The US, China: Pushing forward, pulling back.
Also: the UN, Europe, critical minerals, Russian sanctions, Ethiopia and Eritrea.
UNITED STATES. CHINA. Pushing forward, pulling back.
As leaders prepare to meet, businesses become more cautious.
A report to Congress on Tuesday urged greater awareness of risks to investors in China. Presidents Biden and Xi will meet in San Francisco today. Last week, China recorded its first quarterly foreign investment deficit since 1998.
INTELLIGENCE. The reason Biden is holding a meeting with Xi is to hold a meeting with Xi. Wednesday will be just their second in-person dialogue since 2021. While the emphasis will be on restoring leader and military communication, a lack of trust remains in the economic sphere. The US-China Economic and Security Review Commission has urged Congress to impose a ‘risk matrix’ on Chinese imports and public disclosure on investor risks.
FOR BUSINESS. While Biden talks up the talks, business is less sanguine. The September quarter showed an outflow of $11.8 billion in capital from China, suggesting business is pulling profits rather than reinvesting. Some of this outflow is driven by a divergence in interest rates, with Chinese policymakers keeping borrowing costs low to support its struggling economy, but foreign direct investors are also seeking long-term returns (and safety) elsewhere.
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UNITED NATIONS. Unpackaged.
The timing for a plastic waste deal is proving malleable.
The third session of negotiations on a plastic pollution treaty continued Wednesday at the UN Environment Programme headquarters in Kenya. The original deadline for a deal, set in March 2022, was for an agreement this year.
INTELLIGENCE. While emissions attract attention, curtailing marine pollution is arguably just as pressing. Unchecked, plastic entering aquatic ecosystems is estimated to go from around 14 million tons per year in 2016 to over 30 million tons by 2040. Currently, less than 10% of plastic waste is recycled out of a total of 400 million tons produced. This is particularly important for sustainable fish stocks, which provide up to 70% of protein for coastal communities.
FOR BUSINESS. Divisions are already evident in the negotiations, which aim to achieve a circular economy for plastics. Some countries are pushing for binding restrictions. Others, including petrochemical producers such as Saudi Arabia, are seeking a more limited approach based on waste management. Progress remains slow given the competing views. At this stage, it appears unlikely that a binding deal will be agreed before the end of 2023.
With the brevity of a media digest, but the depth of an intelligence assessment, Daily Assessment goes beyond the news to outline the implications.
EUROPE. CRITICAL MATERIALS. Raw deal.
The EU looks within for critical raw materials.
The European Commission on Monday agreed targets for the domestic supply of critical raw materials. The agreement will focus on 16 strategic raw materials, with annual targets for extraction, recycling and processing by 2030.
INTELLIGENCE. Europe is engaged in a struggle with the US and China for electric vehicle supremacy. The Critical Raw Materials Act, first proposed in March 2023, attempts to boost European production, and reduce reliance on imports, particularly from China. Recent export controls by China, such as those on graphite, threaten Europe’s ability to manufacture EV anodes. The new target proposes that Europe process at least 40% of its strategic raw materials.
FOR BUSINESS. While EV demand is slowing in Europe, sales are still 10% higher than this time last year, suggesting a continuing upward trend of sales even in a downturn. The US EV market is also seeing a slowdown in vertiginous growth, but demand is still higher than last year. Higher interest rates, cost of living pressures, and energy inflation will impact the market in the short term, but China, the EU and the US are all betting on long-term growth.
EUROPE. SANCTIONS. Russian twist.
Further sanctions amid closer coordination on offshore infrastructure.
NATO confirmed on Tuesday it will strength defence of undersea infrastructure, following recent damage initially blamed on Russia. The European Commission is expected to finalise a 12th round of Russian sanctions on Wednesday.
INTELLIGENCE. Recent incidents, damaging energy pipelines and communications cables in the Baltic Sea, have highlighted vulnerabilities in critical transmission lines. Cables and pipelines are often hundreds of kilometres offshore, making security extremely difficult, particularly as the capabilities to attack such infrastructure rapidly improve. Russia remains a suspect for recent damage, though unintentional causes have not been ruled out.
FOR BUSINESS. Tensions will again heighten on Wednesday as the EU unveils its latest round of sanctions. These are likely to include new export bans (to prevent EU electronics in Russian drones), the tightening of oil price caps (which have so far failed dismally), rules to prevent the sale of Russian oil to third states (even ones that re-export to Europe), and measures to close loopholes. So far, the EU has sanctioned over 1,800 Russian individuals and entities.
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ETHIOPIA. ERITREA. Seeing red.
Addis looks to reassure, but fundamental tensions remain.
Prime Minister Abiy Ahmed reiterated on Tuesday that Ethiopia would not invade its neighbours to get to the Red Sea, but that port access remained critical for his country. Eritrea's president met Saudi Arabia's crown prince on Monday.
INTELLIGENCE. Abiy gave a characteristically blunt speech last month and is now in damage control after spooking the neighbours. Yet negotiating a sustainable solution to port access is indispensable to landlocked Ethiopia, which is surrounded by unstable nations and lost its Red Sea coast when Eritrea broke from Addis in 1993. As Abiy put it, Ethiopia is in a “geographic prison” and with an expected 150 million by 2030, if he doesn’t fix it, someone else will.
FOR BUSINESS. As Africa’s second-most populous country, access to a port on the Red Sea is critical for future growth and access to critical materials. Ethiopia retained port access to the Red Sea even after Eritrea’s independence, but a 1998 war ended that. Since then, Ethiopia has largely relied on Djibouti for port access. While a rapprochement with Eritrea in 2019 offered hope, the 2022 Tigray conflict placed another wedge between the nations.