SFCMarketsandFinanceJensEskelund:Eur

Jens Eskelund, who became the President of the European Chamber in China in May 2023, has lived in China for more than 26 years. During his interview with SFC journalist, he expressed that it was his privilege to come to China in the late 1990s to be a witness and participator in China’s transformative development of these years.

On October 4th, the European Union members voted to impose high tariffs on Chinese electric vehicles. Faced with the rising trade protectionism and the slowdown of the global economy, Jens Eskelund stated that European companies are very committed to China as they continue to see significant potential in the Chinese market.

In addition, he paid attention to a series of policies and measures that have been promoted by the Chinese government recently and considered these policies to be a confidence boost and demand boost, allowing the healthy dynamics to be reestablished in the Chinese market.

SFC Markets and Finance: Coming to the fourth quarter of 2024, how would you comment on the overall development of the European enterprises in China?

Jens Eskelund: I think European companies in China find themselves very much in the same situationas many Chinese companies. We share the same fundamental conditions in the Chinese market,and that is, of course, also reflected in the performance of European businesses.What that means in more concrete terms is that we have seen, in particular,24 consecutive months of flat price deflation that our member companies are getting squeezedon their profits.

But I think it's important for me also to say that,European companies, they're not running for the exit.European companies are very committed to China.We continue to see significant potential for many of our companies,many of our members to grow inthe Chinese market.But I think also there's no denying that the past 18 months have been very difficult for many of our members and also that we expect that in the near term, that it's going to continue to be hard for many industries.

And that's, of course, where it's important when you have announcements being made like the Ministry of Finance of China last Saturday that there will be fiscal initiatives to try to stimulate demand, because in the opinion of many of our members,

that's exactly what China needs right now. That is sort of a confidence boost and a demand boost that allow some of these healthy dynamics to get reestablished in the Chinese market.

SFC Markets and Finance: What are some areas that are becoming more and more profitable for the European enterprises?

Jens Eskelund: I think you'll always be able to find pockets where companies are profitable,in particular when you are in this sector.But everything that is sort of a commodity-style product,everything that can be scaled, everything where you have significant competition,and that is the vast majority of our members,we actually see sort of a sliding profitability,but products where you're at the very cutting edge,areas where you have a unique market position,those are typically industries where therearestill good opportunities for profitable growth.

But we don't think it's enough. We think there needs to be a broader foundation that will enable more companies, both Chinese and foreign, to grow. And that’s what we hope to see from the announcements that have been made, that there will be fiscal initiatives in the near future.

SFC Markets and Finance: You once mentioned that the European enterprises have also actually participated in the promotion of the large-scale equipment renewal and trade-in of consumer goods. So could you tell me more about how the foreign enterprises participating in such activity?

Jens Eskelund: We're trying wherever we can to engage with the governmentto understand exactly how these initiativeslike replacement of equipment, of replacement of household goods,that this can benefit European companies.We're supporting any method that can help to stimulate demand.

We could be a little bit concerned if some of this actually means that you can replace old equipment and get a subsidy to get more efficient new equipment that can produce even more. Because what we need right now is not necessarily a lot more products. What we need is more demand. And of course, if there is a rapidly growing demand, then we can also look at growing supply. But right now, it's about restoring a healthy supply and demand balance that will allow everyone to develop and have reasonable margins on the Chinese market.

SFC Markets and Finance: According to the Position Paper, there is a concern about the European enterprises’ confidence in investing in the Chinese market. So what other measures or actions could the government take to further boost the confidence of the European companies?

Jens Eskelund: A big bone right now for European companies is the access to public procurement in China. In Europe, for example, Chinese companies have access to public procurement. That is part of Europe's commitment to the WTO. But China has not signed up to that part of WTO, where foreign companies have access to public procurement in China. Because particularly in China, public procurement is a very big part of consumption. So that's a big issue for many European companies.

SFC Markets and Finance: Do the digital transformations, the growth of the AI and other new technologies in China giving more and more opportunities for European companies?

Jens Eskelund: Yes and no. I think we can all agree that there is a very significant potential in AI, but what worries us a little bit is that we are beginning to see developments where you have sort of a China's ecosystem for digitalization and AI, and you have a rest of world’s ecosystem for AI and digitalization. We would hope that these in due time also can become areas where foreign companies can participate.

SFC Markets and Finance: But the Chinese government has already trying to make the level of opening up, be open more and more. Do you think there is a possibility of more and more opening up in the future?

Jens Eskelund: I hope so. But I think again, due to digitalization and AI, which we agree is one of the most promising areas. We hope we would encourage and it would be great. So let's see.

SFC Markets and Finance: On October 4th, European Union voted to impose high tariffs on Chinese electric vehicles. So what impact will this bring to the European enterprises investing in China?

Jens Eskelund: First of all, I think it's interesting to note that when you look at the tariffs, the lowest ones were actually given to an American company. In the second tier, there were two Chinese companies, BYD and Geely. They had lower tariffs than some European companies. So, this is not something that specifically targets Chinese companies. It may target China's industrial policies, but not individual Chinese companies.

You can see that some Chinese companies, and this is a fact, had lower tariff levels than European ones. We're not really fond of tariffs, but we also understand that, as per the WTO rules, there are situations where tariffs might be justified. We hope, of course, that solutions can be found. So that tariffs won't be necessary, as we believe in free trade. But I think we're spending too much time focusing on the EV tariffs.

Chinese exports to Europe are growing by leaps and boundsin the first seven months in terms of container volume,Chinese exports to Europe grew by 11%.That's very high considering that the European economy is basically not growing,but Chinese exports grew by 11%.By contrast, Chinese imports from Europe in container terms declined by 5%.

And if you look at it over a six-year period going back to 2017, maybe the Chinese economy has grown by 40% since 2017. But Chinese container imports from Europe, manufactured goods is down by 30%. How's that possible? Now, every time Europe exports one container to China, China is exporting four containers to Europe. So I think China's exports to Europe are doing very fine. I think Chinese imports from Europe are not doing so fine. And maybe we should spend a little bit more time considering how is it that European goods cannot get into the Chinese market.

SFC Markets and Finance: One fear thing is that will there be a possibility for the EU to increase the trade barriers in some other areas in the future with China as the trade protectionism rises. Would that be something we're afraid of?

Jens Eskelund: I have no doubt that's the way it's gonna go unless something changes. We think that there is an opportunity to have conversations about all that, but we also think that if the two sides do not really seriously think about what should the future trading relationship look like, this is something we need to do in terms of ensuring that the benefits of globalization are being distributed in a more equitable manner.

What should the future models of trade be? Because if you look at it historically, the trading relationship between the EU and China has created enormous value, for China and for Europe, for everyone. It has been undisputedly a good thing. And we think there's a very significant future potential for value creation also. But we need to look at the way things are today. There are some imbalances that we really need to fix. Let's sit down, acknowledge the issues, and then see if we can force a way forward. I don't buy into this that it's impossible and things will need to get worse. I think it'll be difficult. And I think that unless we do something, we will have more problems. So I think we have responsibility, all of us, to try to consider how can we build trust, how can we honestly discuss the issues that we have? How can we try to find a way forward?

SFC Markets and Finance: As we know that the Europe's politics has some unexpected election outcomes. So I'm curious, do you think the changes in politics of Europe will influence Sino-European trade relations?

Jens Eskelund:I'm not sure whether they have been unexpected.I think we're used to in Europe that when you have elections,that sometimes things may not exactly play out the way that you had expected,but I don't think that we have seen a very big change as a consequence of the election.

I think there are things changing in Europe that cut across politics,and that is sort of a concern about the industrial future of Europe.And I think we saw here a few months ago the publication of the so-called Draghi report, talking about how can you restore European competitiveness. And I think that's where the discussion is going now. And I'm just back from Europe, and my perception is that there is actually a broad consensus that you need to think much more systematically about how you restore European competitiveness. And I think that's, of course, one component of it because yes, there's a lot of stuffs that Europe needs to do itself to become more competitive because part of the reason that Europe is importing so much is that because Europe is not as competitive as it used to be. The part, of course, is also what should our trade partners here under China be doing to make sure that we're trading on fair and equal terms.

So I think we aim for some changes. I think there is a mindset change in Europe in many ways. There are new discussions popping up. I think it's healthy because if we don't think, then I'm sure that we're in for more trouble. But again, I think if we really apply ourselves that we'll also be able to find solutions.

SFC Markets and Finance: As an entrepreneur, how would you think the enterprises can maintain or strengthen the international cooperation under such a context of trade protectionism?

Jens Eskelund: I think actually that it's one of the most important tasks that we have, because through our more than 1,700 member companies, we have access to a fantastic source of very granular information. And we think it's very important that we're sharing this information with regulators, with Chinese government but also in Europe. So whenever you're having these discussions, they need to be taken on an absolute factual basis. We think it's only if you have this reliable factual base that you will be able to actually make solutions that work for both China and Europe. So that is what we can contribute. That is, we can provide industry-by-industry perspectives on, you know, how's it going here in China, what are the challenges we face, and what are the recommendations.

SFC Markets and Finance: Overall, how do you think the business environment that has been changing in the Chinese market for foreign enterprises? According to the Position Paper, there are more than 1,000 recommendations. What actions can the government take to boost confidence?

Jens Eskelund:I think it's important to emphasize thatthese 1,000 recommendations are intended as constructive inputfrom our 50 individual working groups.We have 50 industrial working groups who've been looking atwhat needs to happen, what do we suggestin order to improve the investment environment,to improve on the business conditions in all this variety.So I mean, please see this as our honest, constructive suggestionsindustry by industry to what we think can be done better.I think what the particular challenges that we continue to have,a lot of the longstanding issues.

Why should I invest here, if I have perhaps better terms elsewhere? I can make more money in other countries. So I think we really need to work together to find ways to restore confidence in the market here and develop the basic foundation that allows for profitable growth going forward.

SFC Markets and Finance: Since we're standing here in the Greater Bay Area, how do you think about the overall development of the GBA right now? You just told me that MSK built 40 big ships in Nansha, so how do you think the future of the Greater Bay Area, what opportunities will it bring to foreign enterprises?

Jens Eskelund: I think this is one of the really great and exciting clusters that we see here. And we have seen how in other locations, whether it's in the California Bay Area there or in the Tokyo Bay Area, and so on, powerful drivers like big clusters, population, and industrial research clusters like the GBA can be the engine for economic growth and innovation. So we think it's absolutely the right thing to do in terms of thinking about it as one integrated cluster. We think it's important that you continue to consider how to create the conditions that make the GBA competitive, not just relative to other places in China, but globally competitive.

You have a lot of other places in Asia that are also competing for the best talent in the world. What is it that you do? For example, tax regulations, quality of life, all these things that attract people who have a choice of where they want to live and work. How do we make sure that they come to the GBA? And of course, we're very happy to engage in that discussion and help benchmark against some of the other leading locations in the world. But we think that the concept of the GBA, and many of the plans is something that, for our members, creates a lot of excitement.

SFC Markets and Finance: Since you have been living here for 26 years, if I ask you to tell me one impressive Chinese story, what would you think about?

Jens Eskelund: I think there are many to think about. When I came to China, I think there were 200,000 cars in Beijing and the Fourth Ring Road was not constructed yet. Now I think we're close to somewhere between 5 and 6 million cars. And it is just completely transformed. I would actually be hard-pressed to single out one. But one thing is for sure that I do think personally, it has been a privilege to be in China during that period from the late 1990s and then until now.

I think it has been transformative for China. I don't think that China has ever seen anything like it. I think it has been transformative for the world. China joined the WTO on December 12th, 2001. And the way that single event has transformed the way that the world engages with each other, the way China has emerged from being quite a secondary trading nation to being the absolute leader in global trade. This vast integration of everything in the world for me has been just a fantastic journey. I hope the journey continues, and I'm looking forward to my next 26 years in China.

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