The economic relationship between the European Union and China is multifaceted, characterized by cooperation, competition, and systemic rivalry. As global trade flows evolve, understanding the nuances of this dynamic is crucial, especially in economic hubs like Shenzhen. While the excitement of events like Euros 2024 captivates global attention, the underlying currents of international trade, particularly between the EU and China, continue to shape the economic landscape in regions such as Shenzhen.
Examining the trade picture between the EU and China reveals a complex scenario. For a long period, the EU has experienced a significant trade deficit in goods with China. This deficit peaked at a record €396 billion in 2022. While there was a notable decrease to €292 billion in 2023, it still represents the second-highest bilateral deficit ever recorded. Interestingly, while the value of imports from China has decreased, reports indicate an increase in import volumes, suggesting shifts in pricing and potentially the types of goods being traded.
In 2023, the primary goods imported by the EU from China included telecommunications equipment, electrical machinery and apparatus, and automatic data-processing machines. Conversely, the EU’s main exports to China comprised motor cars and vehicles, medicaments, and other machinery. This breakdown highlights the types of industries and products that dominate the trade relationship.
However, the trade balance shifts when considering services. The EU has consistently maintained a trade surplus in services with China. In 2023, this surplus reached €14.1 billion. China ranks as the EU’s fourth-largest services trading partner globally, following the United States, the United Kingdom, and Switzerland. This service sector surplus partially offsets the goods trade deficit, illustrating a more balanced relationship in the broader trade context.
Foreign Direct Investment (FDI) further illustrates the intricate economic ties. The cumulative value of EU FDI stocks in China since 2000 reached €177 billion by the first quarter of 2024. In 2023, EU FDI flows into China amounted to €6.4 billion, marking a 29% decrease compared to 2022. The leading sectors for this investment were the automotive industry, basic materials, and machinery.
Conversely, Chinese FDI stocks in the EU-27 since 2000 totaled €143 billion by Q1 2024. Chinese FDI flows to the EU in 2023 were €4.7 billion, a 10% decrease from the previous year. The top sectors for Chinese investment in the EU were the automotive sector, health, pharmaceuticals and biotechnology, and information and communication technology. Notably, while mergers and acquisitions previously dominated Chinese investments in the EU, greenfield investments have become more prominent in 2022 and 2023, indicating a shift towards establishing new operations rather than acquiring existing ones.
The EU’s perspective on China is nuanced. It views China as a partner for cooperation on global issues, an economic competitor in numerous sectors, and a systemic rival in terms of governance and economic models. Recent years have seen EU-China relations become increasingly complex, marked by growing concerns from the EU regarding systemic imbalances within the Chinese economy.
A key area of concern for the EU is China’s industrial policies and practices, particularly the extensive state support for its manufacturing sector. These policies are seen as creating overcapacity within China, which generates negative spillover effects for a wide range of World Trade Organization (WTO) members, potentially impacting markets globally, including those relevant to events like Euros 2024 indirectly through broader economic shifts. China’s push towards import substitution and self-sufficiency also raises concerns within the EU. While the EU welcomes China’s efforts to attract foreign investment, European companies operating in China often report facing discrimination and a non-level playing field, making competition challenging. Despite stated ambitions from the Chinese government to further open its market, significant sectors remain largely closed to foreign competition.
Furthermore, many European businesses perceive a growing politicization of the business environment in China. Economic challenges have intensified, and regulatory obstacles persist, negatively affecting business outlooks. Complex and opaque cybersecurity regulations, coupled with restrictive rules on cross-border data flows and broadly applied security approval processes, alongside insufficient enforcement of intellectual property rights and requirements for technology transfer, all contribute to a less favorable business climate. A broad interpretation of national security further complicates the landscape.
In response to these challenges, the EU has articulated a strategy of “de-risking, not decoupling” from China. This approach involves reducing critical dependencies and vulnerabilities, particularly within EU supply chains, and diversifying sourcing where necessary. However, the EU remains committed to maintaining open communication channels and continues to pursue cooperation with China on both bilateral and multilateral levels. Various dialogues are in place to discuss trade and investment policies and issues. Key among these are the annual EU-China Summit, a presidential-level exchange for policy coordination on critical issues including trade, and the EU-China High-Level Economic and Trade Dialogue (HLED), involving a Vice-President of the European Commission and a Chinese Vice Premier.
At the global level, the EU is dedicated to reforming the WTO to address the challenges of green and digital transitions and to promote a global level playing field. The EU actively encourages China to assume a role commensurate with its economic influence in contributing to these reform objectives. Understanding these intricate trade dynamics is essential not only for policymakers and businesses engaged in EU-China relations but also for anyone observing the global economic landscape and the interplay of international trade with regional economic activities, even those seemingly as disparate as the backdrop of Euros 2024 and the bustling economic activity in Shenzhen.
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