Broader basis for cooperation

China should seek to tap the potential of industrial complementarity with various EU countries

To promote their post-pandemic economic recovery, the members of the European Union have agreed on a large fiscal recovery package. Greater EU solidarity is good for multilateralism and the stability of the world economy.

The recovery plan combines a short-term crisis response with medium-and long-term structural economic transformation and upgrading to realize a green economy and develop the digital economy.

The plan means the foundations for win-win cooperation between China and the EU have expanded, as the direction of the EU's recovery plan coincides with China's long-term vision.

China and the EU already have great trade exchanges. In 2019, China-EU trade volume exceeded $700 billion for the first time. The EU has been China's largest trading partner for 16 years in a row. According to the data from Eurostat, in the first eight months of the year 2020, China maintained its position as the EU's largest trading partner, the largest source of imports and the third-largest export market. At the same time, bilateral direct investment is growing, cooperation in production capacity demand is rising, and cooperation in third-party markets is on the agenda.

Given this, deepening their industrial cooperation would benefit both sides.
First, Chinese and EU industries have their own advantages and disadvantages, these are more complementary than competitive. Using the data of the UN Comtrade database up to 2018, we selected major EU industrial countries to study the current situation and trend of international competitiveness in 28 manufacturing sectors. Among the top 12 industries with comparative advantage in China, EU countries ranked lower in competitiveness in these sectors, and among the last 12 industries with comparative disadvantage in China, EU countries ranked higher in competitiveness.

China's electronic and communications equipment industry is the most internationally competitive. Among EU countries, only Hungary and the Czech Republic have a comparative advantage in the electronic and communication equipment industry, with Sweden and Poland at the world average and the other countries at a significant disadvantage. The pharmaceutical industry ranks low in China's competitiveness, but it has great advantages in some EU countries, such as Switzerland, Belgium, Denmark and Ireland.

Second, amid the dynamic changes in the international competitiveness landscape, there are some new trends in the complementarity pattern between China and Europe. Take the communications industry for example. The international competitiveness of the EU was once much stronger, with Finland and Sweden as the worldwide industry leaders. But they have lost their leading status and steadily declined. China's communications industry, on the other hand, has been continuously developing with the growing competitiveness of companies such as Huawei and ZTE. In terms of international market share, China's communications industry increased from 4.64 percent in 1999 to 44.15 percent in 2018.

The international competitiveness of the automobile industry was once concentrated in Germany and other Western European developed countries. But in recent years, with the weakening international demand, their competitiveness has declined. Despite this, the global automobile industry is now still dominated by Europe, the United States, Japan and South Korea while the Chinese automobile industry has limited competitiveness. By 2018, the international competitiveness of China's automobile industry was only 7 percent of the world average. China's auto production is high, but most of it serves the domestic market, so China's automobile industry lacks the incentive to increase its international competitiveness for export.

Third, the EU has put forward the goal of achieving carbon neutrality by 2050 and China has proposed the goal of achieving zero carbon emissions by 2060. The transition to a green economy in the EU coincides with China's vision of sustainable development.

China's battery, electric vehicle and solar energy industries are all leading the way, while the EU is outstanding in terms of "soft power", such as public transportation guidance, building renovation energy-saving standards and corporate consensus on environmental protection. In the digital economy, China's market and application capabilities are at the forefront, while the EU has great advantages in basic research and development and data operations. In view of the lack of funds hindering the EU's technology research and development, the two sides should strengthen their partnership to draw on each other's strengths and play a positive role in narrowing their technological gap and pursuing long-term win-win cooperation.

Considering the trade frictions between China and the US, deepening cooperation with the EU in various industries could help relieve some of the pressure on China. Industries in the EU countries have different international competitiveness. It is necessary to identify the advantageous industries of the various EU members, clarify their position in the global value chain, and align them with China's needs for economic development and industrial transformation and upgrading. Moreover, China-EU industrial cooperation should focus on complementarities and avoid competition. For industries with complementary strengths, China should synergize in line with the actual needs of each country, so as to fully mobilize the initiative of participants to seek mutual benefit. In those industries with potential competition, measures should be prepared in advance to avoid possible economic and trade frictions.

With economic globalization facing challenges, trade protectionism rising and global market demand declining, close attention should be paid to the changing trend of industrial competitiveness in various countries to grasp the opportunities of cooperation.

The author is an assistant researcher at the Institute of European Studies of Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.