Policy Paper - Bridging electric mobility and technology cooperation between China and Europe
Author：Farid Fatah, Corporate M&A Lawyer, FF Advisors
From：IFF
Time：2024-10-05
Executive Summary:
This policy paper examines the dynamic relationship between China and Europe, particularly in the electric vehicle (EV) sector and emerging technologies. It explores the historical context of Franco-Chinese relations, current challenges, and future collaboration opportunities. As the world transitions to sustainable mobility, fostering dialogue and cooperation between these two civilizations is essential for their mutual growth and development.
Introduction
1. In 2024, while traveling in China, a French citizen may notice an intriguing juxtaposition: an old-fashioned Renault fuel-based car navigating alongside a wolf-pack like modern electric vehicles (EVs) produced by local manufacturers. This observation highlights the evolving landscape of the automotive industry and emphasizes the technological progression that defines current Sino-European relations.
2. Although foreign cars are commonly seen on Chinese roads, the electric vehicle sector provides a unique lens to examine the broader implications of France-China relations, particularly regarding the much-needed dialogue between these historically respectful civilizations.
3. A nuanced mix of admiration, collaboration, and shared interests has long characterized the relationship between France, the broader European Union, and China. Historically, China has admired France's achievements in several sectors, notably nuclear energy, automotive engineering, and aerospace. France's expertise in building advanced nuclear power plants has been particularly influential in shaping China's own energy policies, as seen in collaborative projects like the Taishan Nuclear Power Plant, which was constructed using French technology. French automotive giants such as Renault and Peugeot have also established a presence in the Chinese market, contributing to mutual economic interests. Furthermore, French aviation leaders, including Airbus, have found considerable success in China, where aircraft demand continues to rise as urbanization accelerates. These longstanding partnerships have strengthened the economic and technological ties between the two regions.
4. Establishing various Confucius Institutes across France promotes Chinese language and culture while also demonstrating France’s commitment to cultural pluralism. At the same time, events like the "Year of China in France" showcase Chinese traditions, cuisine, and the arts, enriching cultural dialogue and appreciation.
5. From a business perspective, French brands have played a vital role in shaping Chinese consumers' perception of quality and elegance. French luxury fashion houses like Louis Vuitton, Christian Dior, and Hermès have maintained a lasting appeal to the affluent Chinese market, symbolizing status and prestige. The presence of these brands in China underscores the perceived connection between French craftsmanship and superior quality. Collaborative projects in sectors such as aerospace, environmental technology, and renewable energy reflect mutual respect and interest in sharing expertise. Companies like Airbus and Peugeot have established production facilities in China, reinforcing bilateral trade relations.
6. The longstanding relationship between France and China marks significant occasions, with 2024 celebrating the sixtieth anniversary of diplomatic ties1.
7. Despite this rich history, it is important to recognize that perceptions and interests have shifted.
8. The allure of French luxury is waning among Chinese consumers, as evidenced by the decline in the number of Chinese visitors to France—dropping from over 2 million annually before the COVID-19 pandemic to a significantly lower figure2 or the decrease in revenues3 of major French luxury goods companies, despite the industry's heavy reliance on Chinese consumers4.
9. On the other hand, China's economy appears to be plateauing after its historically high growth, evidenced by several key factors: (i) slowing GDP growth—after decades of double-digit expansion, annual GDP rates have declined significantly, with forecasts for 2022 and beyond projecting a range of 3-5%; (ii) demographic challenges—as in all mature economies, China is experiencing an aging population and declining birth rates, creating a labor shortage and increased pressure on social welfare systems; (iii) debt levels—China’s high-profile corporate and local government debt poses risks to financial stability as the country seeks to transition from investment-driven to consumption-driven growth; and (iv) global trade tensions—especially with the U.S. and other Western nations, which have added uncertainty for Chinese exporters, contributing to the economic slowdown.
These elements collectively underscore the need for China to address structural challenges while navigating external pressures to ensure continued development and prosperity.
10. Both geopolitical blocs face distinct yet interconnected challenges, such as economic stagnation and shifting consumer preferences.
As an M&A lawyer noticing a recent WTO dispute on the topic, a wide range of tools exist to strengthen commercial relationships between European and Chinese companies to incentivize technological innovations and conduct business together.
Current EU Regulation Landscape
11. In a crucial development impacting the automotive sector, the European Commission enacted Regulation (EU) 2023/851, amending prior legislation to strengthen CO2 emission performance standards for new passenger cars and light commercial vehicles. This regulation phases out fuel-powered vehicles in favor of more sustainable alternatives, pushing manufacturers toward electric mobility solutions.
12. China has emerged as a global leader in electric vehicle production, leveraging its extensive supply chain and domestic demand.
13. Prominent Chinese EV brands such as BYD and Geely have gained international recognition, while newer entrants like Zeekr, Aito, and Hongqi are making inroads into the market. The concentration of advanced electronics production in regions like Shenzhen, coupled with government support for green technologies, has positioned China favorably in this evolving landscape.
Challenges and Opportunities
The European automotive industry faces multifaceted challenges that require strategic adaptations:
1. Economic Burden: By 2035, due to stringent regulations, traditional fuel-powered vehicles will likely become prohibitively expensive for European manufacturers.
2. Trade Pressures: From 2025 to 2035, the introduction of additional tariffs on Chinese EV imports may complicate market entry for the above-mentioned Chinese EV brands, necessitating adaptations to marketing strategies and product offerings. On October 4th, 2024, the EU marked a significant pivot in the EU/China relationship, as the EU member states voted in favor to impose tariffs up to 45% on Chinese EV5. Such a vote divided the EU member states. Germany had raised its concern on potential Chinese retorsion measures. While certain European car manufacturers companies such as BMW and Volkswagen regretted this decision considering it at the “wrong approach”6.
3. Knowledge Gap: While the EU aims to promote sustainable transportation, it must also leverage its historical expertise in automotive manufacturing to avoid losing competitive ground to China7.
To address these challenges, collaboration can take various forms:
- Joint Ventures: European manufacturers can rekindle partnerships with Chinese companies, leveraging decades of experience in the local market to create synergies in technology and manufacturing. While European car manufacturers once benefited from Chinese companies' expertise in the fuel-based car market and transportation industries through joint ventures8, the dynamic can now shift the other way. Chinese companies can use joint ventures to address the European EV demand by collaborating with European firms with local knowledge and critical scale. By working together, European and Chinese manufacturers can unlock new avenues for growth, driving forward a shared commitment to technological advancement and environmental sustainability in compliance with EU regulations.
- Think Tanks and Research Collaborations: Joint initiatives with stakeholders from both sides can facilitate the exchange of ideas and technologies, enabling policymakers to address future challenges effectively.
- Mutual Learning: Observations from areas like Shenzhen—where autonomous vehicles and advanced payment platforms are becoming commonplace—can inspire similar innovations in Europe.
Recommendations
To build an enduring bilateral relationship in the electrification of transportation, the following strategies may be suggested:
- Fostering Partnerships between private companies on a cross-border basis: Encourage and facilitate joint ventures, licensing agreements, and corporate mergers & acquisitions to foster innovation in EV production and related technologies. Cross-border partnerships allow companies to pool resources, share knowledge, and combine technological expertise. By promoting joint ventures and collaborative research initiatives, companies can accelerate the development of cutting-edge technologies in EV production, battery efficiency, and renewable energy integration. Access to new markets and consumer bases is a significant driver of growth. Licensing agreements enable companies to expand their reach into foreign markets while mitigating risks associated with direct investment. This approach empowers both European and Chinese firms to leverage their respective strengths, enhancing their competitive positioning on the global stage. Corporate mergers and acquisitions can lead to the consolidation of capabilities, promoting new business models that foster economic growth and job creation. Supporting cross-border collaborations can stimulate domestic economies and contribute to building a resilient, future-ready workforce skilled in EV technologies. These corporate legal tools are well-established and operable with the assistance of advisers (investment bankers, lawyers) on both sides, potentially leading to highly successful corporate strategies.
- Policy Alignment: To effectively address the current dispute concerning supplementary tariffs on Chinese electric vehicles imported into the European Union before the World Trade Organization (WTO)9, it is critical to establish robust policy frameworks that promote fair trade practices while accommodating the regulatory requirements of both markets. Aligning public policies is essential to support collaboration between China and the EU and to enhance the aforementioned private-sector partnerships in various forms. Policymakers can create a favorable environment that nurtures innovation and facilitates investment by streamlining regulatory processes, safeguarding intellectual property rights, and offering incentives for cross-border cooperation. This strategic alignment between the public sector and private industry will lay the foundation for sustainable economic growth, benefiting both Chinese and European companies in the long term.
- Reinforcing EU-China Relations through the Comprehensive Agreement on Investment (CAI) - Restart and strengthen the trade cooperation agreement between the EU and China based on the Comprehensive Agreement on Investment (CAI) concluded on December 30, 202010, suspended in 202111: The Comprehensive Agreement on Investment (CAI) serves as a cornerstone for enhancing the economic relationship between the EU and China, providing a vital foundation for mutual economic growth and the deepening interconnectedness of their markets. By recommitting to the CAI, both parties can cultivate a streamlined pathway for joint ventures, particularly in the EV sector and emerging technologies such as AI, and facilitate technology transfers—essential components for fostering innovation and enhancing competitiveness in an increasingly interconnected global economy.
- Reviving the CAI promises to dismantle existing trade barriers and aims to create a more predictable and transparent investment environment, fostering greater business confidence on both sides. This clarity can encourage enterprises to engage in collaborative projects leveraging each region's unique strengths—China’s agility in technological advancements and manufacturing capabilities, as well as the EU's extensive expertise in regulatory standards and sustainable practices.
- Promoting the ease of joint ventures within this framework is critical to enhancing knowledge exchange and strengthening supply chains, which have proven essential in navigating recent global disruptions. By cultivating an ecosystem of innovation, the refreshed trade agreement can also proactively address pressing global challenges, including climate change, health security, and digital transformation. Through collaborative efforts, both the EU and China can assume vital roles in shaping a sustainable and resilient future.
- Rekindling the trade cooperation agreement centered on the CAI not only signifies a renewed commitment to mutual prosperity but also establishes a robust framework for strategic partnerships that effectively address contemporary challenges and capitalize on emerging opportunities within today's dynamic global landscape. This initiative transcends mere policy revision; it embodies a forward-looking vision for collaborative progress that promises to benefit both the EU and China, particularly in the context of ongoing disputes over EVs before the World Trade Organization (WTO). By working together to navigate these complexities, both regions can foster an environment of innovation and cooperation essential for sustainable growth in this challenging period.
- Cross-Cultural Initiatives - Enhancing Dialogue and Collaboration between Executives, Engineers, and Investors: In the face of evolving regulatory landscapes and escalating trade tensions, fostering cross-cultural initiatives is imperative for facilitating meaningful dialogue between Chinese and European top executives, innovators, and engineers who drive the world’s innovation and future.
- Organizing high-level forums and exchange programs specifically focused on technology, cooperation, and best practices: Policymakers can bridge the gap between these two influential markets. Such initiatives already exist in part, such as the brilliant initiative from the France China Foundation, which elects young leaders for a dedicated program in partnership with the Chinese People’s Institute of Foreign Affairs (CPIFA)12. While such programs are particularly crucial in advanced sectors like autonomous driving technologies, where local Chinese firms are making significant strides, they can also serve as a recurring tool to strengthen ties between China and the European Union, especially when addressing challenges that require common knowledge and shared interests.
- Promoting recurring initiatives, events, and gatherings to drive progress is critical. Both Chinese and European executives face complex regulatory environments that can hinder collaboration. By bringing these leaders together, discussions on navigating these challenges can be greatly facilitated. Workshops and panel discussions focused on regulatory compliance, market entry strategies, and best practices can provide participants with valuable insights into operating successfully in both jurisdictions.
- A focus on technology sharing will enable companies from China and the EU to co-develop solutions that align with shared goals of sustainability and innovation. By emphasizing joint projects and partnerships, these initiatives can pave the way for more sustainable business models that respect local regulations while leveraging the strengths of each region.
- Establishing a network of thought leaders from both regions may enhance ongoing collaboration. By facilitating regular exchanges and follow-up meetings, an ecosystem of shared knowledge and resources can be established, ensuring that both Chinese and European companies remain agile and well-prepared to respond to changing market conditions.
- Annual Technology and Trade Summits: Organizing annual summits dedicated to technology sharing in sectors like autonomous driving, where executives from both sides can discuss innovations, showcase products, and explore collaborative projects, may be necessary in the current context.
- Bilateral Working Groups: Establishing working groups comprised of industry leaders and policymakers from both regions is critical to fostering mutual understanding and benefit. These groups can focus on specific challenges related to technology and regulation, developing actionable recommendations to enhance cooperation.
- Intercultural Training Programs: Offering intercultural training for executives, young leaders, and students to cultivate a deeper understanding of each other’s business practices, negotiation styles, and regulatory environments. This understanding is essential for building trust and forming effective partnerships.
- Support from Government and Trade Organizations: Encouraging active participation from governmental bodies and trade organizations in promoting these initiatives, rather than pursuing disputes before them, is vital. Their support can lend credibility to the forums and enhance visibility among stakeholders in both regions.
Conclusion
The way forward for China, France, and the broader European Union must be rooted in a commitment to collaboration and knowledge-sharing, particularly as they confront the multifaceted challenges of the electric vehicle market, the technology sector, and emerging innovations like artificial intelligence.
In the context of ongoing world trade disputes and heightened tensions, it is essential to focus on building bridges rather than barriers.
By leveraging their unique strengths and addressing mutual challenges through constructive dialogue and cooperation, these regions can create a robust framework for a sustainable future, growth, and mutual technological advancement.
This approach not only honors the historical ties mentioned in the introduction of this policy paper but also paves the way for future innovations that can benefit both economies.
Ultimately, fostering an environment of mutual respect and understanding will be key to navigating the complexities of global trade. Through joint initiatives and partnerships, France, China, and the EU can lead the way in establishing best practices for a fair, equitable, and forward-thinking trade landscape, positioning themselves as collaborative leaders in the dynamic global economy. This strategic alignment will not only enhance their competitive edge but also contribute to a more cohesive and sustainable international community.
References：
2. https://www.atout-france.fr/fr/marches/fiche-marche-touristique-chinois-2023
https://www.reuters.com/business/retail-consumer/lvmh-sales-grow-1-second-quarter-2024-07-23/
7. The European Commission faces a paradoxical challenge as it urges car manufacturers to transition to electric vehicles (EVs) while simultaneously addressing concerns over unfair competition from Chinese EV brands.
8. https://www.renaultgroup.com/en/news-on-air/news/renault-nearly-a-century-in-china/
9. https://www.wto.org/english/news_e/news24_e/ds626rfc_14aug24_e.htm
12. https://francechinafoundation.org/en/young-leaders/
