Home advantage: How China’s protected market threatens Europe’s economic power

-China’s vast yet protected home market has allowed some of its firms to acquire a scale that provides them with significant advantages when they compete in other markets.

-These firms are able to undercut European companies both in the EU and around the world, including in sectors key to Europe’s future economy and security, from energy to telecommunications.

-The EU urgently needs to incorporate the concept and reality of this ‘protected home market advantage’ into its thinking on China.

-Europe can defend its own industries by adopting an integrated policy approach, working with like-minded partners around the world, and even prising open closed parts of China’s domestic market.

-The EU should also look to enhance its single market – both as a defensive measure and a way to improve its strategic sovereignty.

 
Introduction

At the tail end of 2020, the European Commission and the Chinese government announced the conclusion in principle of a Comprehensive Agreement on Investment (CAI). When sharing news of the deal, Brussels took pains to underline the commitments it had obtained from Beijing to open up more of China’s market and industries to European firms. Sectors due to open up included healthcare, ‘new energy vehicles’, and financial and cloud computing services. For years, European businesses had been complaining about China’s protection of a range of sectors that are partially or fully closed to foreign competition. Their complaint was that a lack of reciprocal openness in trade and investment relations has meant that European companies have missed out on opportunities in the huge and fast-growing Chinese market. Firms had pinned their hopes on an ambitious investment agreement to open the Chinese market further.

These concerns are valid – but they miss part of the picture. A protected Chinese home market has important consequences beyond revenues foregone. It is also an opportunity for Chinese firms to leverage the vast size of China’s market to build scale, amass profit, and improve productivity, technical capabilities, and product design and quality – all with limited or no pressure from foreign competition. This then enables some of these firms to enter foreign markets on a strong financial footing and to sell tried-and-tested, more tailored products at highly competitive or below-market prices. And it facilitates further international expansion and pursuit of global market share, at the expense of European firms.

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Πηγή: ecfr.eu