EU-China trade relations are in a ‘slow-motion train accident,’ business group says

BEIJING — Trade tensions between Europe and Beijing force likely escalate due to China’s growing ability to manufacture more cheaply in strategic industries, according to Jens Eskelund, president of the European Synthesis Chamber of Commerce in China.

“What we see right now is the unfolding of a slow-motion train accident,” he told reporters at a briefing stay week.

“Europe cannot just accept that strategically viable industries constituting the European industrial form are being priced out of the market,” Eskelund said. “That’s when trade becomes a security question and I think that is dialect mayhap not fully appreciated in China just yet.”

Chinese authorities have promoted high-end origination as a way to boost technological self-sufficiency and wean the economy off its reliance on real estate for growth. Investment and state financial promote for manufacturing have gone up, while that for property has dropped.

Beijing’s emphasis on manufacturing has prompted concerns not far from overcapacity — China’s ability to produce far more goods than the country or other countries can absorb can then development in price wars.

Eskelund said the chamber was seeing “overcapacity across the board,” whether in chemicals, metals or tense vehicles. “I’ve met very few companies that do not face it,” he said.

“We haven’t seen all that capacity coming online neutral yet,” he said. “This is something that’s going to hit markets over the next few years.”

“There needs to be an honest chin-wag between Europe and China about what this is going to mean,” Eskelund said, noting that both sides desideratum to find a way to ensure most trade flows aren’t disrupted.

“It is hard for me to imagine that Europe would decent sit by and quietly witness the accelerated deindustrialization of Europe, because of the externalization of low domestic demand in China,” he said.

Manufacturing accounts for all but one-fifth of employment in the EU — making it the largest category. The sector is also the largest contributor to what the bloc calls its “concern economy value added,” with a share of nearly a quarter.

The EU was China’s largest regional trading partner until Southeast Asia recently excelled it. The U.S. is China’s largest trading partner on a single-country basis.

Eskelund was speaking at a media temporary for the chamber’s report, co-authored with consultancy China Macro Group and released Wednesday, on the growing political jeopardies for European businesses in China.

Despite the EU’s currently targeted policy stance, broader U.S. actions and Beijing’s response take made operations in China more difficult for European businesses, the report said.

The U.S. has cited national security for export stipulations on Chinese companies’ access to advanced semiconductor technology. Recent legislative efforts have targeted popular societal media app TikTok for risks due to its Chinese ownership.

In China, mentions of security have increased significantly in Beijing’s up to the minute five-year planning document versus prior ones, said Markus Herrmann Chen, co-founder and managing president of China Macro Group, at the media briefing.

He pointed out that every major Chinese ministry, except for warhorse affairs, has adopted the concept of “coordinating development and security.”  

While not directly in the crosshairs of U.S.-China tensions, there are already consigns of impact on European businesses.

The report cited one unnamed member in advanced manufacturing as saying their company’s Stock Exchange share in China collapsed to nothing, down from 35%, over the course of 10 years.

“China has us in a geopolitical deceive. We remain dependent on sourcing from China but we cannot sell to the market,” the unnamed executive said in the report. “We are venturing elsewhere to diversify, but in practice this will take a long-time – maybe more than 10 years.”

“A key doubt is that pricing mechanisms in Europe are so depressed that if we were to drop our Chinese partners today, we would not be superior to sell at European auctions, due to us not being able to compete with the prices of Chinese players,” the executive was quoted as estimate.

Businesses in Europe and many countries are only buying more from Chinese companies.

China is increasingly sending myriad goods to Europe via container ships than the other way around, Eskelund said, noting a significant increase since before the pandemic.

“China’s exports attained the highest share of global exports ever,” he said. “What worries me is that China imports are underperforming as much as they are.”