China and EU can unleash Industry 4.0

By Vasilis Trigkas Source:Global Times Published: 2015-6-1 20:18:02

May 2015 had been a month of high-level interaction between China and the EU. EU's high representative Federica Mogherini visited Beijing early last month and Donald Tusk, president of the European Council, wrote a letter to Chinese President Xi Jinping expressing his confidence that the 17th EU-China summit in Brussels later this year will take the EU-China comprehensive partnership to a new level.

As China and the EU are celebrating the 40th anniversary of establishing diplomatic relations in 2015, their forthcoming high summit in Brussels becomes even more symbolic for the future of the two economic and civilizational behemoths of the Eurasian landmass.

China's and the EU's development in the last 40 years has reshaped the world. China transitioned from a traditional society with a GDP less than that of Spain to being the second largest economy in the world, with 800 million people escaping poverty and contributing to a multipolar order.

The EU expanded from only eight members in the late 1970s to 28 today, solidifying the post-Soviet democratic transition of Eastern Europe, and before the 2008 global financial crisis the EU's economy was steadily growing.

Past success, however, does not ensure an equally auspicious future.

Today both China and the EU are at critical economic inflection points, each for different reasons.

Chinese economic vibrancy may be caught in the middle-income trap that has historically been a major barrier to developing countries, as cheap labor runs out and State mega-investments provide suboptimal allocation of resources. GDP growth of 6 percent or lower may be "the new normal" in the Chinese economy, but low returns on investments can lock China into long-term economic underperformance.

The EU has faced several years of economic stagnation since 2008, unable to resolve the eurozone's structural inefficiencies and most significantly unable to achieve the 2020 innovation agenda.

While the US has expanded its technological frontiers, the EU has failed to follow and is now lagging behind in major R&D sectors and its ICT industry is in its infancy.

Surprisingly, the current economic status of China and the EU offers a window for strategic complementarity. While China enjoys an advantage in ICT with companies like Huawei, Alibaba, Baidu and Tencent, the EU enjoys an advantage in advanced manufacturing with conglomerates like Siemens and SAP.

The merger between ICT and manufacturing what experts call "Industry 4.0" will shape the fourth industrial revolution and define the economic success of nations. As MERICS, a Berlin-based think tank puts it, "the rise and fall of enterprises and entire national economies will hinge on making 'intelligent factories' a reality."

To be sure, China has paid a lot of attention to the "Internet of things" and has already engaged with Germany in an effort to support China's transition to smart manufacturing and facilitate the integration of industrialization and informatization - the 3i's (Identity, Integration and the Internet of Things).

At the same time, Europe is aiming to recover lost space in ICT and achieve a "digital" primus inter pares status alongside the US and China. In May, European Commission President Jean-Claude Juncker declared himself a committed "techie" in a massive European public campaign promoting digitization while Gunther Oettinger, the EU commissioner for digital economy, presented the EU's ambitious agenda for the digital future.

The EU's need to spearhead a digital transformation of its economy and China's need to not miss the great promise of Industry 4.0 offer a window for strategic complementarity in China-EU relations.

Chinese ICT companies can participate in the EU's digital expansion and most importantly offer knowhow on Big Data where Europe has significant untapped potential.

As Ying Lowrey, a Tsinghua economist, has put it, big data will be at the core of future industries and societies and Alibaba, a Chinese company, is perhaps the world's leader in integrating Big Data & business.

In the coming EU-China summit, Europeans and Chinese can shape the future together. While technical issues like market access, the market economy status and the Asian Infrastructure Investment Bank will probably be included in the agenda; the key to future China-EU engagement should be Industry 4.0 and ICT Sino-EU complementarity. Questions of data security and Internet governance should be cordially addressed, paving the way for Tusk's commitment to "take the EU-China comprehensive partnership to a new level. "

The author is a visiting research fellow at the Research Center for China-EU Relations at Tsinghua University. He is also a non-resident WSD-Handa Fellow at Pacific Forum CSIS.

Posted in: Viewpoint

blog comments powered by Disqus