“Something has to change because Europe cannot simply accept that strategically viable industries that form Europe's industrial base are priced out of the market,” he said. “Trade becomes a security issue.”
Given growing US and EU fears, will overcapacity slow exports from China's “new three”?
Tensions between China and the European Union worsened after Brussels launched an action Anti-subsidy investigation The EU invested in China's electric vehicle exports last year, which has the potential to deal a major blow to relations, while the bloc has also introduced a de-risking strategy to reduce dependence on Chinese imports.
Additionally, China relies on advanced manufacturing and exports to fuel its economic growth while pushing for homegrown technologies and homegrown champions, raising concerns among foreign companies.
Increased industrial investment coupled with a lack of domestic demand amid low consumption in China has led to criticism of the EU and the United States Overcapacity of goods manufactured in China.
The chamber said in a report on China's handling of security risks published on Wednesday that overcapacity had distorted competition in the EU.
Maybe in China we need to focus a little more on the demand sideJens Eskelund
Brussels also complained about its significant trade deficit with China and Beijing's slow progress in opening market access.
The EU trade deficit with China hit a decade-long record of 397 billion euros ($423 billion) in 2022, before falling to 291 billion euros last year, bloc data show.
“I find it hard to imagine that Europe will sit quietly and watch the deindustrialization of Europe accelerate due to the externalization of low domestic demand in China,” Eskelund said.
“To alleviate some of this pressure, there may need to be a little more focus on the demand side in China to create demand that makes China seem less of a perceived threat.”
Economic activity in China, including consumption and industrial production, recovered better than expected in the first two months of the year, However, there are still concerns that the recovery will be short-lived as the property market remains in the doldrums.
The report said the EU's risk reduction strategy, unveiled last March, does not specifically target China, although it has “a strong China component” due to a lack of reciprocity in market access and public procurement, as well as state-backed investments in critical infrastructure and technologies in the EU that could potentially have security implications.
Foreign companies in China are more likely to face regulatory dilemmas caused by geopolitical tensions, the report added.
“Building up China's extensive legal toolkit to retaliate against what it sees as foreign interference and protracted jurisdiction allows the Chinese government to sanction certain foreign companies or individuals, thereby disrupting their business in China, for example by restricting their investments or restrict their market access in China,” it said.
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“Overtaking on a curve”: How China’s electric vehicle industry came to dominate the global market
“Overtaking on a curve”: How China’s electric vehicle industry came to dominate the global market
Much more honest discussions between China and Europe are needed as solutions are needed to deal with “the development of a slow-motion train wreck,” Eskelund added.
Additionally, China has taken measures to mitigate the risks associated with over-reliance on foreign supply chains as Beijing focuses on self-reliance.
The report said that as China's push for self-reliance has taken place, some imports have been replaced by Chinese or Chinese-based suppliers due to incentives or “pressure” at the provincial or local level, resulting in “significant disadvantages” for European companies.
“In some sectors considered an integral part of China's national security, policymakers have gone a step further and issued explicit policies to replace foreign components and technologies with domestic ones,” said the report, which sets out procurement rules for Lists IT hardware and medical devices.
China rails against EU investigation into train subsidies – will relations remain on track?
Given the increasingly complex geopolitical environment in which Chinese politicians operate, the Chamber believes China is likely to expand its toolkit to address a growing number of national security issues.
However, to create a more sustainable environment for foreign companies, China should stay away from excessive self-reliance and mitigate economic risks in a surgical and precise manner, the chamber said.
China should “refrain from erratic policy shifts or punishing companies for the actions of their home governments” while developing “differentiated strategies to strengthen supply chains that do not veer toward trade protectionism,” the chamber said in the report.
It also called on China to “enter into dialogue with other governments and key stakeholders to depoliticize the business environment.”
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