HOW CAN UKRAINE OBTAIN SECURITY GUARANTEES BASED ON THE STRATEGIC PARTNERSHIP BETWEEN THE EU AND CHINA?

The subjectivity of a geo-economic player, supported by "geoclimatic policy".
Yermolaiev Dmytro
Head of geoclimatic researches at SGS

8 may 2024

We have to propose Ukraine's peace investment project in a triangle with the EU + China to the first "peace formulas" from the upcoming conferences in 2024. The size and content of the geo-economic and geoclimatic investment passport, which we are now able to aptly offer to a wide range of stakeholders, will directly determine the size of the map and economy of post-war Ukraine.
The globalization of production chains with the digital revolution of the platform model of organization of world capital has become a driver of the processes of the XXI century with industrial profiling of individual countries and their blocs (organized according to the principle of affinity for a certain activity, in accordance with their socio-cultural and geographical characteristics). The global climate agenda and relevant industrial policy drivers have brought out a number of goods and technologies, and with it entire climatic and geographical territories, - in the status of necessary for close collective regulation and control in the conditions of continuing competition ("spices should always flow" - F. Herbert "Dune"). The former industrial autarky recedes before the rationalization of distributed-delegated efficiency and the requirements of climate "agenda". Ukraine could experience this reality during the so-called "grain agreements", when Ukrainian agricultural commodities suddenly became the subject of external multilateral negotiations and schemes to ensure uninterrupted supplies to the world market, despite the war. The period of these agreements was short-lived, but for a short period the aggressor's side was also forced to agree to it, because the corresponding actions were accompanied by a collective agreement to connect the russian energy raw materials sector to world trade (including markets where national actors are interested in the food stability of their neighbors as a measure of their own security). Ukraine's naval victory for controlling its Black Sea routes does not negate the precedent and the very fact of the supranational value of certain goods and raw materials, which in the current conditions are constantly on the verge of shortages. The ability to create and control chains of critical goods and services, which are tied to strong and competing countries and alliances, is one of the mechanisms for ensuring multilateral security guarantees. This is the same multipolarity in which developing countries have experienced new opportunities. Unilateralism in "linking" to a single center of development turns such a country into a vulnerable element, in the case of a direct confrontation between large countries – the economic value and critical importance should be preserved by the country for the largest number of stakeholders. The approach of increased geo-economic subjectivity is now effectively implemented by Hungary: in 2023, it received direct investment from China in the amount of $7.6 billion. All investments are embodied in the powerful production of batteries for electric vehicles (to equip the neighboring Franco-German auto industry) and directly in the automotive industry of Chinese brands. Thus, Hungary now holds the third position in the world in the production of lithium-ion car batteries with 4%, while the U.S. occupies only 6.2%. Ukraine's integration into the EU should take into account the potential limitations of sectors and employment profiles that will be provided to us as a result of intra-bloc competition within the EU itself. The technological and trade rapprochement between the EU and China is seen by the United States as a process of strengthening both! global competitors of the Americans and is seen as a problem that needs to be counteracted. But a number of EU countries are already closely integrated into projects to connect Europe to the "Belt and Road" and this process will only survive the bidding for schemes and tariffs, but one thing is objective – the EU and China will need each other at the level of industrial and trade cooperation in the coming decades (especially given the IRA program in the United States, which is aggressive for EU producers). Ukraine's European choice should take into account the importance of maintaining a useful pragmatic relationship between Europe and China as our inseparable pro-European interest, and investment integration into these relations will ensure a qualitatively different control of future russians actions by China. Joint critical projects are a firmer guarantee than paperwork. An adequate proposal and a implemented action plan from Ukraine on integration projects between China and the EU on the territory of our country can add the Ukrainian capital to the upcoming tour of the Chinese leadership, ahead of this year's Budapest.
https://www.statista.com/statistics/1249871/share-of-the-global-lithium-ion-battery-manufacturing-capacity-by-country/
https://ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20240304-2
https://medium.com/@iermolaiev/кліматична-гавань-1-краще-робити-ставку-на-україну-a06a93c2487d

1. THE NATURE OF THE EU-CHINA INTERACTION AND THEIR POTENTIAL INTERESTS.
In 2023, China was the largest partner in importing goods into the EU (20.5% of total imports from outside the EU) and was the third largest partner in exporting goods from the EU (8.8% of total exports outside the EU). It is worth noting that goods and components produced by European companies in China and imported into Europe and vice versa are also considered imports (for example, European power electronics are desirable in a Chinese electric car).

Chinese goods going to the EU are mainly goods with a high share of processing – high-tech goods.

Telecommunications equipment takes the first term of 56.3 billion euros for 2023. Electrical machinery (€36.5 billion) and automatic data processing machines (€36 billion) ranked second and third among imported goods, respectively. The largest increase in imports was recorded in the auto section (3.5 billion euros - this is an increase of 36.7% compared to 2022). This volume of goods is not expected to be reduced by any on-shoring to return production back to the EU. This division of labor with China is dictated by objective processes of profiling countries. China will be an essential component of the EU's industrial development and green transformation for a long time to come.

Direct interaction between the EU and China for the coming decades will therefore focus on topics that are somehow related to hi-tech products and the production of their components. The main driver that creates stable demand is a set of transformative measures for all European industries under the general name Green New Deal. From renewable energy sources to industrial hydrogen, everything will undoubtedly require partial interaction with China's industrial complex. This is the division of labor that has no economic basis for change in the near future. Although it creates caution in relations between countries, due to the fundamental critical dependence, which is definitely formed in such a situation.

In an interview with The Economist (May 2, 2024), French President Macron outlined the prospectus of the EU's desired future economic transformations, which should bring Europe to a highly competitive position between the United States and China. What is it about?

It is envisaged to optimize intra-European investment and budgetary efforts. Emphasis on investments (private and budgetary expenditures) in places of greatest return and efficiency, which provides for the distribution of economic roles within the EU with the optimization of duplication of functions, without dispersion of capital and on the principle of concentration in 3-4 globally competitive Champions in each of the key sectors. After all, such concentration of capital in some industries is an actual practice. From The question arises: what role and niche in such an EU is prepared for Ukraine and which we ourselves propose? Agricultural production and IT outsourcing with one or two tank factories from Rheinmetall are not able to provide equal wealth for the entire existing Ukrainian population. Therefore, Ukraine's progressive European positioning needs to be formulated.

It is important to capitalize on the global rivalry – cooperation between China and the European Union – by mediating their cooperation. The basis will be geoclimatic positioning and redevelopment of territories as an innovative form of long-term guarantees of security and provision of foreign investment with nature-economic resources (climate, water, etc.). The initial stage of implementation for speed will require Chinese competencies and logistical and physical capabilities with technological and financial participation of the EU.

1.1 POSITION OF THE PARTIES
China undoubtedly has historical experience in water resources engineering. And in our time, it breaks records in terms of the level of complexity of manufactured and managed water structures. For the rapid implementation of all necessary infrastructure solutions for climate adaptation within Ukraine and the countries of the Three Seas (see Annex I). E.D. "Geo-economic project "From the Varangians to Asia"), it is necessary to build special relations with China.

Despite the fact that China is at the same time a key economic partner, systemic rival and competitor for the EU: in April 2023, the EU announced the creation of a strategy for the economic so-called. de-risking (reducing dependence on China in critical areas). This indicates both the EU's bet on the development of internal partial replacement of Chinese suppliers (for example, critical components of renewable energy sources), and the fact that that in the near future, the EU will be actively involved in the search for long-term investment partners capable of ensuring a reliable supply of a number of trade items. At the same time, China's Concept of the Global Security Initiative (2022) declares a new basic principle of international relations: "Promote coordination and reliable interaction between major countries and build relations between large countries characterized by peaceful coexistence, overall stability and balanced development». How can Ukraine ensure a balance of interests between the new declared economic sovereignty of the EU and China's non-conflicting access to part of the Eurasian trade area?

Today, China is stuck on a key problem faced by any long-term consumer of external innovation, which has also modernized rapidly. For a couple of decades, China has found these innovations the most profitable price "realized in metal" on the global market. But today, the Chinese export sector of the economy in terms of factors of production (first of all, high labor costs) has ceased to be a priority in the region in the sectors of the so-called simple goods. By this time, China's domestic policy of economic stimulus has managed to create a wave of excess production capacity, which threatens the formation of potential "rust belts" in the Chinese way. The global stagnation of consumption in this economic cycle does not increase either domestic or external demand. At the same time, the ideology of China's state policy does not allow for high unemployment: it restrains the active use of intensive methods of increasing labor productivity throughout the country, with the exception of certain sectors. The introduction of "efficiency improvements" is potentially fraught with an increase in unemployment (which is already very sensitive now to any fluctuations in external demand for Chinese export goods). A demographic rollback to a population of 800+ million is expected only after the 2050s. The lack of "efficiency improvement" triggers the reverse movement of foreign and domestic capital, which benefits from the relocation of production to China's closest neighbors. This movement is now being actively implemented in the direction of ASEAN members, who are luring the final, assembly and registration stages of commodity production to their side. Vietnam will be one of the leaders of such "off-shoring" from China in the coming decades. China's stabilization will require new approaches. New European, African, and Latin American direct investment are the first steps to find a way out of this slowdown.

The "Belt and Road" project was only a prelude to the upcoming stage of China's search for a way to recover sustainably and a new model of growth. The current decline in demand for Chinese direct exports is also accompanied by the continued politically motivated restraining of domestic consumption. It has been replaced by a priority stimulus for industrial sectors with large employment: concrete, steel, glass, mechanical engineering, etc. The construction sector has absorbed these goods, but it has also recently jumped into a severe recession itself, collapsing the corresponding demand. Commodity consumer expansion was followed by a natural drop in the rate of profit, which was increased by China's technological dependence in certain advanced areas. The West controls and develops key technologies of the current technological paradigm, which China has been able to masterfully master and has begun to produce competitive finished products based on them. Increased technological competition between the Western community and China by blocking access to innovation (which, for example, was declared by the leaders of the United States and Britain in the "New Atlantic Charter" of 2021) may well seriously affect the competitiveness of Chinese electronics and any computerized goods in the international market - and this is a challenge for the structure of the Chinese economy, which is now being formed with a distorted emphasis on electronics, cars and RES components. Without the technology of chip production (it will take 10-15 years to master the current level of Dutch ASML machines), without owning its own chip architectures and software development tools, the competition, in case of counteraction, will only lose.

The contradictions between developed countries and developing economies are receding into the background, giving way to competition between technologies of different levels. China proposed to break the old model of the center-peripheral division of labor, on the contrary, offering its industrial potential as a driver for the modernization of peripheral economies, building a new economic multipolarity. The initial driver of this was the integration project "The Belt and Road". Initially, it only connected the sources of raw materials to China itself. But in the second wave, some participants (ASEAN members) of the "Belt" began to be included in the production chains of Chinese manufacturers. However, this turn triggered a corresponding competitive pushback from former technology donors (who see China's all-encompassing market power as a threat), beginning to separate the Chinese economic center from the "Western" system of science-technology division of labor and exchange.

Realizing the risks of losing the surplus model of the economy, China will soon need to implement a new model of interaction with the world, which will accelerate the demand for its own non-hi-tech industrial products, where it retains a competitive profit margin. In fact, China will need to actively modernize its more backward importing trading partners to compensate for the decline in those sectors that are hit by the West's "shutdown" policy.

A community of common destiny "in the Chinese way" will require China to engage more deeply and purposefully in the accelerated modernization of developing countries. It is important for Ukraine to include in its new spatial and economic planning, which takes into account the recapitalization of natural and economic resources, those areas of activity (important according to the cluster scheme) that China can consider as a worthwhile long-term investment in its economic development, as well as a political and economic factor of regional security in Europe. This will provide a strategic tool for closing the point of inconsistency of the world order in the European part of the world.

It is necessary to offer China a rooted economic and, as a result, political interest in Ukraine, which could help it bring cooperation with the EU on the issue of microelectronics and mechanical engineering to a qualitatively higher level. It is the USA, not the EU, that blocks access to these technologies. And EU is the leader in the production of the key equipment.

This approach requires the preparation of a number of complex design solutions in the EU-Ukraine-China triangle with their subsequent legislative fixation in the status of "national projects", which will provide for the long-term continuity of Ukrainian policy. Only this approach can change China's position on the territorial war between Ukraine and russia.

This will give grounds for the security and integrity of Ukraine to be entrenched in Chinese "doctrines" for a long time.
https://medium.com/@iermolaiev/геоекономічний-проєкт-із-варяг-в-азію-7aa8315dd9fc
The Global Security Initiative Concept Paper
A striking example: the Chinese modification of Huawei's chips of the English ARM architecture was produced at the Taiwanese TSMC until May 2020. At the height of the "trade wars", there was a ban on cooperation with Huawei. F in the fall of 2020 Huawei did gain access to TSMC's factories - but it was only allowed to produce chips using a more primitive process. To date, the Chinese are equipping the best devices with American Qualcomm chips.

1.2 SECURITY FOR UKRAINE:
1) Gaining access to China's potential in the field of large-scale rapid construction – in order to quickly implement a number of "growth projects" in the short post-war period;

2) Creation of booster industrial sectors of the economy through the reindustrialization of depressed industrial centers;

3) Acquisition of military-political stability from mutually beneficial economic regional projects in Europe, which smooth out the risks of both the EU and China: China's assistance in guaranteeing Ukraine's constitutional borders, covering joint investment projects with China;

4) Solving the problem of the post-war socio-economic abyss for the military: a mechanism for socialization of the demobilized part of society will be obtained through involvement in large-scale modernization projects of reindustrialization (including the construction of a new Donbas) and the construction of adaptation infrastructure to the parameters of the future state of the climate.

Among the first joint projects to be implemented are the following:

1) Rare Earth Metals and Critical Materials. Industrialization of the extraction of Ukrainian "green" resources and their local processing for the energy needs of the European Green Deal. Organization of the construction of the battery cluster - integrated production of finished automotive and industrial batteries for European automakers and the common energy system. Production should be organized with the main suppliers of Europeans, experienced Chinese companies CATL, BYD, Guoxuan, etc. (see an example of a regional approach to reindustrialization on a new basis in the material /D. Yermolaiev "New Post-War Donbas: Ukrainian Version of the Future"/);

2) Energy. A large-scale solar energy system "for export" within the EU (it is reasonable to concentrate large solar energy projects exclusively in the South of the country, without occupying other more economically valuable territories of the country) + wind energy in the South and Center. Embedding these systems into the European "Hydrogen Strategy". China is able to offer large-scale production of some RES components, especially solar panels - while today's EU and Ukraine itself in the future will create an endless demand for such energy;

3) Food. Ensuring long-term supplies of food products with deep processing to the Chinese market - it is important for Ukraine to become a guaranteed element of food security in the developed markets of Southeast Asia, which in the medium term will experience devastating extreme phenomena for agriculture (from the extremes of droughts to the extreme of super downpours);

4)
Gas hub. A joint gas project that will include the redirection of Central Asian gas through Ukraine's modernized infrastructure for the needs of the European "Hydrogen Strategy", including underground hub services; Etc.

The close mutually beneficial interweaving of the two economic poles, the EU and China, in the economic space of Ukraine will become a platform for strategic security for us.

This approach will make the project of the so-called. "Israelization" of Ukraine, which implies the expenditure of development resources on the status of a frontier facing the eastern border. Long-term peaceful status and high dynamics of development can be realized only in such a political and economic configuration of cooperation between the two poles of development.

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We are entering an active period of competition for the quality of adaptation to climate change. The critical importance of the stability of basic resources: water, energy, food is increasing. The key factor is time. National success will be determined by the ability to radically change socio-political "traditions" and stereotypes. In difficult circumstances, Ukraine has a unique national resource on a planetary scale - our land and sky. The options of our situational allies on the way to new construction are rigidly determined by objective circumstances.
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