A photovoltaic module company in Hefei, Anhui province, on February 20, 2024.
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BEIJING – Trade tensions between Europe and Beijing are likely to escalate due to China’s growing ability to produce more cheaply in strategic industries, according to Jens Eskelund, president of the European Union Chamber of Commerce in China.
“What we are seeing is a train wreck unfolding in slow motion,” he told reporters at a briefing last week.
“Europe cannot simply accept that strategically viable industries that form Europe’s industrial base are priced out of the market,” said Eskelund. “Then trade becomes a security issue, and I think that may not be fully recognized in China.”
There needs to be an honest conversation between Europe and China about what this will mean.
Jens Eskelund
President of the EU Chamber of Commerce in China
Chinese authorities have promoted high-end manufacturing to increase technological independence and wean the economy from its reliance on real estate for growth. Investment and government financial support for manufacturing have increased while that for real estate has decreased.
Beijing’s focus on manufacturing has raised concerns about overcapacity – China’s ability to produce far more goods than it or other countries can absorb, which can then lead to price wars.
Eskelund said the chamber sees “general overcapacity,” whether in the chemical, metals or electric vehicle sectors. “I have met very few companies that are not taking on this challenge,” he said.
“We haven’t seen all the capacity come online yet,” he said. “This is something that will come to market in the next few years.”
“There needs to be an honest conversation between Europe and China about what this will mean,” Eskelund said, noting that both sides need to find a way to ensure that most trade flows are not disrupted.
“I find it hard to imagine that Europe would simply stand by and watch the accelerated deindustrialization of Europe due to the externalization of low domestic demand in China,” he said.
Manufacturing accounts for almost a fifth of jobs in the EU, making it the largest category. With a share of almost a quarter, the sector is also the largest contributor to what the bloc calls “business value added”.
The EU was China’s largest regional trading partner until Southeast Asia recently overtook it. At the country level, the United States is China’s largest trading partner.
Growing emphasis on security
Eskelund spoke about the growing political risks for European companies in China at a media briefing for the chamber’s report, co-authored with consultancy China Macro Group and published on Wednesday.
Despite the EU’s current targeted policy stance, broader US measures and Beijing’s response have made doing business in China more difficult for European companies, the report said.
The US has cited national security as a rationale for export restrictions on Chinese companies’ access to advanced semiconductor technology. Recent legislative efforts have targeted popular social media app TikTok over risks stemming from its Chinese ownership.
China has caught us in a geopolitical trap. We continue to rely on sourcing from China, but cannot sell on the market.
Unnamed managing director
Report from the EU Chamber of Commerce in China
In China, mention of security has increased significantly in Beijing’s latest five-year planning document compared to previous ones, Markus Herrmann Chen, co-founder and managing director of China Macro Group, said at the media briefing.
He pointed out that every major Chinese ministry, except the Ministry of Veterans Affairs, has adopted the concept of “coordination of development and security.”
Trade is out of balance
Although it is not directly in the crosshairs of US-China tensions, there are already signs of an impact on European companies.
The report quoted an unnamed member of the advanced manufacturing sector who said his company’s market share in China had fallen from 35% to zero over a decade.
“China is putting us in a geopolitical trap. We continue to rely on sourcing from China but cannot sell in the market,” the unnamed executive said in the report. “We are investing elsewhere to diversify, but in practice this will take a long time – perhaps more than 10 years.”
“A key challenge is that the pricing mechanisms in Europe are so depressed that if we gave up on our Chinese partners today, we would not be able to sell at European auctions because we would not be able to deal with them The managing director was quoted as saying that the prices offered by Chinese suppliers are to compete.
Companies in Europe and many countries are only buying more from Chinese companies.
China is increasingly sending more goods to Europe by container ship than the other way around, said Eskelund, noting a significant increase since the pandemic.
“China’s exports reached the highest share of global exports ever,” he said. “What worries me is that Chinese imports are underperforming as well.”
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2024-03-20 01:00:01
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