1. Economic competition between the EU and China is unavoidable in certain segments
The economies of China and the EU used to complement each other: Chinese companies produced cost-competitive, light industrial and semi-finished goods through low-value-added assembly, while European companies could build on that input in manufacturing high-end products. Today it is already clear that this relationship has changed drastically. In several advanced technologies, Chinese companies have caught up with or even surpassed their European counterparts. For instance, in the global market, Chinese cars, especially electric vehicles, pose serious competition to German and other European automotive companies. In the case of essential green technologies, such as solar panels, currently China dominates the entire global market. European companies are facing an increasing competition from rapidly developing local businesses in the Chinese market as well. Sino-German economic relations are particularly moving towards a zero-sum game in some industries.
2. The EU is not a global superpower, therefore economic competition need not take on a geopolitical dimension
The EU remains a global economic powerhouse but is far from being a classic superpower or great power as it lacks a common military or geopolitical spheres of influence. Brussels has no territorial disputes with China, and the EU has no direct geopolitical interests in the Indo-Pacific. Therefore, the inevitable economic competition does not necessarily need to become an issue of national security so rivalry should remain limited to the economic domain. Therefore, mixing up ideological differences and economic competition is unnecessary. The West’s efforts to export democracy have met with notable failures in many parts of the world over recent decades. The EU has neither the means nor the strength to change China.
3. The EU’s economic reliance on China is not weakening
Although ‘de-risking’ has become a popular slogan of EU politicians recently and political relations between the EU and China have worsened, the reality is that mutual dependencies between Europe and China have not diminished. As the two economies are highly intertwined, seeking ways of cooperation is a more than reasonable choice.
Import concentration indices show that over the past decade the USA and China have diversified their import sources, while the EU has become increasingly more reliant on the Asian country. The EU export to China has also remained stable despite eroding political ties. The high ratio of semi-finished goods in the overall trade shows that European and Chinese value chains cannot be disconnected without causing substantial damages to both economies. As for outward foreign direct investments, German automotive companies have recently announced several expansion projects in China as a sign of their reliance on the local ecosystem and market. All these dependencies underline that besides managing the competition seeking ways of cooperation must be a key pillar of EU-China economic relations in the future.
4. Besides Hungary other EU member states also welcome Chinese investments
While in some countries Chinese acquisitions are facing increased political headwinds, most EU member states remained open to greenfield investments from China. The French government have expressed interest in investments by BYD and Spain has been actively working on attracting Chinese investors in the green energy and EV industries. CATL, which has an ongoing investment project in Hungary, opened a battery plant in Germany last year, and other European regions facing significant unemployment would also welcome Chinese investors with open arms, that creates a base for strengthening investment ties in certain industries. Both China and the EU face serious economic challenges, albeit of different types, and remaining interconnected in investments rather than becoming isolated could help alleviate some of those problems.
5. Defending key technological interests does not exclude cooperation
Protecting industrial secrets that create the base for future competitiveness is not a new phenomenon, states and companies have been engaged in that for many decades. Naturally, this also includes the protection of critical technological from Chinese competitors, while this is also true the other way round. Nevertheless, it does not mean that cooperation in other areas should be limited. This approach is especially relevant since, in several advanced technologies, Chinese companies already have advantage over their European counterparts. Rather than restricting technological and innovation ties across the board, joint projects with their market-leading Chinese peers could serve the catching up of late comer European business in the less sensitive technology segments. This approach would not weaken but strengthen the EU’s competitiveness in the future.
Written by Péter Goreczky & Gergely Salát