As China, EU eye warmer ties, Brussels seeks to protect its crown jewel - manufacturing

Hopes for a long-awaited recovery of factory activity in Europe’s manufacturing powerhouse were uplifted this week as a key indicator of the sector’s health surged to a 34-month high in Germany.

But the fact that the country’s manufacturing purchasing managers’ index for June still remained at 49.0 – when a reading below 50 suggests a contraction in the sector – underscores the uphill challenge that Germany is facing in trying to regain growth and past glory in its manufacturing activities.

Analysts and industry insiders say that while there is increasing urgency for both China and Europe to seek better ties, the key factor determining the dynamics between Brussels and Beijing is Europe’s underlying concern over China’s threat to the EU’s manufacturing prowess – a jewel in the continent’s crown.

“Europe wants to rebuild its manufacturing sector, so it cannot afford to have a lot of cheap imports from China,” said Sacha Courtial, a researcher specialising in economic governance in Europe and China, at the Paris-based Institut Jacques Delors think tank.

The EU remains one of the world’s biggest manufacturing bases, with a net output of US$2.72 trillion in 2024. That was roughly on the same level as the US, which had an output of US$2.91 trillion, but trailed China’s US$4.66 trillion, according to World Bank data.

Yet, the 27-member bloc is facing multiple challenges related to energy costs and private-sector spending on innovation, amid geopolitical shifts. About half of European companies flagged energy costs as a significant barrier to investment last year, according to findings in the so-called Draghi report published by the European Commission in September.

Philippe Le Corre, head of the Asia Programme at the ESSEC Business School in France, said Europe’s economic situation was problematic, “and today’s generation of young people are wondering about their future – about what they are going to do professionally”.