Europe’s Economic Exposure to China: Insights and Analysis

Monday, May 22, 2023, 4:57 p.m

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Despite the insistence of the European Commission regarding the decoupling of the European economy from that of China, the large economies of the EU bloc have an important exposure to the Asian giant.

The most exposed is Germany, with almost 10% of GDPas large German companies have extremely profitable subsidiaries in China.

In addition, the dependence of the European economy on China approaches 100% when it comes to certain raw materials absolutely essential for the new technologies required by the sustainable economy.

Europe, more exposed than the US

France and Germany currently have great reservations about the methods of action, and a set of collective approaches has not been developed at the level of the European Union, writes The Economist.

Especially since the six largest economies in Europe (including the UK here) have an exposure of about 6% of their GDP on China, according to the quoted source.

Thus, Europe is more economically exposed in the relationship with China than America. About 8% of the revenues of European listed companies come from China, compared to 4% for those in the US, according to the American bank Morgan Stanley.

Europe and America send a similar share of merchandise exports to China (7-9%), but because Europe is a more trade-intensive economy, its sensitivity is greater.

Multinational investment in China is worth 2% of Europe’s GDP, compared to 1% for America.

The total China exposure of the big six European economies reached 5.6% of their combined GDP, up from 3.9% in 2011. This is higher than America’s at 4.2% of GDP .

Branches in China

The exposure was calculated by The Economist by taking into account three elements: exports of goods, exports of services and sales of Western-owned subsidiaries in China.

While Italy and Spain have a degree of exposure to China of 1-2% of GDP, France and Great Britain are at 4-5%.

And Germany is the most exposed, almost double compared to the other big European economies: 9.9% of GDP.

Two-thirds of the exposure of Europe’s big six economies (Germany, France, UK, Italy, Spain, Netherlands) comes from sales by Chinese subsidiaries, rather than exports from Europe.

Often these are the Chinese arms of industrial giants such as Volkswagen and BASF.

China dominates the export of rare earths

In 2022, China mined nearly three-fifths of the global rare earths, which are used for components in electronic equipment.

It also refined 60% of the world’s lithium and 80% of its cobalt, two key inputs for the production of high-capacity electric batteries.

Europe imports 98% of its rare earths from China, even more than America, which imports 80% from the Asian giant.

The European Union relies on China for 97% of its chloramphenicol, used in the manufacture of antibiotics. For America, the figure is 93%.