China Market Insider China's Technological Catch-Up: EU Warns of new Competition and Loss of Opportunities

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China is rapidly modernizing its industry. The EU report shows: New market dominance in key sectors threatens European companies.

The EU Chamber of Commerce in Beijing describes "significant progress" in China's modernization of its manufacturing industry in a new report. Since the initiation of the strategic industrial policy "Made in China 2025", more Chinese companies have become world market leaders, the EU Chamber writes.

In many sectors, such as shipbuilding or railway technology, China is now largely independent of imports, which negatively affects competition abroad, according to the report. However, in other areas, assessed by the Chamber in a "scorecard for technological leadership," China has not advanced as far, such as in aerospace or medical devices.

In the aforementioned areas, there must currently still be relatively good opportunities for German and European businesses in China—even if the EU report does not explicitly emphasize this, but rather focuses mainly on the negative consequences of Chinese industrial policy for Europe.

"While some of the specific sector targets of Made in China 2025 have not been achieved, its general goal of further modernizing the Chinese manufacturing sector has been significantly advanced overall," the report states in a sort of conclusion of the industrial plan announced by China in 2015.

In some key technologies, China has already "overtaken" the EU, the EU Chamber writes on its website. And there are also significant shifts in the global market: In certain areas, China has been able to take over "significant global market shares" to date, the Chamber explains.

"China's shipbuilders accounted for about 70 percent of new orders worldwide; China's share of the global market for electric cars rose to 76 percent; and Chinese solar panels accounted for more than 80 percent of the world market," states the report titled "Made in China 2025—The Cost of Technological Leadership."

Wake-Up Call for Europe: China Asserts Itself as a Serious Competitor

In only one of the industrial sectors examined does the pendulum in China still point towards "dependence" on foreign countries, that of aerospace equipment, according to the Chamber report. As evidence of this, it is stated that "China's self-developed commercial passenger aircraft, the C919, is still largely dependent on foreign suppliers for key components."

In the case of medical devices and biopharmaceuticals, China has only reached about halfway towards its goal of self-sufficiency, as suggested by an infographic in the report. Although domestic Chinese products are already available for most products in this sector, they are positioned "at the lower ends of the price and quality spectrum," the EU Chamber summarizes.

"In light of the fact that the safety of medical products is established over decades, products from foreign companies are likely to retain their reputational advantage in the foreseeable future," writes the EU Chamber.

The detailed examination of China's catch-up in the manufacturing industry is recommended reading for anyone doing business or planning to do business in China—even if the EU Chamber of Commerce's political recommendations to governments in Beijing and European capitals sound a bit helpless.

According to the EU strategists, China should "utilize market-oriented reforms" and move away from its "top-down, state-led industrial policy" of the last three decades, as stated in the document.

The European business association in Beijing advises China to "overhaul its industrial policy," according to Bloomberg—which sounds a bit presumptuous even to well-meaning readers.

The EU Chamber's recommendations for European companies in China are not particularly useful either. "Plan for worst-case scenarios, such as a significant loss of market access," the EU Chamber report states.

Only one recommendation sounds reasonable, even though it is not exactly new. "Invest appropriately in innovation to compete with Chinese companies developing comparable or superior technologies," advise the European association officials in the People's Republic.

As a snapshot of China's growing influence on the fortunes of European and German industry, however, the document is quite valuable despite its analytical weakness. Anyone still convinced that China is not a serious competitor for Europe or even just a "copycat player" receives an important wake-up call here.

*Henrik Bork is Managing Director at Asia Waypoint, a consulting agency specializing in China, based in Beijing. "China Market Insider" is a joint project of Vogel Communications Group, Würzburg, and Jigong Vogel Media Advertising in Beijing.

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