Face by a War Economy in China, is Europe Waking Up?
This column was previously published in l’Opinion on october 5th 2023.
Europe is no longer prepared to accept the imbalances of the Chinese ecosystem, which has been responsible for a €400 billion deficit in the European balance of trade. It remains to be seen whether it will be able to stick to this line.
Is Europe going find its savior in the European Commissioner Valdis Dombrovskis from Latvia? Contrary to the “Munich-style” approach of President Macron last spring, the Commissioner’s speech during his recent visit to China was a reminder that, in China, only a firm stance pays off. Whilst Beijing is speeding up its change to a war economy, the Commissioner underlined that Europe was no longer prepared to accept the imbalances of the Chinese ecosystem, which has been responsible for a €400 billion deficit in the European balance of trade.
In choosing to have the exorbitant cost of the real estate crisis borne only by households, Beijing is being true to its traditional adage: “Rich state, poor people.”
The Chinese economy has stabilized since August — although the West is trying to ignore the fact — not as the result of any much-wished-for recovery of domestic consumption, but rather, as always, because of government support for exports and investment in infrastructures. This is underlined by the new-found increases in industry profits, the reversal in the volume of imports of raw materials, and the improvement in production costs.
In choosing to have the exorbitant cost of the real estate crisis borne only by households and not by the banks or the state, Beijing is being true to its traditional adage: “Rich state, poor people.” This strategy enables it to continue massively to prioritize the technological sectors that are deemed to be of the future — decarbonization, automation and biotechnology — with the declared intention of making the West — and especially Europe — even more dependent upon China. Today in electric batteries, wind turbines and photovoltaics; tomorrow in energy storage and carbon capture.
A part of Europe seems to be getting down to drawing conclusions from the 2022 break and is finally beginning to get a grasp of this new war economy.
Counterattack. One should also note that this display of a new firm stance from Europe has coincided with leading European companies showing off their financial clout — which was rather too quickly veiled over. The three leading German carmakers — Daimler, BMW and Volkswagen — announced their intention to devote an unprecedented and astronomical $400 billion over the next five years to the R&D and investment thought necessary to regain their world leadership in the industry’s high-end sector. A deflating announcement for the shareholders in the new Chinese arrivals on the market, like Nio and XPeng, whose low gross profit margins mean they are cash-strapped,
Given recent European history, we should be cautious when expressing any hope that Brussels will wake up to this. But now, Germany’s public avowal — particularly regarding China — that its business model has come to an end, reminds one of Agenda 2010, formulated by Gerhard Schröder in 2000 and which established the country’s regional leadership within a decade. It seems, therefore, that a part of Europe is finally getting down to drawing conclusions from the 2022 break that put an end to a thirty-year cycle. It is now Europe’s turn to begin to get a grasp of this new war economy — which China was prepared for, and which the United States has adapted — under the beneficial influence of Germany and its Eastern neighbors.
