As the EU’s share of the world’s trade in services currently stands at around 23.5%, the EU’s response to the OBOR initiative should be the Digital Silk Road. In order to take full advantage of the new possibilities and opportunities the OBOR and the Digital Silk Road present, companies in Europe need a more competitive plan rather than relying on cooperation in traditional industries and infrastructure. The focus should be on new markets created in innovative areas such as smart cities, e-health, intelligent transport, energy, and the Internet of Things (IoT).
Managing leadership in the above-mentioned areas is important to secure the fast communication networks for the future. By 2020, the EU has committed to invest €700m to accelerate internet connections through the new 5G technology within the Horizon 2020 research program. Both the EU and China are vying to secure 5G technology in their domestic markets and strongholds. The winner of this race will have a 1,000-fold increase in mobile data traffic, 100 times more connected devices than today, and data transmission 100 times that of the 4G standard.
The 5G standard however remains a work in progress as a lot of research must be completed to build truly global 5G technologies by 2020. An agreement signed by the EU and China allows EU telecommunications and ICT firms more access to the Chinese market, including China's government-funded 5G research. Europe could find itself outclassed by China or South Korea if it is not the home market for the new wave of technology.
Faster connectivity could also play an important role in the advancement of e-commerce activity between Europe and China. A tale of two Internets characterises the global e-commerce divide. Any successful European digital strategy has to view Silicon Valley’s creativity and the existence of the Chinese Internet as an independently evolving entity. So where does Europe fit into the picture?
China has already overtaken the United States to become the world’s largest online retail market, although the fastest growing e-commerce segment is B2C, the greater share is comprised of B2B transactions. Third-party platforms like Alibaba typify China’s connection to the outside world. Although European businesses increasingly connect with their Chinese customers via platforms like T-mall, their B2C e-commerce presence remains underdeveloped.
While it may be common in the West to build brand awareness via social media and simultaneously have easy access to customers all over the world, Chinese social media can prove challenging for European businesses. This is because small and mid-sized companies struggle to successfully target Chinese customers, and therefore their inability to reach Chinese customers online creates an unnecessary detriment to EU-China trade relations. 70% of Chinese luxury goods purchases are made overseas and European companies could offer an alternative in high-quality luxury products with the standard demanded in China.
Chinese e-commerce is governed by a number of laws and governmental authorities that can be very demanding to handle. Evolving regulations potentially discourage many willing European entrants. The struggle to promote a joint digital economy is impressive, but must also be equitable. Foreign web services firms need licenses that can be difficult to obtain in order to operate web services in China, and technology companies have to host Chinese data on local Chinese servers and find themselves beholden to investment restrictions in many Chinese sectors. Recent news of Chinese regulation of foreign-owned media content, ambiguous in interpretation, is another example of this.
Conversely, EU-China cooperation on the Digital Silk Road could allow Europe to better engage the Chinese cyberspace evolution. Indeed, the EU could better leverage a constructive approach towards the Chinese regulatory agenda. The digital economy offers a vast space for cooperation - provided both sides contribute equally to the relationship. Europe should find ways to deepen EU-China digital cooperation, and summon the strength to enter the relationship as a co-creator, whether in the 5G-network space, in smart cities applications, or via strong e-commerce links. Failure to do so will find the EU upstaged by others.
This article is part of Friends of Europe’s Policy Paper ‘EU-China: New Directions, New Priorities‘ which brings together the views of Friends of Europe’s large network of scholars, policymakers and business representatives on the future of EU-China relations. These articles will provide immediate input for the EU-China Summit on 12-13 July 2016, but their value and relevance goes well beyond this year. They set the tone for EU-China relations over the next decade.
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