In a move that indicates that it is now accepting the view that Europe must develop industrial companies that are capable of competing with China, theEuropean Commission changed policy direction after Germany’s leading industry association (BDI) published earlier this month a report that described China as a “strategic competitor” intent on using all state levers to gain competitive and technological supremacy over its trading partners.

A major policy shift

China’s 2025 policy that was announced by President Xi Jinping makes clear that the country seeks leadership in high-value manufacturing, most of which would be a direct threat to Germany’s industrial interests.

With one eye on the proposed merger of the rail operations of Siemens and Alstom, the German BDI wants a buffer against Beijing’s 2025 agenda, favouring a policy of “European industrial champions.” The EU’s Competition Commissioner Margarethe Vestager has pushed back against this position, an opinion that the rest of the Commission has pressed Vestager to change.

On January 16, Economic Affairs Commissioner Pierre Moscovici told the press that the EU’s stand on the merger will not be “naïve” and will “take into account the evolutions of the economy of tomorrow.” Moscovici called the current policy “obsolete” and hinted at a change of direction for Brussels.

Supporters of the deal, including the German industrial lobby, claim that EU antitrust rules should be updated so that they can help European companies compete against international competition. The key precedent is Airbus – a pan-European industrial consortium with global leadership.

The German perspective

For the German industry, European consolidation is not a panacea. The BDI proposes a cluster of measures to enhance European technological competitiveness, including R&D tax credits, a bigger EU budget to fund research, tougher anti-dumping measures, and more vigilant monitoring of Chinese state subsidies, as well as public procurement in line with WTO norms.

What the German industry is not proposing is a confrontational approach similar to the one adopted by the Trump Administration. Germany is the only developed economy with a trade surplus with China as 5,000 German companies have €76 billion of direct investments in China.

The Siemens-Alstom tie-up is seen as a move to entrench the European industrial sector of high-speed trains vis-à-vis China’s CRRC, a state-owned company. However, the deal would give the company a monopoly in several European rail markets.

Meanwhile, Germany is applying pressure on China to open up its financial services industry. On January 8, the German financial market regulator Bafin signed an agreement with the Chinese Banking and Insurance Regulatory Commission (CBIRC) to open the insurance market in China.

Moreover, Germany seeks to become a hub for renminbi-denominated financial products in Europe, which is especially significant following the UK’s exit from the EU