Identification and reassessment of the economic interdependence of Europe and the PRC
Tashkent, Uzbekistan (UzDaily.com) -- The Berlin Mercator Institute for the Study of China (MERICS) has published a report that analyzes the economic interdependence of China and the EU.
The Berlin Mercator Institute for the Study of China (MERICS) was founded in 2013 and is the leading think tank in the EU for the study of China. The center’s activities are aimed at researching political, economic and social trends in China, their impact on the EU and the world in general.
Over the past two decades, China’s rapid growth and its central role as an engine of globalization have led to an expansion of economic ties with the EU. The PRC has become a major trading partner and a key market for the EU countries. However, due to growing political divisions and economic competition, some areas of their economic interdependence are becoming a serious problem for both sides. In addition, supply chain disruptions during the COVID-19 pandemic have further exacerbated EU fears of over-reliance on China.
Analysis of the report allows us to highlight the following main points:
1) The EU needs a clear assessment of its economic relations with China. There is a growing understanding in the EU that deeper integration and potential vulnerability are associated with political risks, therefore, a clearer assessment of its economic significance, vulnerability and strengths is needed in order to adequately balance various areas of cooperation and competition with the PRC.
2) China is a key market for the EU, but economic dependence remains limited. The PRC is the EU’s second largest trading partner after the United States. In the period from 2000 to 2019, the volume of bilateral trade increased almost 8 times and reached 560 billion euros. At the same time, the growing demand for European goods has made China an important export destination.
However, the presence of Chinese companies and Chinese investments in Europe is still relatively small. The total volume of investments from the PRC remains at the level of 5% of the total volume of investments in the EU. China accounted for an average of only 2.4% of total EU exports in 2019. Even for countries with a relatively high share of imports from China, it does not exceed 10%. This share is highest in Germany (7.2%), as well as in Great Britain (the authors of the report take it into account together with the EU countries), Ireland, Finland, Denmark and Sweden (from 5% to 7%).
3) For some categories of goods, the European Union is quite dependent on Chinese exports. It is estimated that out of 5.6 thousand categories of goods in general, there are 659 categories in which the EU is "strategically dependent" on supplies from China. The authors of the report call "strategic dependence" a situation in which the EU countries export more than 50% of any product from China and it accounts for more than 30% of the world market for this product as a whole. The report says that a significant part of these categories are consumer electronics and consumer goods, so if a shortage occurs for any reason, this could affect the retail sector, but it will still not be critical for the EU.
Critical dependence is "when restricting access to this category of goods can undermine the country’s economy or otherwise make it vulnerable." This dependence was recorded for 103 categories in sectors such as electronics, metals and minerals, chemicals, medical products and drugs.
3) Economic dependence is bilateral. China has a lot to lose due to deteriorating relations with the EU, which is one of the largest foreign investors and job creators in the country, as well as an important market and source of know-how. The EU accounts for 20% of China’s exports.
In addition, strategic dependence on imports in some parts of the supply chain is also reciprocal. European equipment, specialized tools, materials and components are critical to China’s manufacturing strength, not only in low-tech, but also high-tech.
4) Strategy of economic coercion of China. China’s willingness and growing capacity for economic coercion is a fact, but so far it has mostly taken the form of a threat rather than concrete action. The PRC’s policy is selective and pragmatic, given its own economic vulnerability.
In general, the authors of the report emphasize that the European authorities need to clearly assess the EU’s dependence on China in some categories of goods and the associated vulnerability in the event of a deterioration in relations. At the same time, "EU policy towards China should not be limited to an exaggerated sense of economic vulnerability and should be based on mutual strengths."