In 1978, as Deng Xiaoping prepared to launch the policy of reform and opening up, a high-powered delegation went on a whirlwind 36-day mission to western Europe, covering 25 cities in five countries and touring dozens of factories, mines, ports, farms, universities and research institutes. China was at least 20 years behind Europe in science, technology and industry – and modernization in general. Today, China has freed itself in many areas from its dependence on Western technology, moving up in the global value chain to become an innovation powerhouse. As China and the EU mark 50 years of diplomatic ties, Europe is on the defensive, wondering how it can catch up. Observers say the competition in technology is only set to grow, but it does not have to be zero-sum. Some European players are aiming to stay in the game by taking a tactic from the Chinese technology transfer playbook. For decades, the deal was simple: China traded market access to European firms for Western technology.
At first, the technology flowed largely one way. Then, according to Ding Chun, Director of the Center for European Studies at Fudan University in Shanghai, it started flowing in the other direction. “Europe used to be the teacher and China the student,” Ding said. “But now, in many areas, the student has outpaced the teacher, and that shift has created both anxiety and fear on the European side – which is understandable.” The tables began turning around 2001, when China joined the World Trade Organization (WTO), speeding up the country’s opening to foreign investment and forcing Chinese companies to keep up. Tim Rühlig, Senior Analyst at the European Union Institute for Security Studies, said European firms appeared to underestimate the ability of their Chinese counterparts to innovate. “For too long, they believed that China would only catch up by mimicking Western technology. Today, nobody doubts China’s innovativeness,” he said. “China and Europe are now less complementary and rather compete over similar market segments. This is one of several reasons why EU-China relations are more complicated now.”
Nevertheless, Europe still held a lead in many fields and there was much for China to learn, Ding said. EU firms have retained an edge in advanced manufacturing, mechanical engineering, aerospace, robotics, precision instruments, industrial software, advanced semiconductor machinery, pharmaceuticals, nuclear technology, and foundational sciences. Those firms are even more important to China as sources of technology as the United States restricts access to its own developments, according to Ding. Yet Europe’s pace of innovation has slowed, falling behind the rapid advances of both China and the U.S. “China has advanced rapidly by learning, digesting, and innovating, while Europe’s first-mover advantages in traditional industries have turned into relative disadvantages,” he said. Ding said Europe had focused too much on its traditional industries like cars, machinery, chemicals, and electronics, and had not paid enough attention to frontier technologies such as artificial intelligence and information technology. China, meanwhile, was forging on in areas like AI, the digital economy, telecommunications, renewable energy, photovoltaics, lithium batteries, electric vehicles (EVs), drones, quantum computing and supercomputers.
In the EU, there was a feeling that Europe had missed the boat and been left behind, said Javier Borràs Arumí, a researcher at the Barcelona Center for International Affairs, a Spanish think tank. “The prevailing mood is one of pessimism and stagnation,” he said. But Alicia Garcia-Herrero, Chief Economist for the Asia-Pacific region at Natixis, said the big issue for the EU was its reliance on China’s highly developed industrial capacity – rather than the technology itself. “It is the technology embedded in the industrial products, in the industrial capacity, that makes China kind of impossible to avoid. Everything you buy has a Chinese component in it,” she said.
The EU claims that China has gained some of this industrial might – and an unfair competitive advantage – by bending international trade rules. This includes using state subsidies in sectors such as EVs and solar panels, resulting in excess capacity that is exported to other countries at below cost – claims China has repeatedly rejected. It has reached the point where the EU mainly views Chinese technology with fear – fear for its economy, security and values, according to Borràs.
“The EU’s attitude towards Chinese technology is now mostly defensive; it is mainly something we need to protect ourselves from,” he said. “This is also strongly influenced by U.S. pressure to ban certain Chinese technologies.” Analysts said part of the problem was that European firms and policymakers were too slow to realize that China had become an innovative industrial powerhouse and to address the challenges it raised. While Europe dragged its feet, China closed the gap, the South China Morning Post reports.
