Partnership or competition? The impact of Asia and Europe on the global economy.
Europe and Asia are two key pillars of the global economy and are closely intertwined. How the relationship between these two global powers is likely to develop in the future and the opportunities Asia's economy has in store for international trade as well as European and Swiss investors.
Europe and Asia: Strong partners in a globalized world
"I cannot think of a better time than now to discuss the position of Europe and Asia in a changing global order." These were the words Felix Baumgartner – Head of Premium Clients at Credit Suisse – used to open the first session of the Credit Suisse Thought Leadership Series. According to projections of experts, the 21st century will be the "Asian century" if the current economic and population trends continue.
With an annual trade volume of 1.5 trillion US dollars, Asia and the European Union are already the world's biggest trading partners. But how will the relationship between Europe and Asia develop in the future? And what opportunities could the future hold for European and Swiss investors? Renowned experts Herman Van Rompuy, Dr. Keyu Jin, and Dr. Juerg Syz spoke about this in a lively discussion as part of the Credit Suisse Thought Leadership Series on March 3, 2021.
In December 2020, the EU and China essentially concluded their negotiations of a comprehensive agreement on investment. What does this mean for European companies?
Herman Van Rompuy: This agreement is a milestone. Until now, European companies could not compete freely in China, while Chinese companies encountered a free market in Europe. We hope that with this agreement, there will now be a level playing field for all. It also shows that it is possible to come to an agreement with China without starting a destabilizing trade war.
Europe and China are simultaneously partners and rivals. How will this relationship develop in the future?
Dr. Keyu Jin: First of all it is important to make two observations. The first is that today, China is competing with European companies more in areas with higher capital and research intensity than before. This takes away some pressure from the low-level manufacturing industries. In addition, the added competition in higher technology areas can lead to increased competitiveness and innovation in these European companies. Second, China is now producing many intermediate products itself that it used to import. This could lead to a decrease of Chinese imports in general.
In addition, the Chinese government is changing some of its trade practices by opening the economy to competition and creating an equal playing field – for example, in the service industry and financial services. Thus, I see smoother relations between China and Europe in the future.
Does Europe need to become more independent from China over the long term?
Dr. Keyu Jin: Every country needs a certain buffer with regard to critical resources. The pandemic has shown how painful the breaking down of supply chains can be. Beyond that, there is still room for more trade between Europe and China as long as the independence in those critical areas remains. China generally wants to strengthen its relationship with Europe, rather than weaken it.
Does Europe focus too heavily on China alone and neglect its relationships with other Asian countries?
Herman Van Rompuy: China is very important, but Asia as a whole is much more important. That is why the European Union has negotiated free trade agreements with Japan, Singapore, Vietnam, and South Korea, and is strengthening trade relations with other countries in the Indo-Pacific region.
Dr. Juerg Syz: Probably yes. Naturally, China is an important player and shows very strong growth. But especially the ASEAN countries are also a very strong market, and act as a counter-position to China within Asia. For example, Indonesia – the fourth largest country in the world – is still somewhat neglected compared to China. So there are many countries in Asia that, from an economic view, deserve much more attention from companies and investors from Europe and Switzerland.
How important is a presence in Asia for European companies and investors?
Dr. Juerg Syz: For us it is clear that Asia will provide the biggest economic opportunities in the coming decades. But even more important is that not being present in Asia is a risk for investors and companies from Europe and also Switzerland. Asian countries will increasingly be a driver of the global economy, since growth on the continent is not only very strong, but also resilient. This was shown, for example, during the financial crisis, as Asia was one of few regions that still grew during that time, as well as last year.