IVA's President: Some thoughts on the EU's Approach to China

Dear IVA Friends, 

China’s new Five-Year Plan was naturally the focus of this year’s China Development Forum (CDF), which took place last week in Beijing. And there is no hyperbole in observing that business leaders and representatives of international organizations were welcomed by a prime minister brimming with confidence. The European Union and its member states were conspicuously absent, as were US-based tech giants like Microsoft and Google. Tim Cook, Apple’s CEO, was there, but of course nearly 20 percent of all iPhones are manufactured in China.

What is Brussels’ view of the CDF? And what do we make of China’s new Five-Year Plan?

First, we must acknowledge that China knows what it is doing – the new Five-Year Plan is consistent with what has taken place over the past 20 years. In the early 2000s, I served as science and technology attaché for the Swedish government in Beijing, and even then I sensed something “in the air” when people spoke of indigenous innovation.

China takes a long-term approach. In 2015, Beijing launched the “Made in China” industrial strategy, a ten-year plan with the explicit goal of making China technologically self-sufficient and a world leader in several fields. It was a major milestone for China’s long-term and systematic industrialization of advanced technology. China has achieved a profound catch-up over the past 20 years like no other country before it.

While EU and US dependence on China for critical raw materials tripled between 2000 and 2022, China’s trade dependence on the EU and US  shrank by 75%. At the same time, China has become a world leader in a number of key technologies and research areas – particularly in battery technology and energy storage, but also in AI, materials science, and quantum technology. The pace of this development is as shocking as it is clear: China no longer needs us. At least not for technological development. However, we remain a key market for China’s goods and services due to its weak domestic demand and very troubling demographic trends.

At a seminar on China’s industrial and technological progress held at IVA a few weeks ago, Mikko Huotari, Executive Director of the Mercator Institute for China Studies (MERICS), explained how China has gone about building its enormous industrial capacity. According to Huotari, this success rests on five pillars. First, China has built an unparalleled logistical backbone. Second, it has invested broadly and deeply in a skills base – particularly in STEM. Third, state and regional support for industry is at a level the EU can never match – the Communist Party has set up a high-speed, coordinated system where industry, technological development, demand, and regulations act as a unified whole. And finally – in my opinion, the most interesting point – China has created what could be called regional “success laboratories” for selected technology sectors that compete fiercely with each other for resources (funding and expertise).

In brief: China has brought global competition to its knees. European companies are not competing against Chinese companies, but against the entire Chinese system, backed by the state, which operates with a nearly complete toolkit. Many Chinese technology companies have been operating at a loss for many years  – and are allowed to do so. Financial gain is not what drives them, but rather the pursuit of technological self-sufficiency and global dominance.

China knows what it’s doing –but it also knows what we’re doing.

“We probably could have simply asked China,” I thought, as we presented our analysis of Sweden’s strengths and weaknesses in 48 strategic technology areas last fall. This knowledge already exists. Perhaps not here, but definitely in China. China monitors technological developments in Europe and other countries, and, according to the Swedish Security Service’s annual reports, China engages in systematic and extensive industrial espionage against European countries.

Swedish universities are, to some extent, more exposed and vulnerable to China than universities in other European countries. The principle of public access to information and of granting researchers rights to their own discoveries are important and established components of the Swedish academic system. But they can also make Swedish research easier to access and more vulnerable to external forces – such as China.

Industrial espionage targeting Swedish companies particularly affects advanced manufacturing, the energy sector, digital technology, life sciences, and the materials and chemicals sectors – areas where China, due to its own technological and scientific maturity, can rapidly translate knowledge into global competitiveness.

There is room for a more holistic (and self-serving) approach to safeguarding Swedish interests and technology in a world where the rules of the game are entirely new.

How does the EU interpret China’s Five-Year Plan? What is our plan? It is no exaggeration to say that we are at a critical juncture. What I see when I look across Europe is an unfavorable mix of resignation, paranoia, and naiveté, but above all the lack of a common, long-term, and effective approach to confronting competition from China.

The EU cannot and should not copy China’s model. Europe has many strategic advantages, but we must get better at translating our scientific strengths into industrial and technological power. And we must improve our ability to act in a more unified, strategic, and rapid manner. As some industry leaders put it, the US government’s current policies are creating costly volatility and uncertainty, but this is something global companies are accustomed to and capable of handling. It is China that poses the critical challenge for Swedish and European industry.

Thank you for being part of the IVA network.

Some thoughts from IVA´s President are published in Swedish in IVA's newsletter, and in English on IVA's LinkedIn.