Extract from our "Europe to Stay on the Fence on China" research paper, published on the 19th of May 2023. Register for a free trial* to access the full paper.
The structural competition between the US and China could intensify further. We believe Europe will most likely stay non-aligned – against the US’ wishes – for at least several years.
- Europe’s economic growth is twice as sensitive to China as the US is. Further, still recoiling from the impact of the Russian gas embargo, Europe would very unlikely decide to decouple from China now – an economy 15 times the size of Russia.
- Europe remains committed to the Green Transition, an area where a partnership with China would be sensible. China is already the world’s biggest producer of solar panels, windmills, and EV batteries. With China’s cooperation, the Green Transition in Europe would be less inflationary and expensive.
- A strategy of sitting-on-the-fence would provide Europe with the highest option value in balancing the risks and opportunities in dealing with the US, China, and much of the Global South. The US’ insistence for global primacy and power projection is meeting increasing resistance from the rest of the world; it is unclear who might eventually ‘win’ the contest.
- Europe’s decision to remain unaligned would have major (positive) implications for China. In turn, investors should expect China to take exceptional actions to persuade Europe to remain on the fence and to avoid provoking Europe by crossing Europe’s red lines. Can we guess whether China would favour Airbus or Boeing in the coming years?
The full report contains the following sections:
- Europe is quite exposed to China’s economy
- Single or double shock?
- Europe’s Green Transition
- The US’ quest to maintain global primacy
- China to court Europe
- Bottom line
- Appendix 1. Germany and China
- Appendix 2. France and China
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