What’s needed is a framework that can set rules and enforce them. — Bloomberg
LAST month, Louis Gallois, French industry veteran and former boss of plane maker Airbus SE, cast a gloomy eye over the European Union’s (EU) trade war fortunes.
The bloc was too slow to make decisions, too held back by red tape and too far behind China in technology.
“We are the emerging market,” he told BFM TV.
“They are 10 years ahead.”
The answer, according to Gallois: Let a thousand joint ventures bloom on European soil to learn from Chinese firms, rather than just a great wall of tariffs to hold cheap goods back.
This might seem naive given the rough state of Sino-Western relations, as China’s export tide frustrates governments and Brussels mulls a ban on hardware made by Huawei Technologies Co.
But if anyone knows the dangers of doing business with China, it’s Gallois.
Airbus inaugurated an assembly line there in Tianjin in 2008, back when coerced joint ventures and technology transfer were seen as a manageable cost of doing business.
Aviation remains a Western duopoly, but China is advancing.
Meanwhile, in the automotive sector, Europe is being hammered, with 100,000 jobs lost last year and attempts to create battery startups, such as Northvolt AB, failing.
Harsh as it is to dub Europe an emerging market – even the United States would struggle to replicate Dutch tech firm ASML NV’s lithography machines – it has a grain of truth.
Former European Central Bank president Mario Draghi last year warned the region was an innovation laggard stuck in a middle-technology trap.
With artificial intelligence the latest race looking like a two-horse affair, German chancellor Friedrich Merz is right to worry Europe may become a “pawn” of the United States and China.
With Spain’s King Felipe visiting China this week as part of a broader push by Madrid for inward investment, Gallois isn’t the only one pushing a “can’t beat ‘em, join ‘em” strategy.
Spain is said to be in the running for a BYD Co factory, just as the Chinese EV firm builds a lead over Elon Musk’s Tesla Inc in the United Kingdom and draws level with it in Germany.
China’s Chery has also repurposed a former Nissan plant in Barcelona in a joint venture with local automaker Ebro EV Motors SA.
Miguel Otero of the Elcano Royal Institute in Madrid says the attractions are technology transfer and improved productivity.
Spain’s power grid is still seen as a match for new EV projects, despite this year’s embarrassing blackout.
But the so called “reverse Deng Xiaoping” strategy is risky, even as it promises a step change in hitting climate targets and creating industrial jobs.
The past decade of investment in Europe has benefited technology transfer to China, not the other way around, such as Volvo AB’s purchase by Zhejiang Geely Holding.
Given China’s grip on raw materials critical for the energy transition, it could exacerbate rather than reverse dependence on Beijing, as seen in the Dutch-Chinese clash over chipmaker Nexperia Holding BV.
Without serious oversight, low-value knowledge sharing could keep Europe stuck in its tech trap.
Hungary, for example, is Europe’s top destination for Chinese EV investment, but isn’t rising in an innovation index compiled by the World Intellectual Property Organisation, and is ranked 22nd out of 27 by the EU on a scoreboard tracking metrics including research and development.
There’s also retaliation risk. Becoming more of a pawn to China by embracing more deals will likely stoke the ire of the Trump administration.
Nor will it guarantee favourable treatment from Beijing. We are in a “new normal” of a China willing to play hardball with a dependent EU, says Andrew Small of the German Marshall Fund.
Can these risks be managed? It will be tough but it’s worth trying.
Technology transfer sounds charitable, but it requires real leverage.
The former boss of Silicon Valley Bank has said China’s attitude to Western companies is unscrupulously “win-win” – Western companies lose twice, boosting the local economy and transferring intellectual property.
Gallois has said Europe could imitate what China has done to others – before BYD in Spain, there was Apple Inc in China – by demanding technology transfer and becoming indispensable by locking the supply chain, but it’s easier said than done.
What’s needed is a framework that can set rules and enforce them, most likely at the European Commission level, which is looking at imposing “forced” technology transfer.
That will require proving Brussels has the willpower to use the tools at its disposal, from foreign subsidies regulation to an anti-coercion instrument known colloquially as the “bazooka.”
Gallois is right to suggest that the EU’s most powerful tool is access to its single market, even if it hasn’t wielded it successfully yet.
At the same time, the overarching mission should be to create a Europe able to stand on its own with “Buy European” incentives for consumers and a stronger industrial base.
That may be a long shot; but the alternative is too painful to contemplate. — Bloomberg
Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. The views expressed here are the writer’s own.
