The ECB: “China’s industrial advancement brings few benefits and many challenges”

Brussels – Weighing up the costs and benefits,”Made in China” is a real headache for the eurozone, which is increasingly having to contend with industrial growth that makes China an almost existential problem. Indeed, because there are also positive spin-offs from the People’s Republic’s rise. EU countries using the single currency find themselves having to welcome Chinese industrial imports to some extent, despite their generally unfavourable impact. The European Central Bank, through a targeted analysis, is attempting to take stock of a phenomenon—Chinese exports—that is becoming increasingly real and already a cause for concern.

Essentially, as the ECB’s economists point out, China’s industrial expansion “is a key external factor that influences trade, production, and prices in the euro area.” The Chinese manufacturing sector is certainly seeing lower selling prices, “increasing competitive pressures on euro area producers.” It is no coincidence, the Eurotower further notes, that “euro area producers are losing market share where they face competition from China, particularly since 2020.”

https://www.eunews.it/en/2024/10/28/ecb-china-influence-eurozone-increases/ 

Furthermore, while in the early 2000s, eurozone countries mainly imported traditional products such as textiles and home furnishings from the People’s Republic, “recently” European demand has shown “stronger growth in advanced manufacturing sectors such as electronics and the automotive industry,” underscoring a loss of competitiveness in more innovative products.

“Made in China”: between deflationary pressures and challenges for the domestic market

Not all Chinese imports are the same. When imports mainly concern intermediate goods, the ECB study emphasises that they help reduce costs and support domestic production. When, however, they mainly concern final goods, European consumers can “easily” shift their consumption towards Chinese imports, which are relatively cheaper, and as a result, “EU producers face greater competition and a fall in demand for their products, which slows down EU sectoral production.” 

However, the availability of cheaper imported goods allows households to spend more, thereby increasing aggregate demand and benefiting the EU’s GDP. Not only that: cheaper Chinese goods “exert a disinflationary pressure in the EU through various channels depending on the sector.” So the eurozone also benefits from Chinese imports, but the European Central Bank’s analysis urges caution. 

Although the Asian giant’s recent industrial growth may have a positive overall impact on the EU economy in the short term, it has coincided with weak import demand in China and a loss of market share for EU exporters. Furthermore, “the positive effects on EU GDP reflect short-term channels, but do not take into account long-term risks, such as the potential negative effects arising from the relocation of production, or the structural risks and strategic vulnerabilities” that the EU already faces, as in the case of its ports controlled by Beijing, with all the consequences that this entails for security.