Beijing needs to be prepared for European Union’s major industrial policy shift

By Zhang Monan Source:Global Times Published: 2019/10/9 21:33:40

Illustration: Luo Xuan/GT

EU industrial policy is undergoing a major shift. The bloc believes that it needs to strengthen government intervention to reinforce its dominance in industrial development, against the background of increasingly fierce market competition. After the shift, the EU's industrial policy will become a crucial weapon in the tech competition among major powers. This will have a major and far-reaching impact on the global industrial competition pattern, for which China must be prepared.

"Anti-globalization" sentiment has led to the rise of trade protectionism, restrictions on foreign investment and radical government intervention in the domestic economy. As one of the largest economies in the world, the EU has long seen its companies occupy important positions in the global market. But due to concerns about being marginalized in the international competitive landscape and the new industrial revolution, the EU has begun to shift to the state intervention model for its economy, with the view of coping with competition pressure from China and the US.

Following the release of the iconic National Industry Strategy 2030 by Germany in February, the European Commission in June officially issued a strategic agenda for the five years from 2019 to 2024. It listed industrial policy as a priority for the first time since the signing of the Franco-German Manifesto for a European industrial policy fit for the 21st Century. Then, the "Industry 2030 Roundtable" presented the European Commission with its final report on the future of EU industry by 2030.

Specifically, France and Germany will enhance their ties in the face of competition pressure from China and the US. Amid the escalating US-China trade war and shocks from the UK's Brexit, the enhanced relationship between Germany and France indicates far-sighted planning in lifting the status of the European industrial front-runners. The Franco-German Manifesto has further strengthened the common ground of the two European powers, and included measures like increasing innovation investment, re-examining the European regulatory framework, giving financial subsidies to key industries, reforming the EU anti-trust bill to promote the rise of monopolistic European companies, and improving technology protection for European industries. It is known as the "most ambitious" industrial policy in Europe.

This comes with consequences, namely, intensified global investment protectionism. Such relevant industrial policies could be incorporated easily into the EU foreign investment review legislative framework at any time. As a major potential "target," China will inevitably see the impact of such a policy change and thus it needs to handle it properly. The technology competition pressure from China and the US, and concerns over increased investment by Chinese companies in the EU's high-tech sectors and strategic industries in recent years, are the reasons behind the EU's incorporation of industrial policy into its investment-review framework. The core goal of this move is to hinder and curb direct investment from other countries in the EU's high-tech sectors and strategic industries. Thus, under the "high-tech plus strategic" orientation, the more generalized review rules, more diverse participants and more detailed procedural mechanism are designed to protect key technologies from being acquired by overseas companies. This will have a significant impact on global investors including Chinese companies in the region. It also means that the "fair competition" environment will further deteriorate.

Finally, while there are different opinions with regard to strengthening government intervention, it is indeed not a common thing for the EU to issue such intensive industry-promotion policies. If anything, this represents a new trend for the EU of supporting its industrial and high-tech development, which also indicates an important transformation of the government's role. In short, the boundaries between government and market will be redefined by this move.

The author is a research fellow at the China Center for International Economic Exchanges.


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