On February 20, 2024, an optoelectronic module company in Hefei City, Anhui Province.
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BEIJING – Trade tensions between Europe and Beijing are likely to escalate due to China’s growing ability to manufacture products more cheaply in strategic industries, said Jens Eskelund, president of the European Chamber of Commerce in China.
“What we’re seeing now is a slow-moving train wreck,” he told reporters at a news conference last week.
“Europe cannot just accept that strategically viable industries that form Europe’s industrial base are priced out of the market,” Eskelend said. “Then trade becomes a security issue and I think China may still That’s not fully recognized.”
There needs to be an honest conversation between Europe and China about what this means.
Jens Eskelend
President of the European Chamber of Commerce in China
Chinese authorities promote high-end manufacturing as a way to increase technological self-sufficiency and wean the economy away from dependence on real estate growth. Investment and state fiscal support for manufacturing increased, while investment and fiscal support for real estate declined.
Beijing’s emphasis on manufacturing has raised concerns about overcapacity – China producing far more goods than it or other countries can absorb, potentially leading to a price war.
Eskelund said the chamber is seeing “overcapacity across the board,” whether in chemicals, metals or electric vehicles. “I’ve seen very few companies that don’t face this problem,” he said.
“We haven’t seen all the capacity come online yet,” he said. “This is going to hit the market for years to come.”
“There needs to be an honest conversation between Europe and China about what this means,” Eskelund said, noting that both sides need to find a way to ensure that most trade flows are not disrupted.
He said: “It is difficult for me to imagine that Europe will stand by and quietly witness the acceleration of deindustrialization in Europe due to the externalization of China’s sluggish domestic demand.”
Manufacturing accounts for nearly a fifth of employment in the EU – making it the largest category. The industry is also the largest contributor to the EU’s so-called “business economic value added”, with a share of nearly a quarter.
The EU was China’s largest regional trading partner until Southeast Asia recently overtook it. The United States is China’s largest single country trading partner.
Pay more and more attention to safety
Eskelund was speaking at a media briefing on a chamber of commerce report, co-written with consultancy China Macro Group and released on Wednesday, on the growing political risks for European businesses in China.
The report said that despite the EU’s current targeted policy stance, broader US actions and Beijing’s response have made it more difficult for European companies to operate in China.
The United States imposes export restrictions on Chinese companies’ acquisition of advanced semiconductor technology on the grounds of national security. Recent legislative efforts target popular social media app TikTok, which is at risk due to its Chinese ownership.
China has us trapped in a geopolitical trap. We still rely on sourcing from China, but we are unable to sell to the market.
Unnamed senior executive
European Chamber of Commerce in China Report
In China, mentions of security in Beijing’s latest five-year planning document have increased significantly compared with previous documents, Markus Hermann Chen, co-founder and managing director of China Macro Group, told a media briefing.
He pointed out that with the exception of the Department of Veterans Affairs, all major departments in China have adopted the concept of “coordination of development and security.”
trade imbalance
While not directly at the center of tensions between China and the United States, there are already signs that European businesses are being affected.
The report quoted an unnamed advanced manufacturing person as saying that their company’s market share in China fell from 35% to zero in 10 years.
“China has put us into a geopolitical trap. We still rely on purchasing from China, but we cannot sell to the market,” the unnamed executive said in the report. “We are investing elsewhere to diversify, but realistically it will take a long time – maybe more than 10 years.”
“A key challenge is that the pricing mechanism in Europe is so depressed that if we dropped our Chinese partners today, we would not be able to sell products at European auctions because we would not be able to compete on price with the Chinese players,” the executive was quoted as saying. .
Companies in Europe and many countries are simply buying more products from Chinese companies.
China is increasingly shipping goods to Europe via container ships, while Europe is doing the opposite, Eskelund said, noting that this number has increased significantly since before the outbreak.
“China’s exports have reached an all-time high as a share of global exports,” he said. “What worries me is that China’s imports are not doing well.”
