After several “Learning Expeditions” in Southeast Asia, Hong Kong, and Taiwan, Alhambra International has extended its analysis to mainland China. This exploration has unveiled the strengths, strategies, and challenges of this key country in the global economy.
An Impressive Industrial Powerhouse
Over the past 30 years, China has built the world’s leading industry, dominated by sectors such as energy, chemistry, pharmaceuticals, automobiles and raw materials. One notable achievement is its complete control of the value chain in the automotive industry: mining and processing of minerals, manufacturing, and recycling of batteries, up to the final production of vehicles and charging systems and stations.
This mastery contrasts with the difficulties of the European players, as illustrated by the recent debacle of Northvolt. Other European initiatives such as ACC, Verkor and PowerCo are progressing but are facing the challenge of competitiveness against Chinese, Korean and American competitors. European car manufacturers are also facing strong competition with Chinese brands (BYD, Great Wall, MG), which offer high-quality electric vehicles at very competitive prices.
A Diversified Economic Fabric
China has global/corporate companies in energy, technology, and automotive sectors. In industries such as chemicals and industrial equipment, growth is driven more by small-and medium-sized enterprises (SMEs and mid-caps), which are thriving alongside European giants like BASF, Bayer, Siemens, ABB, and Schneider. This diversity of SMEs/midcaps serves as a growth engine for exports and the huge domestic market.
A Shift Toward the Global South
China is strengthening its partnerships with BRICS nations and other emerging economies, particularly in Latin America, Africa, and Asia. Projects such as the development of the Chancay port in Peru, part of the Belt and Road Initiative, illustrate this strategy. Meanwhile, trade relations with Russia have intensified a dynamic development that remains impossible for Europe due to the ongoing conflict in Ukraine.
Massive R&D Investments
China invests heavily in innovation. Shenzhen and Beijing rank among the most advanced technological hubs, with R&D spending representing 6.5% to 6.7% of their local GDP. Major tech players like Huawei and Tencent dominate the landscape, while fully state-owned enterprises inject over 1 trillion yuan annually into R&D.
At the national level, China’s R&D expenditure rivals Europe’s (2.5% of GDP) but remains below USA (3.5%). Additionally, local innovations like Doubao, an AI application developed by ByteDance, demonstrate China’s capability to lead in emerging markets such as artificial intelligence. Tencent and Alibaba are also present with generative AI applications, respectively Hunyan and Qwen2, supported by robust in-house cloud infrastructures.
The Role of Hong Kong and Taiwan
Hong Kong remains a hub between China and the rest of the world, excelling in IPOs (over 2,500 listed companies), Private Equity, and Venture Capital, with more than 4,500 active startups in fintech, e-commerce, biotech, AI, and green technologies. Initiatives such as Cyberport and the Hong Kong Science and Technology Parks Corporation (HKSTP) bolster this ecosystem through funding, incubators, coaching and infrastructure, mirroring models in Europe and USA.
Taiwan, on the other hand, is a global leader in hardware and semiconductors, concentrating production of these critical technologies, especially advanced semiconductors, though design and most of the patents are filed in the U.S or in other countries such as Korea.
Conclusion and Recommendations
In the context of growing trade tensions, marked by increased tariffs from Europe and USA it is essential for Europe to adopt a pragmatic and balanced strategy towards China:
- Strengthen European Industry: Invest heavily in R&D, support innovation, and assist industrial players in developing high-value-added production.
- Promote Balanced Trade: Encourage reciprocity-based agreements while requiring technology transfers when Chinese companies establish operations in Europe.
- Prioritize Negotiation: China is pragmatic and responds well to cooperation. Maintaining constructive dialogue is critical to preserving strong economic and diplomatic relations.
In conclusion, striking a balance between firmness and collaboration with China, while strengthening strategic partnerships with other global regions, especially the U.SA., is crucial. Such kind of approach will enable Europe to enhance its industrial and technological competitiveness in the long term.
Senior Partner
ALHAMBRA INTERNATIONAL