Europe’s Last Chance: Why Partnering with China Is the Only Way Out
The choice is clear. Brussels can craft a policy regime that can entice Chinese capital to rebuild Europe, or watch the global economic future be built entirely without it.
By Warwick Powell
For the past several years, a convenient but intellectually lazy narrative has gripped the corridors of power in Brussels, Paris and Berlin. The story goes like this: Europe’s proud automotive and industrial sectors are under siege from an existential “China Shock,” a tsunami of heavily subsidised, state-backed Chinese electric vehicles and clean-tech infrastructure threatening to bankrupt Western companies. The prescribed cure is a defensive wall of countervailing duties, regulatory red tape and aggressive protectionism designed to safeguard European manufacturing.
This narrative is not just erroneous. Worse still, it is a dangerous misdiagnosis. Europe is not suffering from an external trade shock; it is reeling from a self-inflicted economic sickness. What Brussels labels unfair Chinese competition is actually the predictable endgame of de-industrialisation by financial design. For four decades, European financial capital systematically sacrificed its own industrial base on the altar of short-term shareholder returns, stock buybacks, and dividend payouts. Now that native Chinese private firms have out-innovated and out-scaled Western legacy brands, European elites are running to the state for protection.
Protectionism will not save Europe; it will transform the continent into an industrial museum. Conversely, the prevailing counter-argument — that Europe should “force” Chinese companies into mandatory joint ventures and coercive technology transfer — is a delusion of grandeur. Given the catastrophic costs of a trade war, Brussels lacks the leverage to dictate terms. Europe cannot coerce Chinese capital; it must aggressively lure it. The path to a competitive future lies in revitalising the dormant Comprehensive Agreement on Investment (CAI) and transforming Europe into the world’s most attractive destination for the recycling of Chinese trade surpluses into fixed capital formation.
The Two Eras: From Student to Master
To understand why Europe’s leverage has evaporated, one must trace the 41-year history of Western automotive and manufacturing engagement with China. The saga began in October 1984, when Volkswagen signed its historic joint-venture contract to form Shanghai Volkswagen. At the time, global industry was deeply sceptical. China was poor, lacked infrastructure, and possessed no private car market.
For the first thirty years of this relationship, the dynamic was strictly colonial. Under China’s mandatory 50/50 joint-venture rules, European legacy brands extracted billions in profits from the booming Chinese domestic market. Western executives operated under the comfortable assumption that they would permanently monopolise high-margin intellectual property — design, engineering, and brand prestige — while China would remain the low-cost assembly line. This arrangement was widely celebrated in Western capitals as a win-win globalisation story. Western governments rarely complained about Chinese state subsidies during this era because their own multinational corporations were the primary beneficiaries.
However, around 2015, the structural reality fundamentally inverted. Realising they could never surpass Europe in the engineering of complex internal combustion engines (ICE), Chinese planners launched the Made in China 2025 blueprint, shifting their entire industrial apparatus toward New Energy Vehicles (NEVs) — the battery electrics, plug-in hybrids, and clean energy supply chains that define modern transport.
This marked the transition from a foreign-dominated export model to a native-led domestic juggernaut. Prior to 2015, Foreign Invested Enterprises (FIEs) — international corporations operating joint ventures or wholly owned subsidiaries in China — accounted for nearly 60% of all Chinese manufacturing export value. By 2026, that dynamic has completely reversed. Today, Chinese Privately Owned Enterprises (POEs) generate roughly 65% of China’s export value, while the foreign share has collapsed to just 22%.
The shift is most starkly visible in Europe’s plug-in hybrid (PHEV) market. Native Chinese brands like BYD, Chery, and SAIC now dominate the influx of vehicles landing on European docks, strategically navigating the tariff landscape to capture over a third of European PHEV sales. The Chinese “students” have fully absorbed Western manufacturing know-how, paired it with a global monopoly on battery chemistry, and are exporting advanced vehicles back to the very European home markets that taught them how to build cars in the first place.
Euro industry decline: Financialisation, not Chinese subsidies
The West’s sudden moral outrage over Chinese state subsidies conveniently obscures the real culprit behind Europe’s industrial decline: the financialisation of European industrial capital. While Chinese firms were relentlessly reinvesting every cent of cash flow — bolstered by state-directed bank credit — into vertical integration, lithium mines, and automated manufacturing lines, European industrial giants were being hollowed out by financial rentiers demanding short-term yield.
To trace the deeper pathology of this decline, one must revisit the foundational microeconomic critique laid out by Karel Williams and his co-authors in their seminal work, Cars: Analysis of History and Prospects (1994). Examining the post-war decline of British and European motor vehicle manufacturing against the meteoric rise of Japanese mass production, Williams et al. demonstrated that industrial competitiveness is won or lost on three structural fronts: process design, market volume, and market fitness.
When updating the Williams thesis for the post-2010 era, the parallels between Europe’s historical failures against Japan and its current collapse before China are striking.
Firstly, we can contrast flawed process design in Europe with the trajectory towards vertical integration in the Chinese sector. Williams et al. identified a chronic failure in Western shop-floor logistics and product designs, which prevented factories from achieving high capacity utilisation and flexible, lean workflows.
In the post-2010 era, European legacy OEMs doubled down on this exact vulnerability by outsourcing their most critical components to a fragile network of global suppliers to boost short-term Return on Capital Employed (ROCE). Chinese POEs did the exact opposite. While European executives spent the last decade orchestrating multi-billion-euro stock buybacks, companies like BYD pioneered radical vertical integration.
By engineering vehicles specifically designed for high-capacity automated process flows and manufacturing their own batteries, power electronics and microchips in-house, Chinese firms bypassed the costly component markups and structural inefficiencies that clog European assembly lines.
Williams et al. argue that Western manufacturers historically mismanaged process design by separating product design from the physical constraints of shop-floor logistics. This created systemic capacity underutilisation and high structural breakeven points. When applied to the post-2010 European layout, this structural failure was exacerbated by extreme tier-1 outsourcing. European legacy Original Equipment Manufacturers (OEMs) fragmented their supply chains to optimize short-term Return on Capital Employed (ROCE).
By contrast, modern Chinese Privately Owned Enterprises (POEs), like BYD, resolved this historical “process design” bottleneck through total vertical integration and in-house component fabrication.
Secondly, consider the realities of diminished domestic markets in Europe via Post-2008 austerity. The Williams thesis stresses that high-capacity manufacturing requires robust, expanding domestic volumes to absorb fixed overheads. Following the 2008 financial crisis, Europe abandoned its industrial base by imposing tight fiscal policy and severe, prolonged austerity.
While Beijing was deploying aggressive macroeconomic stimulus and state-directed credit to build a massive domestic market for electric vehicles, European wages stagnated, public infrastructure decayed, and domestic consumer demand was crushed. European automakers were left dependent on luxury exports to China to fund their bloated corporate structures, completely neglecting the health of their home market.
Williams et al emphasise that automated, high-fixed-cost manufacturing environments require robust, consistently expanding domestic market volumes to spread overhead costs. Without this baseline demand, factories cannot maintain high capacity utilisation rates, leading to rapid margin collapse. The post-2008 European macroeconomic architecture — defined by tight fiscal policy, wage stagnation and structural austerity — directly violated this microeconomic imperative.
While China deployed state-directed bank credit to aggressively build a domestic mass market for New Energy Vehicles (NEVs), European policymakers suppressed local purchasing power. This policy forced domestic OEMs to rely on high-margin luxury exports to external markets (primarily China) while starving the foundational domestic market needed to sustain mass production.
Thirdly, it is impossible to miss increasing European ineptitude when it comes to market fitness and brand trust. The final pillar of the Williams critique is market fitness — the discipline of building the right cars at the right price for ordinary consumers. Post-2010 European automotive capital entirely lost this discipline. Trapped in a premium-margin bias enforced by financial rentiers, European brands abandoned affordable mass-market segments to focus on heavy, overpriced, high-margin SUVs. This structural detachment from the average consumer was compounded by a catastrophic failure of corporate ethics.
The 2015 Volkswagen “Dieselgate” emissions-cheating scandal did not merely tarnish the reputation of a single German national champion; it destroyed the entire technological narrative of European engineering supremacy. Decades of built-up brand equity vanished overnight, leaving the European auto sector morally and technologically bankrupt just as native Chinese private brands entered the global stage with affordable, highly advanced mass-market options.
Williams et al., define “market fitness” as the strict manufacturing discipline required to deliver the right car at the right price to ordinary consumers. They argue that Western automakers frequently fall victim to a “premium bias,” chasing elite, low-volume margins while abandoning the mass-market segments that sustain true industrial ecosystems. Post-2010 European automotive capital perfectly demonstrated this flaw.
Trapped by the short-term yield demands of financialised rentiers, European brands abandoned affordable hatchbacks and small sedans in favor of heavy, overpriced SUVs. This failure of market fitness left a massive product vacuum.
Native Chinese brands like Chery and BYD quickly filled this gap by entering the European market with affordable, technologically advanced mass-market options.
Put simply, post-2008 European austerity crushed mass market demand, which when coupled with rentier margin bias, led to an emphasis on over-priced luxury SUVs. Brand trust and technological leadership narratives were destroyed via scandals like the VW Dieselgate incident.
To ground the microeconomic analysis of the Williams thesis — and demonstrate how process design, scale, and macroeconomic policy shape factory efficiency — the data table below tracks automotive manufacturing capacity utilisation figures across Europe and China since 2015. In the automotive industry, 75% to 80% utilisation is considered the structural break-even point. Running below this threshold means fixed overheads (depreciation of machinery, factory footprints, tooling costs) cannot be efficiently allocated, causing margins to collapse.
To ground the microeconomic analysis of the Williams thesis, this data matrix contrasts automotive manufacturing capacity utilisation figures across Europe and China. In automotive manufacturing, 75% to 80% utilisation represents the absolute structural break-even point required to efficiently spread fixed capital costs (machinery depreciation, tooling, and plant overheads).
Table 1: Aggregate Automotive Capacity Utilisation Rates (2015–2026)
(Historical synthesised data compiled from CAAM, Eurostat, ACEA, Gasgoo Research, and industry monitoring group reports).
Table 2: Absolute Volumetric Trajectory (Nominal Capacity vs. Actual Output)
(Historical synthesised data compiled from CAAM, Eurostat, ACEA, Gasgoo Research, and industry monitoring group reports).
A decade ago, European legacy plants ran hot via strong premium exports. China expands domestic ICE plants to meet booming middle-class demand. By 2017, we began to see the emergence of diverging strategies. Europe hits its cyclical production peak while China experiences an explosive surge of new EV entrants, temporarily diluting national utilisation averages. As we neared the end of the decade, Europe faced stagnant domestic demand due to post-2008 austerity dynamics and structural premium bias. Meanwhile, China implements aggressive consolidation to weed out zombie auto plants. By 2021, a European supply chain crisis begins to become apparent. European outsourcing strategies backfire during semiconductor shortages, idling assembly lines. At the same time, Chinese vertically integrated POEs (like BYD) maintain output by securing in-house microchips. As the world emerged from the pandemic in 2023 a structural split manifests. European production fails to recover to pre-pandemic levels due to uncompetitive energy costs, while China’s native NEV players achieve hyper-scale, offsetting legacy foreign joint-venture declines. An inversion consolidates by 2025 as Europe slides into structural crisis, recording multiple factory closures. China, on the other hand, stabilises automotive utilisation through massive export volumes and the decommissioning of obsolete ICE capacity. By mid-2026, a new reality settles in. More than 45% of European automotive capacity sits idle. Chinese native private champions operate their automated EV assembly lines near optimal capacity, while foreign joint ventures in China bear the brunt of local underutilisation.
As Williams et al. posited, when a factory’s layout and supply chains prevent it from maintaining high capacity utilisation, it cannot spread its fixed capital costs. By dropping below 55% utilisation by 2025/2026, European factories are actively losing money on every vehicle produced. European OEMs attempted to resolve this by focusing on higher-margin, premium SUVs, which further shrank their addressable mass market and trapped them in a low-volume, high-cost death spiral.
While Western politicians point to China’s aggregate capacity numbers to allege “dumping,” a look at the internal microeconomics reveals a dual-track system:
● The Legacy Shards: The idle capacity in China belongs to outdated, foreign-legacy joint ventures (like VW-SAIC or state-owned ICE operations) that failed to adapt to electrification and are running at an unsustainable 40% to 50% utilisation.
● The Private Champions: The native private firms driving the export boom (BYD, Chery, CATL) are running automated, vertically integrated factories well above the 80% threshold. They do not require state survival lifelines; their process design naturally yields extreme cost advantages that allow them to absorb tariffs easily.
The catastrophic collapse in European utilisation from 85% down to 53% over the decade is the mathematical manifestation of the energy and rentier crisis. High electricity costs, which are discussed below, prevent European component suppliers from staying solvent, forcing plant closures and idling assembly lines. Europe is not being out-subsidised; it is being structurally out-built by an industrial system running at optimal operational scale.
The data reveals a structural divergence that supports the Williams thesis while dismantling the Western “overcapacity” narrative. By dropping to 53.5% utilisation in 2026, Europe’s automotive industrial capital has entered an un-survivable cost penalty. Because European legacy OEMs fragmented their process designs across a complex, outsourced tier-1 and tier-2 supplier base, they cannot dynamically adjust to fluctuating demand.
Conversely, China’s data reveals a dual-track industrial system. The aggregate Chinese utilisation rate (~73%) is artificially dragged down by the collapse of foreign legacy joint ventures (e.g., SAIC-VW, Changan-Ford), which are running at an obsolete 35.5% utilisation rate due to consumer flight from internal combustion engines.
Meanwhile, native Chinese private champions (BYD, Chery) run their automated, vertically integrated New Energy Vehicle (NEV) lines near optimal capacity (87% in 2026). They do not require state-directed artificial lifelines; their superior process design — characterised by in-house battery cell development, unified software-defined architectures, and flexible shop-floor automation — allows them to continuously absorb fixed overheads and easily neutralize foreign tariff barriers.
Electricity: The Definitive Industrial Killer
To understand why Europe’s industrial base is collapsing under this weight, one must look at the math of the power grid. Industrial electricity costs in Europe have settled at a structural premium that is three to four times higher than baseline costs in China or the United States. In modern macroeconomic discourse, energy costs are often treated as a peripheral variable — a line-item expense that can be mitigated with efficiency gains. This is a profound misunderstanding of the physics of manufacturing. High electricity costs are the definitive, un-survivable killer of industrial competitiveness because they act as a compounding tax that hits every single node of the value chain.
Consider the compounding math of a modern electric vehicle or industrial machine tool. The process does not begin on an automated assembly line; it begins in the ultra-high-temperature arc furnaces required to smelt steel and forge structural aluminium. It moves to chemical processing facilities where raw polymers are cracked for interior plastics. It travels to the cleanrooms of semiconductor fabrication plants, which operate massive, uninterrupted heating, ventilation, and air conditioning (HVAC) architectures to keep air pure down to the micron.
The most extreme bottleneck, however, is battery cell manufacturing. The production of lithium-ion or LFP cells requires intensive electro-chemical processing. Slurry mixing, continuous roll-to-roll electrode coating, and, crucially, the prolonged “formation” process — where cells are repeatedly charged and discharged over days to stabilize their chemistry — consume astronomical volumes of steady-state, baseline electricity.
When a European manufacturer pays €150 per megawatt-hour while a Chinese competitor pays €45, that cost differential is not paid once. It is paid by the miner, the refiner, the smelter, the component supplier and the final assembler. By the time these sub-assemblies arrive at a European vehicle plant, the cost inflation has cascaded exponentially. Every segment of the supporting ecosystem is hollowed out because no domestic tier-1 or tier-2 supplier can absorb a 300% energy penalty and remain solvent.
How Europe Became a Geopolitical Hostage?
The ultimate tragedy is that Europe was on the cusp of insulating itself from this exact vulnerability. In December 2020, after seven years of grueling negotiations, the EU and China concluded the Comprehensive Agreement on Investment (CAI) in principle. The CAI was a masterpiece of pragmatic European strategic autonomy. It promised unprecedented market access for European companies in China, eliminated forced joint ventures in key sectors, and established a legal, stable pipeline to recycle China’s mounting trade surpluses directly back into European fixed capital formation. It was an economic framework designed to allow Europe to anchor Chinese capital on terms that it could accept.
Yet, precisely as the agreement moved toward the European Parliament for final approval, a coordinated geopolitical hijack was launched. A sudden, highly moralistic “human rights” agenda was aggressively injected into the technocratic discourse. Seemingly overnight, the economic and industrial merits of the deal were sidelined by Brussels elites who prioritised abstract, performative geopolitics over concrete industrial survival. This ideological capture left Western Europe uniquely vulnerable to the strategic shockwaves of 2022. Exploiting Western Europe’s historical, deeply ingrained Russophobia proved remarkably easy for Washington. By manipulating these ancient existential anxieties, the United States successfully guided Europe into a policy of total economic severing from Russia. The immediate casualty was not Moscow, but the foundational pillar of German industrial power: cheap, abundant, piped natural gas.
By blowing up its energy relationship with the East and freezing its investment framework with China, European industry was effectively taken hostage by Washington’s geopolitical architecture. Europe willingly traded cheap, stable Russian pipeline gas for American Liquefied Natural Gas (LNG) — which arrives on European shores at a massive infrastructure premium — while simultaneously aligning with a U.S. trade war against Beijing that directly cuts Europe off from the low-cost solar, wind, and battery components needed to offset its energy crisis. European industry is now trapped in a vice: forced to buy overpriced American energy on one side, while being pushed to construct an unviable, high-cost protectionist wall against Chinese innovation on the other.
The Outliers: How Hungary, Spain, and Turkey are Rewriting the Rules
The failure of Brussels’ coercive, confrontational approach is thrown into sharp relief by the actions of pragmatists on Europe’s geographic margins. Because Europe cannot force Chinese capital, the regions that are thriving are those that have mastered the art of the industrial lure.
Hungary’s Gravitational Pull
Under the explicitly realist leadership of Budapest, Hungary has turned itself into the premier European launchpad for Chinese capital recycling. BYD’s decision to construct its first major European passenger vehicle factory in Szeged was not the result of EU mandates; it was the natural outcome of an irresistible environment. Budapest offered streamlined regulatory permitting, direct state co-investment infrastructure, and a guarantee of stable, non-ideological political relations. By luring BYD, Hungary did not just secure assembly jobs; it locked in a multi-billion-euro injection of fixed capital that will compel Chinese tier-1 battery and component suppliers to build out a localized ecosystem inside the EU’s tariff customs border, directly benefiting the local economy.
Spain and the Economics of Reuse
In Catalonia, the approach was structural recycling. When Nissan abandoned its historic manufacturing plant in Barcelona, it left behind a hollowed-out labor pool and a vacant industrial asset. Rather than succumbing to de-industrialisation, Spanish planners paired with Chery Automobile. By forming a joint venture with local firm Ebro EV Motors, Chery is refurbishing the old Nissan plant to manufacture its Omoda and Jaecoo lineages. Spain didn’t use tariffs to keep Chery out; it used a pre-existing, underutilised industrial asset as a lure. The result is the resurrection of an automotive ecosystem, the re-employment of highly skilled unionized labor, and the organic absorption of Chinese high-speed production protocols into the Mediterranean basin.
The Turkish Dilemma and the Limits of Coercion
The most instructive case study, however, is the contrasting dynamic between CATL and BYD in Turkiye — a nation that sits inside the EU Customs Union but operates outside Brussels’ political jurisdiction. Contemporary Amperex Technology Co. Limited (CATL) successfully advanced partnerships in Turkiye because Ankara focused on industrial integration, offering a battery supply bridge to both European and Middle Eastern markets.
Conversely, BYD recently balked and slowed its highly anticipated Turkish factory initiatives. Why? Because Ankara attempted to pivot toward a more coercive posture, imposing sudden, aggressive 40% additional tariffs on all Chinese vehicle imports in an attempt to force localised investment. BYD’s sudden hesitation sent a shockwave through regional trade ministries. It proved definitively that Chinese private giants are no longer desperate suitors. If a state attempts to use the stick of market denial rather than the carrot of structural alignment, Chinese capital will simply walk away. Turkiye’s friction is a live-preview of what Brussels will face if it continues down a path of hostile coercion.
Europe’s Reindustrialization: What’s Missing?
The only viable path to a European industrial renaissance is to swap a defensive tariff wall for an irresistible gravitational pull. Europe must stop viewing Chinese capital as a threat to be managed and start treating it as the primary funding engine for its own re-industrialisation.
To achieve this, Brussels must immediately revitalise the dormant Comprehensive Agreement on Investment (CAI). The CAI must be repurposed not as a stick to beat Beijing, but as a golden carrot. The CAI provides the ideal legal, predictable, and institutional framework to offer Chinese private enterprises what they crave most as they expand globally: regulatory stability, rule of law, and frictionless access to 450 million high-income consumers.
Instead of threatening Chinese giants, Europe must build an ecosystem that makes locating deep, integrated manufacturing hubs within the European Union an economic no-brainer. We are already seeing the early, organic stages of this allure in Hungary and Spain. These companies are not moving to Europe because they are forced; they are moving because forward-thinking states have offered them the right infrastructure, localized incentives, and strategic positioning.
By deep-linking a revived CAI to European industrial policy, Brussels can co-create an environment where it naturally makes financial sense for Chinese firms to build full-scale supply chains, rather than mere “screwdriver” assembly plants. By offering premier logistical hubs, streamlined permitting for clean energy connections, and co-investment funds, Europe can organically attract the world’s most efficient Tier-1 component suppliers directly to European soil. This will lower logistical costs and allow struggling European legacy brands to plug into advanced supply chains on their home turf.
Furthermore, Europe must aggressively welcome Chinese clean-energy technology to repair its broken energy ecosystem. Utilizing low-cost, high-efficiency Chinese solar components, wind turbines, and grid-scale LFP storage systems is the fastest way to lower Europe’s structurally uncompetitive input costs. Cheap, abundant green electrons are the lifeblood of modern automated manufacturing.
But it cannot be a simple reversion back to the CAI status quo ante, as if things haven’t evolved since. To transform Europe into an attractive destination for Chinese capital recycling, a revived CAI must include robust mechanisms to protect localised joint ventures from United States secondary sanctions. Washington increasingly deploys export controls (via the Foreign Direct Product Rule) and financial sanctions to disrupt Chinese high-tech ecosystems globally. This dynamic threatens any European industrial renaissance that relies on Chinese partnership.
To decouple EU industrial regulation from Washington’s geopolitical framework, the text-amended CAI would need to incorporate at least three specific legal structures:
Firstly, corporate ring-fencing and autonomous intellectual property licensing will be needed. To protect European-based manufacturing hubs, the CAI must mandate that Chinese private entities transfer ownership of localised production facilities to EU-domiciled subsidiaries. Intellectual property (IP) for battery management systems, software-defined vehicle architectures, and automated manufacturing protocols should be granted through autonomous, irrevocable, non-exclusive licenses to these European subsidiaries. By ensuring the production IP is legally anchored within an EU entity, the vehicles and components produced are classified as 100% European origin under international trade law. This structure insulates the factory from U.S. Bureau of Industry and Security (BIS) entity list designations, as long as the localised production lines do not rely on U.S.-origin software or equipment.
Second, non-dollar clearing mechanisms and interbank workarounds are needed. The primary mechanism of U.S. secondary sanctions is the denial of access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network and the clearing of transactions via the Federal Reserve Bank (Fedwire). To bypass this vulnerability, the CAI should establish a dedicated Sovereign Euro Clearing Mechanism managed directly by the European Investment Bank (EIB) or regional central banks. All trade surplus recycling, capital expenditures, and tier-1 supplier invoice settlements between European subsidiaries and Chinese parent firms would clear exclusively in Euros or Renminbi (RMB) via direct clearing arrangements with the People’s Bank of China (PBOC). By completely avoiding the U.S. dollar and clearing transactions outside the territorial jurisdiction of the United States banking system, these transactions remain legally insulated from U.S. financial blockades.
Thirdly, local component sourcing guarantees are needed to ensure strategic autonomy. To prevent the application of the U.S. Foreign Direct Product Rule — which claims extraterritorial jurisdiction over items containing even miniscule percentages of U.S. technological input — the CAI must establish strict guidelines for sourcing local components. European-based Chinese factories must be designed to integrate with European and non-U.S. machinery suppliers (utilising domestic European automation engineering, precision machining, and specialized tools). By systematically replacing U.S. manufacturing software and toolsets with local alternatives, the entire production chain becomes independent of Washington’s regulatory oversight. This legal insulation ensures that even if Washington penalises a Chinese parent firm, the European factory can continue operating, safeguarding local jobs, fixed capital formation and regional industrial supply chains.
Europe stands at an industrial crossroads. It can continue down the path of defensive protectionism and delusional coercion, allowing rentier capital to preserve its declining margins for a few more quarters while the continent sinks into industrial irrelevance. Or, it can look past its misplaced pride, revive and update the CAI, and master the art of the industrial lure. By recycling Chinese trade surpluses into European factories, machines and energy grids, Europe can rebuild the very supporting ecosystems that decades of financialisation destroyed. The choice is clear. Brussels can craft a policy regime that can entice Chinese capital to rebuild Europe, or watch the global economic future be built entirely without it.（End)
About the Author:
Warwick Powell is an Adjunct Professor at The University of Queensland and a Guancha columnist
Great article. But I would like to add a few notes.
1. China’s economic system consists of over 360,000 SOCs and they dominate the heavy industries, telecommunications, energy, banking and others.
They produce the inputs for the private sector manufacturing such as cars. These SOCs don’t maximise profits, they maximise affordability and accept razor thin profit margins or even losses to support the private sector.
This allows Chinese manufacturing to be incredibly cost competitive. And western economies where each stage of production is based on “profit maximisation,” simply can’t compete against the Chinese system, especially since they’re vertically integrated and they spent billions on R&D and hold the patents.
2. Energy - Again this is where the state has its hand. The Chinese have strategically invested in renewables at an unprecedented scale and this allows the entire country to access extremely low electricity prices which have barely increased in price for over a decade.
3. When former IMF head, Christine Laggard said the world was watching China transition from a low cost manufacturing nation to a high tech nation. She’s right, the world watched and the west expected China to fail. But now China is offering amazing robots, EVs, batteries, high speed railways, and etc… and it seems like the west didn’t have a plan where China would succeed this in this transformation.
Thank you — a brilliant essay, and it all makes good sense.
Essentially, the current neoclassical economic model is broken, and Europe needs to be actively building a better future instead of desperately trying to get back to the past. To build that future by partnering with China will, however, require that Europeans are able to drop their current feelings of superiority — and that in turn requires first acknowledging that those feelings exist.
I don't think Europe is ready to shift from a political and economic system that depends on externalised extraction to one that truly runs on its own energy budget. It's too early for Europe to give up on its colonial dreams. Sadly, it will choose to continue down the path of defensive protectionism and delusional coercion.