The escalating trade tensions between Europe and China have been a cause for concern, with Jens Eskelund, the president of the European Union Chamber of Commerce in China, warning of a slow-motion train accident. Eskelund’s remarks indicate a growing unease over China’s ability to manufacture more cheaply in strategic industries, which could result in European industries being priced out of the market. This highlights a significant challenge for Europe in maintaining its industrial base and competitiveness in the face of Chinese competition.
Chinese authorities have been promoting high-end manufacturing to achieve technological self-sufficiency and reduce reliance on real estate for economic growth. This shift in focus has led to a rise in investment and state financial support for manufacturing, raising concerns about overcapacity. Eskelund mentioned that there is an overcapacity issue across different industries, such as chemicals, metals, and electric vehicles. This overcapacity could lead to price wars and disrupt global markets in the coming years.
The growing political risks for European businesses operating in China have been highlighted in a report co-authored by the EU Chamber of Commerce in China and China Macro Group. The report outlines concerns over broader U.S. actions impacting European operations in China, with export restrictions and legislative efforts affecting access to Chinese markets. The dependency on Chinese sourcing and the inability to sell in the Chinese market presents a significant challenge for European businesses.
Security concerns have become more prominent in Beijing’s latest five-year planning document, with a focus on coordinating development and security in various ministries. While not directly involved in U.S.-China tensions, European businesses have already felt the impact, with market share declines and challenges in diversifying away from Chinese sourcing. The concept of being trapped in a geopolitical dilemma, where dependency on China for sourcing conflicts with limited access to Chinese markets, presents a complex issue for European companies.
One of the key challenges highlighted by an unnamed executive in the report is the depressed pricing mechanisms in Europe. Dropping Chinese partners would not necessarily lead to increased competitiveness in European auctions due to the disparity in prices. This challenge underscores the difficulty faced by European businesses in competing with Chinese players and the need to find alternative solutions for diversification. The slow process of diversification could take more than a decade to materialize, further complicating the situation for European companies.
The imbalance in trade flows between China and Europe has been evident, with China sending more goods to Europe than receiving in return. This increase in Chinese exports to Europe, particularly via container ships, has reached a record high, indicating a growing dependency on Chinese products. The inability to compete with Chinese prices and the challenges in accessing the Chinese market pose significant obstacles for European businesses looking to maintain a competitive edge in the global market.
The analysis of the trade tensions between Europe and China points to a challenging road ahead for European businesses. The issues of overcapacity, security concerns, pricing mechanisms, and trade imbalance present complex challenges that require strategic solutions. Finding a balance between maintaining competitiveness and diversifying away from Chinese dependency will be crucial for European companies navigating the evolving landscape of global trade.