The European Union (EU) recently announced new policy initiatives to support industrial development during the next decade. This announcement contains elements that provide inspiration for China’s economic transformation and opportunities for increased cooperation over this period (which corresponds to China’s “12th Five-Year Plan”). However, some of these initiatives have potential adverse effects on China’s weaker industries and on EU-China trade in general.
Unveiling of Industry and Trade Segmentation Strategy
The new EU new industrial development policies put forward ten “revitalization” initiatives, including actions such as improving legislation to support the development of small and medium-sized enterprises, accelerating EU standardization, and improving infrastructure.
The new EU new trade policies for the next decade mainly fall in two areas: first, to protect the security of its access to the raw material market; and second, to support free trade. The draft states that, “The sustainable and smooth supply of raw materials and energy has strategic significance to the EU’s economic competitiveness, while the industrial policy of many countries outside the EU does create supply bottlenecks as well as other obstacles”.
Positives For China
Industrial consolidation and rapid technological advances signify that China’s economic transformation must always keep pace with the global economy.
For decades, EU countries have been among the world industrial leaders. However, long-term trends have reduced the industrial output of the EU, while the recent “great recession” exposed the unsustainable financial condition of many European countries. This has resulted in a loss of growth “productivity” in these economies and has contributed to a deep crisis. While those countries with a solid industrial base, sound budgeting and reformed labor laws, such as Germany, have achieved a strong recovery, others have been unable to escape turmoil and therefore are in a weakened global position.
These factors provide a context for the newly unveiled EU industrial development initiatives, which put greater emphasis upon industry as a driver of economic growth, and seek to consolidate the industrial advantages of the EU. This is an alert to China that its economic plans must include a recognition that world competition is rising, and that the country must ensure the base of industrial entities is adequately “productive,” both in terms of capital and in terms of technology and labor practices.
The re-introduction of the EU’s high-tech, design-driven, and well-trained industrial sector can also serve China’s economic transformation by providing a model for development. In addition, free trade principles in the new strategy, and specific initiatives such as strengthening EU standardization and infrastructure improvement should be conducive to the entry of Chinese enterprises and products into the EU market.
Three Potential Adverse Effects
Part of the newly unveiled EU policies include more protective measures for domestic industries, which will have potential adverse effects upon related industries in China as well as upon EU-China trade. China needs to pay great attention and be vigilant to these changes.
First, new EU policies regarding raw materials may lead to more trade frictions with China. The European Commission also indicated a new raw materials strategy, focusing on each country’s export restriction policies as well as government subsidies. The draft of the EU trade policy states that any country impeding EU industries from obtaining rare raw materials or energy needed for economic development will be treated with punitive measures. As many critical and strategic raw materials are imported from China to the EU, it is predictable that this policy may easily trigger economic disputes between China and the EU, and potentially cause tension across the entire range of diplomatic and security relations.