Feb 21, 2025
China Educates Europe on the Energy Competition
The European Union is significantly lagging behind China in terms of energy transition and will struggle to catch up without embracing Chinese technology rather than restricting imports that are essential for the bloc's emissions reduction goals—though this approach comes with its own challenges.
The EU has set some of the most ambitious goals related to the transition globally. While it has depended on Chinese-manufactured products such as solar panels and inverters for years to advance its transition, it has also been attempting to develop local supply chains in this sector. Unfortunately, China enjoys a 20-year advantage, which is difficult to overcome. Essentially, there are two paths forward: either leverage this existing lead or challenge it by limiting the influx of Chinese products into the EU.
Until now, Brussels has chosen the latter route, especially concerning Chinese electric vehicles, which European automakers fear could jeopardize their unstable market share due to lower prices and superior quality. There are ongoing discussions about pressuring Chinese firms to share their intellectual property with Europe to assist in the development of local supply chains for the transition.
Julia Poliscanova, senior director at Transport & Environment, mentioned to the Financial Times this week, "We can spend another 10 or 15 years trying and failing with companies like Northvolt. Or we can utilize existing expertise and catch up quickly, similar to what the Chinese accomplished in the past two decades."
The executive's remarks come in light of increasing Chinese investments abroad to enhance battery production capacity where it is urgently needed, given that China possesses the necessary skills and best practices. However, enforcing regulations on Chinese companies to compel them to share their knowledge so Europe can expedite its transition may not yield the desired outcomes, such as more affordable EVs and other transition technologies.
The concept of requiring Chinese firms to transfer knowledge and intellectual property was suggested last year, with plans for the EU to incorporate it into a stick-and-carrot strategy for China by year-end. This package would combine mandatory requirements with state subsidies. However, it appears this did not materialize, according to a Transport & Environment investigation into EU and national technology transfer obligations related to battery projects in Poland and Hungary involving Chinese entities.
The transition activists reported, "The Chinese CATL factory in Hungary and the South Korean LG Energy Solutions plant in Poland received at least EUR 900 million in state aid from the respective governments, often funded by the European post-COVID recovery fund. Nevertheless, the European Commission did not impose any environmental or social conditions or conduct audits."
This is perplexing considering the EU's assertive stance in its communications with China recently and the fact that China has its own knowledge transfer mandates for companies operating within its borders. The inconsistency of the EU, despite its strong positioning, raises questions about why it is not enforcing these regulations in the context of its transition narrative.
The likely reason lies in the EU's significant lag in the energy transition. The bloc cannot achieve in a few years what China has accomplished over two decades, regardless of the extent of new regulations. In fact, the EU can make progress toward its transition objectives—questionable as they may be in practical and financial terms—only by collaborating with China while seemingly not demanding too much in terms of knowledge exchange.
China is making substantial investments in EV factories, battery facilities, and various other transition technologies worldwide. It is establishing production sites abroad in response to tariff pressures in the West aimed at enhancing the competitive position of domestic companies in the transition. This includes the consideration of mandating the transfer of Chinese expertise to further support these efforts, although it may not come to fruition. One possible reason for this hesitation could be a fear that Chinese companies might withdraw if faced with excessive mandates alongside tariffs. In essence, the EU finds itself compelled to maintain the current state of affairs to achieve its transition goals.
It appears that the dynamic between China and the EU has shifted dramatically. Previously, China was known for its economy built on the outsourcing of operations by Western companies to reduce costs, serving essentially as an "assembly plant." However, over the last two decades, China has invested in educating itself and enforcing knowledge transfer, emerging as the leading developer of transition technology. Meanwhile, the EU has focused on regulations, mistakenly believing that China would always remain the world’s assembly hub. Now it is too late to amend this course.
The EU has set some of the most ambitious goals related to the transition globally. While it has depended on Chinese-manufactured products such as solar panels and inverters for years to advance its transition, it has also been attempting to develop local supply chains in this sector. Unfortunately, China enjoys a 20-year advantage, which is difficult to overcome. Essentially, there are two paths forward: either leverage this existing lead or challenge it by limiting the influx of Chinese products into the EU.
Until now, Brussels has chosen the latter route, especially concerning Chinese electric vehicles, which European automakers fear could jeopardize their unstable market share due to lower prices and superior quality. There are ongoing discussions about pressuring Chinese firms to share their intellectual property with Europe to assist in the development of local supply chains for the transition.
Julia Poliscanova, senior director at Transport & Environment, mentioned to the Financial Times this week, "We can spend another 10 or 15 years trying and failing with companies like Northvolt. Or we can utilize existing expertise and catch up quickly, similar to what the Chinese accomplished in the past two decades."
The executive's remarks come in light of increasing Chinese investments abroad to enhance battery production capacity where it is urgently needed, given that China possesses the necessary skills and best practices. However, enforcing regulations on Chinese companies to compel them to share their knowledge so Europe can expedite its transition may not yield the desired outcomes, such as more affordable EVs and other transition technologies.
The concept of requiring Chinese firms to transfer knowledge and intellectual property was suggested last year, with plans for the EU to incorporate it into a stick-and-carrot strategy for China by year-end. This package would combine mandatory requirements with state subsidies. However, it appears this did not materialize, according to a Transport & Environment investigation into EU and national technology transfer obligations related to battery projects in Poland and Hungary involving Chinese entities.
The transition activists reported, "The Chinese CATL factory in Hungary and the South Korean LG Energy Solutions plant in Poland received at least EUR 900 million in state aid from the respective governments, often funded by the European post-COVID recovery fund. Nevertheless, the European Commission did not impose any environmental or social conditions or conduct audits."
This is perplexing considering the EU's assertive stance in its communications with China recently and the fact that China has its own knowledge transfer mandates for companies operating within its borders. The inconsistency of the EU, despite its strong positioning, raises questions about why it is not enforcing these regulations in the context of its transition narrative.
The likely reason lies in the EU's significant lag in the energy transition. The bloc cannot achieve in a few years what China has accomplished over two decades, regardless of the extent of new regulations. In fact, the EU can make progress toward its transition objectives—questionable as they may be in practical and financial terms—only by collaborating with China while seemingly not demanding too much in terms of knowledge exchange.
China is making substantial investments in EV factories, battery facilities, and various other transition technologies worldwide. It is establishing production sites abroad in response to tariff pressures in the West aimed at enhancing the competitive position of domestic companies in the transition. This includes the consideration of mandating the transfer of Chinese expertise to further support these efforts, although it may not come to fruition. One possible reason for this hesitation could be a fear that Chinese companies might withdraw if faced with excessive mandates alongside tariffs. In essence, the EU finds itself compelled to maintain the current state of affairs to achieve its transition goals.
It appears that the dynamic between China and the EU has shifted dramatically. Previously, China was known for its economy built on the outsourcing of operations by Western companies to reduce costs, serving essentially as an "assembly plant." However, over the last two decades, China has invested in educating itself and enforcing knowledge transfer, emerging as the leading developer of transition technology. Meanwhile, the EU has focused on regulations, mistakenly believing that China would always remain the world’s assembly hub. Now it is too late to amend this course.