BLUF (Bottom Line Up Front)
- Germany launched a coordinated dual track diplomatic offensive this week: President Steinmeier met Xi Jinping in Beijing urging continued partnership while Chancellor Merz toured Singapore, Tokyo, and Seoul proposing a new alliance of middle powers to counter trade coercion, signalling Berlin’s most assertive Asia strategy in decades.
- Chinese car brands overtook Japanese rivals in European registrations for the first time ever: 12.7% market share versus 11.9% in September, with BYD, Chery, and Geely leading through hybrids. Five years ago, Chinese brands held barely 1% of the European market.
- South Korea’s AI semiconductor supercycle deepened further: SK Hynix posted record Q3 earnings (operating profit up 632%, revenue surpassing 100 trillion won for the first time), declared DRAM and HBM chips sold out through 2029, and announced 100 trillion won in shareholder returns, while Q3 GDP grew 1.0% on the back of chip exports.
The Quick Take
Germany’s Week of Strategic Ambiguity, and Why It Defines the Next Phase of Europe’s Asia Policy
There is a particular kind of diplomatic choreography that only Germany, among European powers, has the institutional muscle and economic heft to pull off. This week, Berlin performed it in full view of every capital from Brussels to Beijing.
On one stage, President Steinmeier stood in the Great Hall of the People, telling Xi Jinping that Germany does not want decoupling, that partnership works only when both sides have something to gain. He visited Volkswagen’s technology hub in Hefei, posed with the Chinese president for photographs, and delivered a speech at Peking University invoking common ground and dialogue.
On the other stage, several time zones to the east, Chancellor Merz stood in Singapore, Tokyo, and Seoul delivering an altogether different message: Europe and Asia must reduce unhealthy, one-sided dependencies, build coalitions of like-minded partners, and present a united front against economic coercion. He explicitly invoked Canadian Prime Minister Carney’s formulation about middle powers sitting at the table rather than being on the menu.
The power lies in the coordination, whereas Berlin is hedging with precision.
Steinmeier keeps the diplomatic pipeline to Beijing flowing. China remains Germany’s largest trading partner in Asia, Volkswagen still depends on Chinese innovation for its global product roadmap, and Merck just opened a $334 million bioprocessing plant in Daejeon precisely because the Asia Pacific supply chain architecture still runs through partnerships that require trust with all sides. Merz, meanwhile, is constructing the institutional scaffolding for a world in which that pipeline might narrow. His proposed interregional agreement linking the EU with CPTPP members, his call for a joint fighter jet programme with Japan, and the enhanced strategic partnership with Seoul covering AI, quantum, and defense cooperation: these are load bearing pillars for a new European posture in the Indo Pacific.
What makes this week stand out is the backdrop against which Berlin acted. China’s domestic auto market is contracting sharply (Toyota’s six month sales sank to a nine year low; Honda fell 53% in September alone), forcing Chinese carmakers to export with an urgency that borders on structural necessity. BYD and Geely reported overseas sales surges of 93% and 169% while domestic deliveries collapsed. That export wave is now washing across European markets in real time: Chinese brands overtook Japanese rivals for the first time this quarter. Brussels is preparing its December trade weapons package, including a market access cutoff mechanism and sectoral safeguards for chemicals and machinery. And behind the tariff walls and quota negotiations, the EU is dispatching its most senior financial officials to Beijing to confront what may be the most sensitive question of all: the valuation of the yuan.
Germany’s twin diplomatic tracks this week might mirror those that Europe will use to manage the next decade. The relationship with China will likely be transactional, sector by sector, calibrated by measurable outcomes. The relationships with Japan, South Korea, and ASEAN will be strategic, anchored in shared rules and mutual industrial capacity. Businesses that will grasps this dual logic, and builds supply chains that can operate within both frameworks simultaneously, will likely be the one still standing when the architecture finalises.
Key Headlines & Analysis
Xi and Steinmeier Reset the China Germany Channel as Merz Courts Asian Allies
The Story: President Xi Jinping and German President Frank-Walter Steinmeier held formal talks in Beijing, with Xi calling for a new paradigm (新范式, xin fanshi) of equal and mutually beneficial cooperation between the world’s second and third largest economies. The same week, Chancellor Merz visited Singapore, Japan, and South Korea proposing an interregional trade alliance linking the EU with CPTPP members. In Seoul, President Lee Jae Myung and Merz elevated bilateral ties to an enhanced strategic partnership covering semiconductors, batteries, AI, quantum, defense, and supply chains.
Why it matters: Germany is executing a pincer strategy: keep the Beijing channel warm through presidential diplomacy while building a structural hedge through Asian middle powers. Steinmeier’s message at Peking University, declaring win-win must not turn into win-lose, combined with Merz’s proposal for a coordinated front against economic coercion, reveals a Berlin that has moved from hesitation to deliberate strategic sequencing. The Seoul joint statement’s language on nondiscriminatory treatment and transparent trade explicitly addresses Korean concerns about the EU’s Industrial Accelerator Act, a signal that Berlin is willing to broker inclusion of key Asian partners to keep supply chains open.
Chinese Carmakers Overtake Japan in Europe for the First Time
The Story: Registrations of Chinese branded cars doubled year on year in September to reach 12.7% of total European sales, surpassing Japanese manufacturers at 11.9%, according to Dataforce. Hybrids led the surge. Chery’s Jaecoo 7 SUV was the UK’s best selling model in both March and September. BYD, Geely, and Chery are accelerating local production plans: BYD nears completion of a Hungarian plant, Chery is preparing Barcelona production, and Great Wall Motor announced plans for a 50,000 unit assembly operation in Bulgaria starting Q1 2027.
Why it matters: This crossover happened faster than any industry forecast predicted. Japanese automakers built their European position over sixty years, beginning with Toyota’s first exports in 1963. Chinese brands reached parity in barely five. The shift is propelled by the domestic Chinese auto market’s contraction (passenger vehicle deliveries down 23% in Q2 year on year) which forces BYD and Geely to export aggressively, with overseas sales up 92.7% and 169% respectively in the first nine months. The upcoming EU hybrid import quota (350,000 units from 2027) will constrain direct shipments, which makes local European assembly the decisive battleground.
SK Hynix Declares Memory Sold Out Through 2029, Plans 100 Trillion Won Shareholder Returns
The Story: South Korea’s SK Hynix posted record Q3 operating profit of 83.33 trillion won (up 632% year on year), with revenue exceeding 100 trillion won for the first time. CEO Kwak Noh jung announced DRAM and high bandwidth memory output is sold out through 2029, with signed agreements covering over 50% of capacity for 2027 and 2028. The company plans approximately 100 trillion won in shareholder returns this year, including at least 60 trillion won in buybacks and cancellations.
Why it matters: SK Hynix’s results are the clearest validation yet that the AI memory supercycle has structural legs well beyond 2027. HBM4 is expected to overtake HBM3E in both shipments and revenue this quarter. A Bank of Korea board member warned this week that the won’s 13% appreciation in Q3, the sharpest since Q4 1998, is moving faster than expected, driven by massive dollar inflows from AI chip demand. South Korea’s economy grew 1.0% in Q3, with semiconductor exports and facility investment carrying the load while private consumption fell 0.2%, a bifurcation that Bank of Korea hawks cite as reason to maintain the 3.0% rate. The spoils of the AI boom have yet to reach Korean households.
Vietnam Set to Overtake Indonesia in Per Capita GDP as Growth Models Diverge
The Story: The IMF projects Vietnam’s nominal per capita GDP will rise 8.9% in 2026 to $5,259, surpassing Indonesia’s $5,153 for the first time and ranking Vietnam fifth among ASEAN members. Vietnam targets at least 10% GDP growth this year. Real GDP climbed 9.95% in Q3, public investment surged 46% year on year, and FDI disbursements increased 12% to $21.1 billion. Registered FDI commitments ballooned 76% to $50.3 billion.
Why it matters: The overtake crystallises a divergence that has been building for over two years. Vietnam is executing a classic export manufacturing playbook: Foxconn and Samsung are expanding production in the north, exports rose 25% to $434.3 billion in the first nine months, and the U.S. trade deficit with Vietnam has now surpassed that with China and Mexico. Indonesia, meanwhile, is grappling with MSCI’s potential reclassification to Standalone Market status, a weak rupiah, and growth that has stalled around 5%. Vietnam’s first chip plant, however, is unlikely to meet its 2027 target, and Hanoi still needs to address the human capital and institutional depth that sustain long term industrial upgrading.
Cross-Border Market & Tech Radar
Key signals, supply chain pivots, and strategic investments across the Eurasian corridor
| Trend | Area | Description |
|---|---|---|
| EU prepares high level yuan currency talks with Beijing | Trade / FX | Top EU economy officials led by DG Maarten Verwey will sit in Beijing during the week of 23/11 for macroeconomic dialogue. A follow up heavyweight trio from the ECB, Eurogroup, and Commission is planned around year end. The IMF estimates the yuan may be up to 21% undervalued. Europe sees currency adjustment as essential to rebalancing a deficit exceeding €1 billion per day. |
| AI memory chip supply locked through 2029 | Semiconductors | SK Hynix declared DRAM and HBM production sold out through 2029. Samsung and SK Hynix are simultaneously upgrading their Chinese NAND facilities (286 layer and 240+ layer respectively) to counter YMTC, while Chinese chipmaker CXMT captured 10% of global DRAM revenue in Q2 (up from 4% a year earlier). PwC’s Samil warns Korean chipmakers to defend profitability in commodity memory. |
| VW globalises China developed technology to Global South | Automotive / Tech | Volkswagen announced its China developed Compact Main Platform with China Electronic Architecture will feature in next generation models for South America and Africa, starting before decade end. CEO Oliver Blume called China a key innovation engine and product hub for global markets, a pivot from the prior localisation strategy. |
| EU Australia critical minerals partnership accelerates | Supply Chains | The EU plans massive investment in Australian critical minerals to reduce reliance on China, with a bilateral trade agreement targeting early 2027 and a Memorandum of Understanding on critical minerals access. Australia’s resources minister announced a strategy revamp emphasising refining and processing to curb Chinese dominance. |
| Chinese wind turbine maker builds European data firewall | Energy / Security | Ming Yang Smart Energy established separate European legal entities with independent governance and IT systems, advised by DLA Piper, to insulate customers from China’s National Intelligence Law. A joint venture with Octopus Energy will develop UK onshore turbines with local software. This follows London’s March rejection of Ming Yang turbines on national security grounds. |
Graph of the Week
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Chinese vs. Japanese Car Brand Market Share in Europe (%), 2024 to 2026
The chart captures the week’s most consequential structural shift. Chinese car brands (BYD, Chery, Geely, SAIC) overtook Japanese manufacturers (Toyota, Nissan, Honda) in European registrations for the first time in Q3 2026, reaching 12.7% versus 11.9%. Five years ago, Chinese brands held barely 1% of the European market. The crossover was led by hybrids, which face weaker EU tariff barriers than battery electric vehicles (10% base tariff vs. up to 45% on BEVs).
With the EU’s 350,000 unit annual hybrid import quota set to take effect in 2027 and Chinese automakers accelerating local assembly (BYD in Hungary, Chery in Spain, Great Wall in Bulgaria, Leapmotor at Stellantis in Spain), the competitive dynamics will shift from import volumes to manufacturing localisation. Japanese automakers, with decades of European factory presence, now face simultaneous erosion at home in China (Toyota sales down 25% in H1) and in their traditional export markets.
Quote of the Week
“Our two countries agreed to strengthen strategic cooperation in the economic and industrial sectors, and to broaden the scope of our cooperation to encompass advanced industries and future growth engines.”
Significance: This statement, delivered alongside the announcement of an enhanced strategic partnership covering semiconductors, batteries, AI, quantum, and defense, marks the most substantive upgrade in Seoul-Berlin relations in years. Lee simultaneously asked Germany to ensure Korean companies receive treatment equal to EU firms under the Industrial Accelerator Act, a direct challenge to the Franco-German Made in Europe framework that currently excludes Japan and South Korea. Merz’s willingness to receive that request publicly, and Japan’s PM Takaichi making the same demand in Tokyo the previous day, indicates that Asian middle powers are forming a common negotiating front toward Brussels.
The Risk Matrix
Risks and opportunities from this week and prior outlook. Items marked ↑ or ↓ indicate movement from last week.
● EU yuan currency dialogue triggers Beijing countermeasures
↑ECB, Eurogroup, and Commission trio planning Beijing visit around year end. PBOC governor Pan pushed back in Bangkok, citing a PBOC paper denying export competitive intent. If talks are perceived as coordinated pressure alongside Washington, China may restrict capital account access or delay rare earth license facilitation.
● MSCI downgrades Indonesia to Standalone, triggering forced $3bn redemption
UPDATEConsultation runs through April 2027. BI confirms manageable bond outflows post announcement. Rupiah near record low. Decision due June 2027. Jakarta must enforce 15% free float and 1% disclosure rules to avert downgrade.
● NPC ratifies World AI Cooperation Organisation, fracturing global AI governance
NEWThe 14th NPC Standing Committee (02/11 to 06/11) will consider ratification. If enacted, Beijing establishes a parallel multilateral AI body outside Western frameworks, complicating interoperability for firms operating under both EU AI Act and Chinese standards.
● Germany brokered Asian middle power inclusion in Industrial Accelerator Act
NEWMerz received direct requests from both Japan's Takaichi and Korea's Lee to include their firms. If Berlin succeeds in expanding Made in Europe to cover CPTPP partners, it unlocks a vastly larger allied procurement base and reduces dependence on Chinese components.
● EU December trade weapons package expands to chemicals, machinery, and market cutoff
↑MOFCOM spokesperson warned this week that discriminatory measures will be met with all necessary countermeasures. Commission confirmed three new instruments by Christmas including the kill switch. The hybrid deal has emboldened Brussels to replicate managed trade across sectors.
● Chinese carmakers accelerate European localisation, bypassing hybrid quota
↑Chinese brands hit 12.7% European market share (overtaking Japan at 11.9%). Great Wall Motor announced Bulgaria assembly from Q1 2027. BYD Hungary, Chery Barcelona, Leapmotor at Stellantis Zaragoza all advancing. Domestic Chinese market contraction (deliveries down 23% in Q2) makes European production a strategic imperative.
● VW globalises China developed tech, blurring European de-risking narrative
NEWVolkswagen will deploy its China Electronic Architecture in South America and Africa, with European deployment technically feasible. The strategy converts China from a struggling sales market into a cost efficient development and export base, deepening EU China industrial entanglement even as politicians advocate separation.
● Vietnam/ASEAN China+1 momentum validated by IMF overtake of Indonesia
↑Vietnam per capita GDP surpasses Indonesia ($5,259 vs $5,153). Q3 GDP +9.95%. FDI commitments $50.3bn (+76%). Exports $434.3bn (+25%). Geleximco Chery JV for chips, robots, and green energy deepens Sino Vietnamese industrial cooperation alongside Western FDI.
● China export controls on 40 technologies constrain overseas factory buildouts
UPDATEDraft rules from Week 42 remain in consultation. Perovskite solar, CGT biotech, and AI algorithm transfer bans would directly affect Chinese firms expanding production in Europe and ASEAN. Timetable for enforcement: Q1 2027.
● Vietnam first chip plant misses 2027 target, no ASML deal yet
NEWReuters reports the flagship semiconductor plant is unlikely to meet its 2027 target. No agreement yet with ASML for equipment. Vietnam's chip ambitions remain real at the human capital and FDI level but lack the equipment and process anchors for front end fabrication.
● CCP Fifth Plenum signals party discipline tightening ahead of 2027 reshuffle
NEWFour day Central Committee session focused on full and rigorous self governance. Xi positioned as in command ahead of expected fourth term. Anti corruption campaign framed as creating market predictability, but purges of senior military and civilian officials continue to unsettle foreign investors.
● Chinese biotech sector gains global clinical credibility at ESMO Congress
NEW29 of 96 late breaking abstracts at ESMO were from Chinese firms (up from 23 last year). Kelun Biotech's sac TMT (licensed to Merck) and Hansoh's Ris Rez (licensed to GSK) delivered phase three validation. Chinese ADC drugs are entering global oncology mainstream via Western pharma partners.
● Seoul Berlin enhanced strategic partnership creates new EU Asia industrial corridor
NEWPartnership covers semiconductors, batteries, AI, quantum, biotech, space, and defense. Joint statement reaffirms open and nondiscriminatory trade. Merz also proposes joint fighter jet programme with Japan. European defense and tech procurement diversification now has Asian institutional backing.
● SK Hynix sold out through 2029 validates AI memory supercycle
NEWRecord Q3 (OP +632%, revenue 104.6tn won). 100tn won shareholder returns. HBM4 to overtake HBM3E in Q4. Won appreciation (+13% in Q3) fastest since 1998. BOK holds at 3.0% but further tightening on table. Korean chip sector now generating more shareholder value than any single EU industrial champion.
● EU Australia critical minerals MoU anchors supply diversification from China
NEWBrussels plans massive investment; bilateral trade agreement targeting early 2027. Australia revamping strategy to emphasise refining and processing. Combined with EU's existing Philippine and Vietnamese mineral partnerships, the southern hemisphere resource axis is materialising.
● Merck $334m Korea bioprocessing plant anchors Asia Pacific pharma supply chain
NEWLargest Merck life science investment in Asia Pacific. Daejeon facility produces cell culture media, process liquids, and single use systems for biologics manufacturing. Shortens supply chains and improves material reliability across the region.
The Regulatory Horizon
Tracking policy signals circulating in Asian ministries before they become enforced law. Designed to give corporate strategy readers a 6 to 18 month compliance runway.
1. EU December Trade Weapons Package: Kill Switch, Diversification Rule, and Sectoral Safeguards
The European Council (15/10 to 16/10) tasked the Commission with delivering three new trade instruments by Christmas: (a) a Franco German emergency market access cutoff mechanism (the kill switch), (b) a mandatory three supplier diversification rule for critical sectors, and (c) potential safeguard quotas for chemicals and machinery imports. Separately, the Commission confirmed plans to propose rules allowing rapid cutoff of Chinese firms from EU market access. MOFCOM spokesperson Huang Ling warned on 29/10 that discriminatory measures would be met with all necessary countermeasures (一切必要措施, yiqie biyao cuoshi).
The hybrid vehicle quota has emboldened Brussels. French Trade Minister Forissier explicitly said that Franco German pressure forced Beijing to make concessions, language Beijing rejected. The extension of managed trade to chemicals, furniture, and machinery would affect a far wider swathe of European importers and industrial supply chains than the automotive sector. Compliance with a three supplier rule would require immediate procurement diversification across sectors with deep Chinese dependencies.
Map single source Chinese chemical and machinery inputs against the three supplier diversification requirement ahead of the December Commission proposal. Prepare alternative supplier qualification pipelines in Q1 2027. Monitor MOFCOM retaliatory probes: if a second chemicals investigation follows within 30 days, pattern is confirmed.
2. EU High Level Yuan Currency Dialogue with Beijing
Top EU economy officials led by DG Maarten Verwey will travel to Beijing during the week of 23/11 for macroeconomic dialogue. A follow up visit by a heavyweight trio from the ECB (likely President Lagarde), EU economy chief Dombrovskis, and Eurogroup president Pierrakakis is planned around the turn of the year. This would be the first formal meeting of this revived format with PBOC governor Pan Gongsheng and Finance Minister Lan Foan in over a decade.
The IMF estimates the yuan could be up to 21% undervalued in real effective terms. German Chancellor Merz's pivot on China policy reportedly came directly from research linking an undervalued yuan to German industry woes. BusinessEurope stated this week that China actively restrains renminbi appreciation that a surplus of this size would normally trigger. PBOC governor Pan published a paper insisting China has no need or intent to gain competitive advantages through currency devaluation. The gap between these positions is enormous, and the November technical dialogue will determine whether Europe can advance a credible conversation on rebalancing or gets deflected at the first gate.
If the November dialogue produces an agreement on data sharing methodology or a communique referencing global imbalances with actionable language, upgrade the likelihood of a structured yuan revaluation timeline. If Beijing deflects entirely, expect Merz to escalate toward coordinated G7 currency language at the next opportunity. Treasury teams should model a 5% to 10% yuan real effective appreciation scenario for 2027 procurement and pricing.
3. Industrial Accelerator Act: Japan and South Korea Press for Inclusion
The EU's Industrial Accelerator Act, proposed by the Commission in March 2026, offers subsidies and procurement support to companies that manufacture EVs and source components within the EU. The Franco German deal of 16/10 extends Made in EU rules to internal market members as of 01/01/2020 (including the UK conditionally) but excludes Japan and South Korea. Japan's PM Takaichi pressed Merz on 29/10 in Tokyo to change this. Korea's President Lee made the same request in Seoul on 30/10, asking Germany to ensure Korean companies are treated the same as EU firms.
Toyota plans to build EVs at a Czech plant by 2028 but currently relies on exports from Japan. Company cars eligible for tax breaks and subsidies account for roughly 60% of the European market. Exclusion from IAA subsidies would put Japanese and Korean automakers at a severe disadvantage in the fastest growing segment. Merz's counterproposal, an interregional agreement linking the EU with CPTPP members, offers a diplomatic pathway but requires years of negotiation. In the interim, EU institutions will begin finalising the IAA proposal, and the draft legislation may still be amended.
Monitor the European Parliament and Council IAA legislative process for amendments to the country eligibility list. If Japan or South Korea are added before final vote, automotive and battery procurement strategies shift. If excluded, expect accelerated Japanese and Korean factory investment announcements inside the EU27 to qualify through local production.
4. NPC Standing Committee to Consider World AI Cooperation Organisation Ratification
The 14th NPC Standing Committee's 25th session (02/11 to 06/11) will review multiple bills, including consideration of ratifying the Agreement on the Establishment of the World Artificial Intelligence Cooperation Organization (关于成立世界人工智能合作组织的协定, guanyu chengli shijie rengong zhineng hezuo zuzhi de xieding). The revised Prison Law takes effect 01/11.
Ratification would position China as the institutional anchor of a parallel global AI governance body, outside Western led frameworks like the G7 Hiroshima AI Process, the EU AI Act, and the OECD AI Principles. European companies operating AI systems across both regulatory domains (EU and China) would face potential dual compliance requirements on safety testing, algorithmic transparency, and data governance. This coincides with ongoing EU China AI cooperation discussions and the European Parliament trade committee's visit to Chinese robotics manufacturer Unitree this week, where committee chair Lange described embodied AI robotics as at the heart of Chinese industry in the future.
If ratified, begin mapping the new organisation's membership, governance structure, and technical standards requirements against EU AI Act obligations. Companies deploying AI in both jurisdictions should prepare for divergent compliance tracks by H1 2027.
| Jurisdiction | Regulatory Signal | Status | Timeline | Strategic Implication |
|---|---|---|---|---|
| EU / China | The European Council (15/10 to 16/10) tasked the Commission with delivering three new trade instruments by Christmas: (a) a Franco German emergency market access cutoff mechanism (the kill switch), (b) a mandatory three supplier diversification rule for critical sectors, and (c) potential safeguard quotas for chemicals and machinery imports. Separately, the Commission confirmed plans to propose rules allowing rapid cutoff of Chinese firms from EU market access. MOFCOM spokesperson Huang Ling warned on 29/10 that discriminatory measures would be met with all necessary countermeasures (一切必要措施, yiqie biyao cuoshi). | ESCALATED | Nov to Dec 2026 | The hybrid vehicle quota has emboldened Brussels. French Trade Minister Forissier explicitly said that Franco German pressure forced Beijing to make concessions, language Beijing rejected. The extension of managed trade to chemicals, furniture, and machinery would affect a far wider swathe of European importers and industrial supply chains than the automotive sector. Compliance with a three supplier rule would require immediate procurement diversification across sectors with deep Chinese dependencies. |
| EU / China | Top EU economy officials led by DG Maarten Verwey will travel to Beijing during the week of 23/11 for macroeconomic dialogue. A follow up visit by a heavyweight trio from the ECB (likely President Lagarde), EU economy chief Dombrovskis, and Eurogroup president Pierrakakis is planned around the turn of the year. This would be the first formal meeting of this revived format with PBOC governor Pan Gongsheng and Finance Minister Lan Foan in over a decade. | NEW SIGNAL | Nov 2026 to Q1 2027 | The IMF estimates the yuan could be up to 21% undervalued in real effective terms. German Chancellor Merz's pivot on China policy reportedly came directly from research linking an undervalued yuan to German industry woes. BusinessEurope stated this week that China actively restrains renminbi appreciation that a surplus of this size would normally trigger. PBOC governor Pan published a paper insisting China has no need or intent to gain competitive advantages through currency devaluation. The gap between these positions is enormous, and the November technical dialogue will determine whether Europe can advance a credible conversation on rebalancing or gets deflected at the first gate. |
| EU / Japan / South Korea | The EU's Industrial Accelerator Act, proposed by the Commission in March 2026, offers subsidies and procurement support to companies that manufacture EVs and source components within the EU. The Franco German deal of 16/10 extends Made in EU rules to internal market members as of 01/01/2020 (including the UK conditionally) but excludes Japan and South Korea. Japan's PM Takaichi pressed Merz on 29/10 in Tokyo to change this. Korea's President Lee made the same request in Seoul on 30/10, asking Germany to ensure Korean companies are treated the same as EU firms. | NEW SIGNAL | Oct to Dec 2026 | Toyota plans to build EVs at a Czech plant by 2028 but currently relies on exports from Japan. Company cars eligible for tax breaks and subsidies account for roughly 60% of the European market. Exclusion from IAA subsidies would put Japanese and Korean automakers at a severe disadvantage in the fastest growing segment. Merz's counterproposal, an interregional agreement linking the EU with CPTPP members, offers a diplomatic pathway but requires years of negotiation. In the interim, EU institutions will begin finalising the IAA proposal, and the draft legislation may still be amended. |
| China NPC | The 14th NPC Standing Committee's 25th session (02/11 to 06/11) will review multiple bills, including consideration of ratifying the Agreement on the Establishment of the World Artificial Intelligence Cooperation Organization (关于成立世界人工智能合作组织的协定, guanyu chengli shijie rengong zhineng hezuo zuzhi de xieding). The revised Prison Law takes effect 01/11. | MONITORING | 02/11 to 06/11/2026 | Ratification would position China as the institutional anchor of a parallel global AI governance body, outside Western led frameworks like the G7 Hiroshima AI Process, the EU AI Act, and the OECD AI Principles. European companies operating AI systems across both regulatory domains (EU and China) would face potential dual compliance requirements on safety testing, algorithmic transparency, and data governance. This coincides with ongoing EU China AI cooperation discussions and the European Parliament trade committee's visit to Chinese robotics manufacturer Unitree this week, where committee chair Lange described embodied AI robotics as at the heart of Chinese industry in the future. |
What to Watch Next Week
- 14th NPC Standing Committee, 25th Session (02/11 to 06/11): The session will review multiple bills and consider ratification of the Agreement on the Establishment of the World Artificial Intelligence Cooperation Organization (世界人工智能合作组织, shijie rengong zhineng hezuo zuzhi ). If ratified, this positions China as a structural counterweight to the G7’s Hiroshima AI Process and the EU AI Act framework, with implications for global AI governance standards.
- EU China macroeconomic dialogue preparations (week of 23/11): DG Maarten Verwey’s team and Chinese counterparts will finalize the agenda for a Beijing meeting focused on global imbalances, yuan valuation, and structural rebalancing. ECB President Lagarde, EU economy chief Dombrovskis, and Eurogroup president Pierrakakis are planning a follow up visit. The technical groundwork laid in November will determine whether Europe can advance a credible currency dialogue or gets deflected by Beijing.
- MOFCOM 2027 export quota allocation window opens (01/11 to 15/11): China’s Ministry of Commerce published quotas for seven categories of goods including live animals (to Hong Kong and Macau), licorice, and timber. While individually modest, the quota mechanism signals continuing administrative control over select exports, and the concurrent suspension of phosphorite and silver quota management (replaced by export licensing) indicates selective liberalisation alongside tightening in strategic areas.