Significant trading partner and systemic rival: China is a concern for Europe

 Europe's huge trade partner: China

Europe's huge trade partner: China

Despite the inconvenience brought on by Covid lockdowns, many of Europe's leading businesses are ready to expand in the world's second-largest economy as trade dependence on China grows.

Collaboration is essential to both parties. Last year, the value of products traded between China and Europe totaled €696 billion ($732 billion), increasing roughly a quarter from the previous year.

The volume of Trade with China

According to Eurostat data, China was the third-largest recipient of EU goods exports, taking 10% of the total. China is the largest European importer, contributing 22% of all imports in 2021.

Overall, Borges de Castro claims that the partnership is "too big to fail." He continued by saying that Europe wants to stay in the lucrative Chinese market.

According to Eurostat, the vast majority of products traded between the two powers are produced goods like machinery, cars, chemicals, and other manufactured goods.

According to ECCC Secretary General Adam Dunnett, "European companies have done quite well here and the general long-term picture is very optimistic." Dunnett also predicted that European companies' revenues in China would increase over the following ten years.

Mutual dependencies

Europe is reliant on Beijing in several areas, such as the supply of rare earth metals needed to manufacture wind turbines and hybrid and electric automobiles. China also produces the majority of the solar panels used in Europe.

But Dunnett cautioned against overstating these dependencies.

"A lot of those things you can obtain elsewhere, when you look at some of the wider things that China exports to the EU, such as furniture and consumer goods," he said.

US pressures to curb trade with China

The Financial Times was informed on Wednesday by Benjamin Loh, CEO of Dutch chipmaker ASM International, that the US was "putting a lot of pressure" on the Dutch government to adopt a similar severe approach.

There could already be signs of pressure. Due to security concerns, Germany this month halted the sale of one of its semiconductor plants to Chinese-owned tech business.

Chinese Investment in Europe

According to a report by the research firm Rhodium Group, Chinese direct investment in the European Union decreased last year, falling to its second-lowest level since 2013—just behind 2020. It has decreased by over 78% since 2016.

Agatha Kratz, director at Rhodium Group, told CNN Business that due to Beijing's rigorous capital controls and increased scrutiny from EU regulators, "the level of Chinese investment in Europe is now at a decade low."

The amount of EU investment in China has also increased in concentration. According to data from Rhodium Group, the top 10 European investors in China between 2018 and 2021—including those from the United Kingdom—accounted for about 80% of all investments made by the continent in that nation.

More than one-third of all European investment in those four years was undertaken by only four German firms: the chemical giant BASF (BASFY), the manufacturers Volkswagen (VLKAF), BMW, and Daimler (DDAIF), as well as the three German automakers.

EU sanctions for violations of human rights

Last year, after EU legislators-imposed sanctions on Chinese officials for alleged human rights violations, China responded with its own measures, postponing an investment agreement between Beijing and Brussels.

The agreement, which was reached in principle in 2020 after years of negotiations, was made to level the playing field for European businesses doing business in China after they had complained that Beijing's subsidies have disadvantaged them.

China's implicit support for Russia's war in Ukraine was one of an "increasing list of irritants," according to EU diplomats, that were harming relations. As "a partner for cooperation and dialogue, an economic competitor, and a systemic rival," they have characterized China.

Carousel in Covid

Dunnett claims that China's strict zero-Covid policy is the main concern for European companies doing business there.

It's been the Covid carousel and [the] Covid rollercoaster for the past year, he said. Something "pulls us back every time you think [it] was going to open up," he continued.

Thousands of protesters demonstrated against China's harsh Covid controls over the weekend in a rare round of street protests across the country. Since then, some limitations have been loosened in Shanghai and other significant cities.

Raffaello Pantucci, a senior associate fellow at the Royal United Services Institute, a security research organization, told CNN Business that Beijing's rigid policy is contributing to a further decline in foreign investment in the nation, particularly from smaller businesses.

Despite the fact that businesses still believe they must connect with China given its size and potential, he claimed that small- to medium-sized businesses are rapidly giving up.

Courtesy CNN

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