both sides owing to substantial amount of trade between the two blocs. The EU is Mercosur’s largest trading partner accounting for 21% of the bloc’s trade in 2015, while Brazil alone is the EU’s eleventh largest trading partner. However, despite a positive framework for the agreement to happen, there is still a great deal of resistance from few EU countries regarding the opening up of their agriculture sectors. Now it remains to see whether the two blocs can reach the much needed compromises and end up with an agreement by the end of the year or talks will remain hanging once more.
*Venezuela has been suspended from the trade bloc in 2016 and therefore is out of the negotiations

While this may not be the first time the EU and Mercosur sit to negotiate the terms of an FTA, it definitely seems to be the most promising one. The main reason the earlier efforts have gone in vain was the Argentinian leftist government’s adverse stance on trading outside their own backyard. This changed with the election of president Mauricio Macri in December 2015, who unlike his predecessor (Cristina Fernandez de Kirchner), looks at international trade as a growth opportunity for Argentina. Similarly, the impeachment of the Brazilian president Dilma Rousseff in May 2016 resulted in a new political wave in Brazil. While Brazil’s former president did take small steps towards trade liberalization, her successor, Michel Temer, has accelerated this process and has made the EU-Mercosur deal one of his top priorities.

Another reason this deal has gained immense importance for the Latin American bloc has been a declining bilateral trade among Mercosur’s two largest members, Argentina and Brazil, owing to recession. Trade between the countries declined from US$36 billion to US$22 billion during 2013-2016. This has forced the two nations to soften their stance on global trade.

Considering these developments, as well as the changing political and trade dynamics between several Latin American countries and the USA, following the arrival of Trumps administration at the White House, Mercosur’s openness and renewed interest in strengthening international trade ties is fully understandable. We wrote about it in February 2017 in our article Trump in Action: Triumph or Tremor for Latin America? and again later in June 2017 in Japan Hopes to Get a Slice of Mercosur Opportunity Cake as LATAM Exports to USA Decline.

On the other side of the negotiations table, as the EU has maintained a positive outlook towards foreign trade in general, the lost prospect of a Trans-Atlantic Trade and Investment Partnership with the USA under Donald Trump has also reinvigorated EU’s interest in the Mercosur FTA. Moreover, the EU views the deal with Mercosur as a suitable counter-measure to the growing Chinese influence in Latin America.

Apart from these aspects, the main reason for renewed commitment to the deal by both sides is the significant and increasing level of trade and investment between the two blocs. In 2014, EU’s investments in Mercosur countries reached US$494 billion. The EU’s exports to Mercosur expanded from about US$24.6 billion (€21 billion) in 2005 to about US$54 billion (€46 billion) in 2015. Similarly for Mercosur, its exports to the EU increased from US$37.5 billion (€32 billion) to US$49 billion (€42 billion) during the same period. Agriculture products constituted 48% of Mercosur’s exports to the EU, while machinery (29% of exports) and vehicle and parts (17% of exports) were EU’s largest export categories to the Latin American bloc.

The EU stands to gain a great deal from the FTA. As per current calculations, EU exporters would save about US$5.2 billion (€4.4 billion) annually on trade tariffs and stand to double their exports within five years of reaching a deal.

Despite hefty trade benefits and a lot of political and economic factors being in favor of the deal, agriculture remains a sore point. Several EU countries, led by France, do not want to open up their agriculture sector to Mercosur’s exports as they feel their domestic produce (especially grains and meat) cannot compete with that of Brazil and Argentina in terms of price. In addition, they are concerned that Mercosur’s agricultural produce are not subject to the same health standards as their domestic produce.

A quick glance at the average production costs indicates that the EU farmers have a reason to worry. As per estimates, if the deal comes through, the amount of maize available in Brazil and Argentina for export by 2020 will be between 23 and 26 million tonnes. While the average production cost of cereal in Mercosur is close to US$94/ tonne (€80/tonne), it is about US$141/tonne (€120/tonne) in the EU. This is likely to result in substitution of EU-grown maize with that from Mercosur, which will most likely result in a loss of about US$2.3 billion (€2 billion) by 2020 for EU’s agriculture sector. In addition, it can be expected to result in an indirect loss of about US$1.2-3.5 billion (€1-3 billion) as Mercosur-produced maize is likely to also replace wheat for animal feed during high production and harvest months.

In case of meat products, beef produced in Mercosur is more competitive than EU’s beef in terms of pricing. Moreover, a study of the usual trend of beef quotas suggest that they are first filled with noble cuts exports (including filet, entrecote, and rump steak) followed by other hindquarter cuts (such as topside and silverside). In case the deal takes place, it is expected that Mercosur’s beef will largely substitute local beef produce with Mercosur’s export volume (keeping in mind higher quantities of noble cuts, such as Hilton beef) expecting to reach 1 million tonnes. These would be worth US$18.8 billion (€16 billion) and would directly impact the local production and sales value. To bring this into perspective, the value of Brazil’s beef exports (the largest beef exporter among the Mercosur countries) to the EU was US$485 million in 2016. Moreover, low-priced imports from Mercosur will put pressure on the pricing in the domestic EU market resulting in close to a 30% downward price revision, which in turn is highly likely to result in further losses of about US$10.6 billion (€9 billion). In case the EU agreed to 300,000 tonnes at zero duty, this would expectedly result in US$3.5 billion (€3 billion) in direct costs and US$7.1 billion in indirect costs (€6 billion).

In addition to this, there are several non-tariff related issues with Mercosur’s produce, such as lack of tagging and traceability of livestock to identify and guarantee origin. Also, several drugs, such as hormones and growth promoters, as well as few antibiotics and insecticides that are banned in the EU are legally used in Mercosur. These factors have resulted in countries such as France, Ireland, and Poland opposing the EU-Mercosur FTA.

Another source of disagreement for the EU lies in the trade of sugar and ethanol, which the European producers claim should be excluded from the list of freely-traded items. This stems primarily from the fact that the Brazilian government provides subsidies worth US$1.8 billion annually to its ethanol and sugar producers, a fact providing them with an undue advantage compared to the European counterparts.

On the other hand, Mercosur is discontent with EU’s limited concessions on agricultural imports and its stance to continue quotas on the Mercosur’s food imports. Mercosur also has some concerns regarding providing the EU with access to public tenders, which in Brazil alone are worth about US$176 billion (€150 billion), however, they are positive that they will be able to reach a consensus during negotiations.

While few points of contention remain, negotiators at both ends are keen on resolving these issues and signing the deal by the end of 2017, remaining aware of the significance of this deal for both the sides as well as of the tendency for these talks to remain unresolved if not pushed soon. Moreover, both sides want to exploit the current favorable political scenario in Brazil and Argentina. With Brazil heading for presidential elections in 2018, the chances of a leftist-government coming to power do exist, and this can again put the deal in danger if it is not completed by then. Both sides of the negotiating table want to reach an agreement sought-after for the past 20 years as early as possible, even if it means compromising on some expectations.

EU Mercosur FTA Old Negotiations New Zest

EOS Perspective

A goal of completing the deal by the end of 2017 seems like quite a gun to the heads of both the blocs, as past experience, both in the case of this deal as well as other FTAs, proves that the process is never quick nor simple. Moreover, the EU seems somewhat divided on the deal, with Spain, Portugal, and Germany advocating for it and France, Poland, and Ireland opposing it. That being said, this deal – which has been on and off again and again since 1999 – has never been as close to getting finalized as it is now. This is primarily due to the fact that both Argentina and Brazil (that were the two main factors holding the deal back all these years) are extremely keen on reaching this agreement with EU, to the extent that they may be willing to compromise quite a bit as long as the deal includes provisions that leave room for future improvements and it brings increase in trade and thus growth for local economies. However, it remains to be seen whether they will be willing to stretch their compromises far enough to agree to the EU’s terms on the agriculture produce trade. At the same time, it is not clear how much the EU is going to push for these provisions, so there is a chance that both parties will manage to reach a well-rounded deal for both the sides. The least probable scenario is that the deal will come to a stand-still once more, however till the ink dries on the deal, nothing can be considered as certain.

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China’s Green Energy Revolution

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China is widely criticized as the world’s largest emitter of carbon dioxide and other greenhouse gases. Less noticed, however, has been the fact that the country is also building the world’s largest renewable energy system. China plays a significant role in the development of green energy technologies and has over the years become the world’s biggest generator and investor of renewable energy. As China heads towards becoming the global leader in renewable energy systems, we pause to take a look at the major drivers behind this development and its implications on China as well as on the rest of the world.

Reducing CO2 emissions has become one of the top priorities and the Chinese government has set its eyes on developing sustainable energy solutions for its growing energy needs. To support this objective, China has set forth aggressive policies and targets by rolling out pilot projects to support the country’s pollution reduction initiatives and those which reflect the strategic importance of renewable energy in country’s future growth.

Why has China suddenly become so environmental conscious and investing billions on renewable energy?

  1. Air and water pollution levels have become critical, causing tangible human and environmental damage, which lead Chinese authorities to rethink on the excessive use of fossil fuels. Considering current and potential future environmental hazards of burning fossil fuels, China decided to decrease the use of coal and is actively seeking for greener energy solutions. While serious concerns about climate change and global warming are key drivers towards expanding the use of renewable energy for any country, for China, the motives are well beyond abating climate change; they are creating energy self-sufficiency and fostering industrial development.

  2. China is witnessing a dramatic depletion of its natural gas and coal resources and has become a net importer of these resources. China’s increased dependency on imported natural gas, coal and oil to meet its growing energy demands bring along some major energy security concerns. The current political volatility in Russia, the Middle-East and Africa pose serious challenges not only for China, but, for other countries as well to secure their energy supplies for the future. Not to mention the risks associated with energy transport routes.

Taking into account these geo-political risks and in order to achieve a secure, efficient and greener energy system, China started its journey towards developing an alternative energy system. A new system that reduces pollution, limits its dependency on foreign coal, natural gas and oil was envisioned.

China’s Ambitious Renewable Energy Plans

According to RENI21’s 2014 Global report, in 2013, China had 378 gigawatts (GW) of electric power generation capacity based on renewable sources, far ahead of USA (172 GW). The nation generated over 1,000 terawatt hours of electricity from water, wind and solar sources in 2013, which is nearly the combined power generation of France and Germany.

The country has now set its eyes on leading the global renewable energy revolution with very ambitious 2020 renewable energy development targets.

China’s Renewable Energy Development Targets













In May 2015, we published an article on the solar power boom in China, in which we presented the revised, higher solar power generation targets.

To achieve the 2020 renewable energy targets, China has adopted a two-fold strategy.

  1. Rapidly expand renewable energy capabilities to generate greener and sustainable energy.

    It has significantly expanded its manufacturing capabilities in wind turbines and solar panels to produce renewable electricity. As per data from The Asia-Pacific Journal, China spent a total of US$56.3 billion on water, wind, solar and other renewable projects in 2013. Further, China added 94 GW of new capacity, of which 55.3 GW came from renewable sources (59%), and just 36.5 GW (or 39%) from thermal sources. This highlights a major shift in energy generation mix as well as China’s commitment towards cleaner energy technologies.

  2. Reduce carbon footprint.

    The government has banned sale and import of coal with more than 40% ash and 3% sulphur. Government’s Five year plans have stringent targets on reducing coal consumption as well as CO2 emissions. It is expected that environmental and import reforms will become more stringent along with greater restrictions, which would help accelerate China’s migration to a green economy.

The government has also announced a range of financial support services, subsidies, incentives and procurement programs for green energy production and consumption. Solar PV and automotive industries are good examples.

  1. By supporting domestic production and providing export incentives, China has become the global leader in solar panels. Over the last few years, the government has also financed small-scale decentralized energy projects, deployed and used by households and small businesses, in order to make them self-sufficient in their energy needs

  2. China has also positioned itself as the leading manufacturer of electric vehicles globally. According to Bloomberg, China is mandating that electric cars make up at least 30% of government vehicle purchases by 2016. To achieve this target, the government has started investing on essential infrastructure and providing tax incentives for purchasing of electric vehicles.


China has laid the foundations for a future where renewable energy will play a vital role. The advancements in technology and changes in policies will further enhance the country’s renewable energy landscape and will drive affordable, secure and greener energy. How the Asian giant achieves to balance between its economic, industrial, regulatory and environmental goals with sustainable renewable energy investments will, however, only become clear in the next few years.

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Auto-Financing in China – A Valuable Business Proposition

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From a humble beginning in 1998, when state-owned banks were first allowed to provide car loans, automotive financing has come a long way in China. Vehicle loans are now available through commercial banks and automotive finance companies (AFCs), which are mainly non-banking financing companies (captive subsidiaries of automotive OEMs, both domestic and foreign). According to a 2012 report by Minseng and Deloitte, outstanding car loans are expected to grow over five times to reach US$ 160 billion during the next decade, from US$ 31 billion in 2011.

China has been a late bloomer when it comes to automotive finance, mainly because of its cultural mindset, which has been against credit-based consumption (houses are still paid for in cash, so a cash purchase of a car isn’t considered a big deal). However, in the last few years, the Chinese have become more open to the idea of credit and the trend of automotive finance has caught up, mostly with younger generations. About 80% of automotive financing consumers in China are individuals in the 20-40 years age group, according to a survey conducted by China Europe International Business School. The survey also found that 30% of buyers in this age group are likely to choose some form of auto financing, compared to only 10% of buyers over the age of 40.

Auto loan penetration rate currently is about 10% and is expected to triple by 2017. Developed automotive finance markets such as USA, UK and Germany boast of penetration rate of 92%, 74% and 70%, respectively; thereby highlighting the underlying potential in the world’s largest automotive market.

This potential hasn’t gone unnoticed and China now boasts of having close to two dozen automotive finance companies; however, these AFCs only account for one-fifth of the car loans market. The market is instead dominated by commercial banks, mainly the big four state-owned banks, largely thanks to their significant first-mover advantage over AFCs (state owned banks have operated in this segment since 1998, while AFCs started offering auto-financing in 2003).

Another disadvantage for AFCs vis-à-vis commercial banks is their inability to raise funds through bank deposits or by issuing bonds. In China, AFCs are only allowed to raise funds through inter-bank lending. Consequently, interest rates offered by AFCs to car buyers are higher, making their services less competitive. Moreover, AFCs also face a mismatch between the maturity of short-terms loans they have to take from banks and the maturity of the long-term car loans they provide to their customers. With such unfavourable financial conditions, AFCs find it tough to compete with commercial banks.

In spite of the many constraints, AFCs continue to set up their businesses in China (almost 10 new entrants over the past 24 months). One luring factor is China’s gradual opening-up of its domestic financial markets to foreign investors. The world’s second-largest economy is also considering allowing foreign AFCs to issue financial bonds in China. Moving from bank loans to bond financing, should help AFCs reduce funding costs and become more competitive. Bond issuance will also help them in extending the average maturity of their liabilities and create a better maturity match between their assets and liabilities.

The market potential for automotive financing in China is obviously huge, and with the gradual easing of regulatory barriers, foreign financing companies are much more comfortable setting up a shop in the country. This will lead to more competitive financing options for automotive consumers and will also go a long way in popularizing automotive financing concept in China.

by EOS Intelligence EOS Intelligence No Comments

Horse Meat Scandal That Has Nothing To Do With Horse Meat. Have We Been Fooled On Our Own Request?

In early 2013, an uninvited equine guest was found on several European beef-only plates, giving way to a series of accusations, finger-pointing and investigations. Meat adulteration scandal has now spread to allegedly involve slaughter houses, suppliers and meat-based food producers from across Europe, with names of France, Ireland, Romania, Poland, Germany and the UK popping up on the news. Regardless of the authorities’ investigation outcome, one thing stays for sure – the consumers’ trust in the meat processing industry, already not very strong, has been further shaken.

While DNA tests confirmed horse meat presence in several beef products (in some cases even 100% horse meat in supposedly 100% beef dishes), there is no certainty yet on how horse meat entered the food chain. And the problem is not just with horse meat, as pork was also found in beef-only products, with further investigation for donkey meat as well. Horse meat, as well as pork and donkey, are edible, and does not cause harm to humans per se, but the problem is big – it is consumer misinformation as well as the fact that since horse meat should not be found in beef products at all, we don’t know whether it met any safety standards. The scale and spread of the scandal may suggest that it was not a one-off case of a dishonest supplier, but rather a silent, probably not infrequent industry practice of deliberate product mislabeling.

Consumers are outraged at the ‘evil meat producers’ responsible for the malpractice. They announce their shaken trust in meat processing industry (and food industry in general). But this smells of hypocrisy on the consumer’s side as well. Majority of consumers across most markets (apart from a small health-conscious group) have long taught food producers one fundamental truth – price is the most important factor in their purchasing decisions, driving producers to take shortcuts wherever possible. While there is no justification for the malpractice and deliberate fraud, food producers and suppliers are oriented at cutting costs to deliver products at the demanded price yet still maintain margins. Same is true across other industries – we openly condemn child and underpaid labor in several Asian manufacturing centers, yet continue to demand extremely low prices on electronics, apparel, etc., knowing where and how it’s been produced (or conveniently forgetting about it at the time of purchase).

The consequences of the scandal around meat products are likely to go beyond a temporary dip in processed beef products sales. Early surveys in some of the European countries, such as UK, indicated that close to 1/3 adult consumers said they want to buy less processed meat (not only beef), indicating potentially harder times for producers across meat segments. This is likely to spike consumer interest in fish and seafood products. However, the changed meat demand dynamics might not necessarily lead to the lowering of meat prices, as more stringent safety and control procedures might allow prices to remain stable. The rapid, and in some cases unfair, finger-pointing towards suppliers from Central and Eastern Europe will continue to damage meat exports of these countries, unjustly affecting farmers and suppliers. Consequences will also include added effort by supermarket chains to rebuild the shaken trust in meat products, i.e. Tesco, Morrisons and Asda, for instance, will re-test meat products to ensure compliance and launching widespread reassurance campaigns; these will add to cost burden to the chains – costs that are eventually going to be passed onto the consumers.

It will be a difficult time for producers and suppliers found guilty of introducing horse meat to the human food chain, as under the pressure of public opinion, authorities aren’t likely to be easy on them. But meat producers who are able to be transparent and honest about their procurement and processing procedures, can actually benefit from the scandal, as more and more consumers will look beyond price and start to value quality (at least temporarily till the memory of the scandal is fresh).

So as the scandal unfolds, there are a few important questions here: Will it improve transparency of the supply chains in meat processing industry? Will it improve the quality of meat products we purchase and feed our families with? Will it force the authorities across Europe to improve control measures? Will it enforce correct labeling of products? And finally, will it make us, consumers, permanently shift our focus from price only to quality-oriented purchases? If the answer to these questions is ‘yes’, perhaps there is a silver lining to this scandal after all.

by EOS Intelligence EOS Intelligence No Comments

Turkey – When Being ‘The Gateway to Europe’ Wasn’t Good Enough

As with several emerging markets, Turkey’s automotive market slowed down in 2012. The ongoing crisis in Europe limited export opportunities (declined by 8% y-o-y) while domestic economic woes drove vehicles sales down (by 10% y-o-y). Although this came as a setback to the industry, which recorded strong growth during 2009-2011, the industry has bounced back as sales rebounded in the first two months of 2013.

In the last few years, Turkey, to the surprise of many industry experts, has emerged as an attractive automotive production destination. Several international OEMs, such as Ford, Hyundai, Toyota, Renault and Fiat, have set up production units in Turkey, largely to cater to growing domestic demand and as an export hub to Europe. At the same time, leading automotive OEM, Volkswagen, which has a significant presence in Turkey, remains an exception – Volkswagen does not have any plans to establish production capability in Turkey, and this has led Turkey’s Economy Minister to threaten the company with a 10% tax on the company’s imports.

The emergence of Turkey as an automotive production hub has primarily been driven by government incentives and subsidies to this sector. At the turn of 2013, the Turkish government announced incentives to encourage investment in the automotive industry as it targets USD75 billion in automotive exports over the next decade. Salient features of the incentives are as follows:

  • The investment scheme is an extension of a programme launched in 2009 and will offer tax breaks of up to 60% for new investments, up from 30% in 2012

  • Projects eligible under the latest revision include vehicle investments of more than USD170 million, engine investments of more than USD43 million and spare parts projects of more than USD11.3 million

  • Incentives in the lowest band include VAT and customs rebates, employee cost contributions and subsidies on land purchases

Turkey’s path to success as a preferred destination for manufacturing and as a growing automotive market has not been easy. There are several challenges facing the industry that have the potential to severely impact growth and expansion of the sector.

The Challenges

  • Overdependence on Europe for Exports – In 2012, Europe accounted for 70% of Turkey’s automotive exports and the country suffered in 2012 due to weak demand from the continent. As an immediate step to curb the impact of the ongoing Euro crisis, automotive OEMs are expected to shift focus towards the Middle East and North Africa to reduce its dependence on the unstable European markets.

  • High TaxationSpecial consumption tax and VAT raise the domestic purchase price of a vehicle in Turkey to 60-100% of the pre-tax price. For instance, the price of a Ford Focus 1.6 Trend without tax is EUR15,259 in Germany whereas the same vehicle costs EUR11,000 in Turkey. While the German government imposes a 16% tax, making the final price of the car EUR17,700, the Turkish government imposes a tax of 64.6% making the price EUR18,132. In this context, if Turkey becomes a full member of the EU, it will acquire a larger share of the European market because of lower price before taxation. Turkey also has a higher tax on luxury cars compared with the EU while tax on gas is also one of the highest in the world.

  • Resistance from Labour Unions in the EU – Labour unions in EU are against the transfer of automotive production to Turkey while some car producers prefer to move to other emerging economies such as China and India which have experienced rapid growth in productivity.


While automotive OEMs face several constraints in the Turkish market, the opportunities seem to outweigh the challenges. Using Turkey as a production hub to cater to regions beyond Europe, such as Middle-East and North Africa is a potentially significant opportunity for automotive OEMs. At the same time, booming domestic demand should continue driving growth of players such as Volkswagen, General Motors, Ford, Hyundai, Renault and Fiat.

Even though 2012 temporarily put the brakes on rapid expansion, the Turkish automotive industry is expected to remain an attractive destination for manufacturing and a promising market for sales.
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Part I of the series – Mexico – The Next Automotive Production Powerhouse?
Part II of the series – Indonesia – Is The Consecutive Years Of Record Sales For Real Or Is It The Storm Before The Lull?
Part III of the series – South Korea – At the Crossroads!

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Solar Photovoltaic Market – Contemporary Scenario and Emerging Trends

As concerns about global climate change become more salient with growing population, depleting natural energy sources and subsequent rise in traditional energy prices, the search for alternative sources of power generation has become a prominent societal issue.

New sources of energy are typically not as cost competitive as traditional sources such as coal and natural gas, thus, local governments across various countries have rolled out incentives for private players to invest in the renewable energy sector, thus driving innovation and creation of cost-effective solutions.

 

Read our report – Solar Photovoltaic Market – Contemporary Scenario and Emerging Trends

 

 

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