The trade tensions between Europe and China are expected to intensify as China’s manufacturing capabilities continue to expand in strategic industries. According to Jens Eskelund, the president of the European Union Chamber of Commerce in China, there is a concern that European industries are being priced out of the market due to China’s competitive manufacturing advantage. This situation has been described as a “slow-motion train accident” by Eskelund, indicating the urgency of the issue at hand. In order to address this challenge, there is a need for an open and honest conversation between Europe and China to understand the implications of these developments.
Beijing’s Emphasis on Manufacturing
Chinese authorities have been actively promoting high-end manufacturing as a way to enhance technological self-sufficiency and reduce the country’s dependence on real estate for economic growth. As a result, investments and state support for manufacturing have increased while the focus on property has decreased. However, this shift has raised concerns about overcapacity, with Eskelund highlighting excess production in various sectors like chemicals, metals, and electric vehicles. This overcapacity could lead to price wars and market disruptions if not carefully managed.
The European Union Chamber of Commerce in China has raised concerns about the growing political risks faced by European businesses operating in China. The chamber’s report, co-authored with consultancy China Macro Group, underlines the challenges posed by broader U.S. actions and China’s responses, making it increasingly difficult for European companies to operate in the Chinese market. With the U.S. restricting Chinese access to advanced semiconductor technology and targeting apps like TikTok due to security risks, European businesses find themselves in a precarious position.
Increase in Security References in China
Notably, references to security have significantly increased in China’s latest five-year planning document, reflecting a shift towards prioritizing security alongside development. This change in approach has implications for European businesses, with some already experiencing the impact of U.S.-China tensions on their market share in China. An unnamed executive cited in the report mentioned the challenges of being caught in a “geopolitical trap,” where companies are dependent on sourcing from China but face difficulties selling to the Chinese market.
One of the key challenges highlighted by the report is the disparity in pricing mechanisms between Europe and China. European companies find it challenging to compete with the prices offered by Chinese manufacturers, making it difficult to transition away from Chinese partners. This dilemma is further exacerbated by the fact that European businesses are increasingly turning to Chinese companies for their procurement needs, reinforcing the interdependence between the two regions.
China’s growing exports to Europe, particularly via container ships, have resulted in a significant trade imbalance between the two regions. Eskelund noted the substantial increase in Chinese exports to Europe, emphasizing the need for a more balanced trade relationship. This imbalance raises concerns about the sustainability of European industries and the potential consequences of continued reliance on Chinese manufacturing.
The escalating trade tensions between Europe and China underscore the need for a comprehensive dialogue to address the challenges posed by China’s advancing manufacturing competencies. European businesses must navigate the complex landscape of international trade dynamics while adapting to evolving geopolitical realities. The evolving relationship between Europe and China requires thoughtful strategies and collaborative efforts to ensure mutual economic prosperity and stability in the face of emerging global challenges.