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1. Prosperity and Resilience: Diverse Production and Comparative Advantage in Modern Economies

Author:
David Henig and Anna Guildea
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
A common version of trade theory suggests that countries will specialise in a limited number of products. Using the example of David Ricardo from 1817, England specialises in cloth and Portugal in producing wine – and then they trade with each other to mutual benefit. However, this is a crude version of comparative advantage that routinely leads to political concerns about trade. Today the prime concern is that Europe and other developed countries have become too dependent on China by allowing the logic of comparative advantage to work. In short, trade has made us vulnerable. The observed reality is different. Most advanced economies produce and export a broad range of goods and services. Their governments have similar aspirations to develop and support diverse manufacturing and services, including in the most traded global sectors such as pharmaceuticals, automotive, business services, and food and drink. Modern specialisation comes in countries producing various, but not all, products within global supply chains. Patterns of trade suggest such specialisation has allowed countries to both grow and become resilient to individual shocks. Knowledge and ownership of the whole supply chain is more important than producing everything.
Topic:
Globalization, Economy, Services, Resilience, WTO, and Production
Political Geography:
Europe and Global Focus

2. China’s Public Procurement Protectionism and Europe’s Response: The Case of Medical Technology

Author:
Fredrik Erixon, Anna Guildea, Oscar Guinea, and Philipp Lamprecht
Publication Date:
09-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This paper concerns China’s market for medical technologies and how the Chinese state is assisting its own companies to gain greater sales at the expense of producers from Europe and other advanced manufacturing economies. The medical technology sector captures a variety of products, services and solutions which are essential to the provision of healthcare to citizens. Examples range from fairly simple technologies such as sticking platers, to complex ones, such as coronary stents, orthopaedics and pacemakers. In the last decades, Europe’s exports of medical devices to China have grown robustly. On the back of vibrant innovation, firms from Europe and elsewhere have not just followed the growth of Chinese demand for medical devices – they have also increased their share of Chinese imports. Now, however, this market is at risk of being gradually closed off for European firms as China doubles down on various policies that advantage local firms, while ultimately harming innovation and Chinese patients. China has recently introduced a new element in its industrial policy for its medical technology sector – a policy that builds on its long-term ‘made-in-China’ ambition to have local firms taking up the lion’s share of the market for medical devices by 2030. Beijing and provincial governments are using many different policies to provide support to the domestic industry and are in effect pursuing a policy for import substitution. Accessing the Chinese market for medical devices has never been easy but it has become increasingly challenging in recent years. Direct financial support, tax benefits, R&D support, local content requirements, opaque approval systems and other forms of advantages to domestic MedTech producers are now becoming major sources for the behaviour and development of the Chinese medical device market. China’s Fourteenth Five-Year Plan and the country’s new economic model of ‘dual circulation’ reinforces this trend. The Chinese market is becoming less open. Added to that is centralised state procurement – a new public procurement policy in China that was launched in 2019 for medical devices which has led to a grossly distorted procurement market. While this policy has reduced the price of medical devices in a drastic way, it has also paved the way for Chinese firms to take up a larger market share. This procurement policy is gradually squeezing European firms out of the Chinese market. Competition in China is becoming less fair. These policies follow a pattern. In several sectors, Chinese firms have grown their domestic market share through industrial subsidies and policies that restrict market access for foreign firms – or make it more difficult for foreign firms to compete in China. From their domestic market, these firms have then expanded abroad and taken a more prominent role outside of China. Backed by the Chinese state, these firms can squeeze market opportunities even more for otherwise-competitive European producers. Now this development is happening in the MedTech sector. It is urgent for Europe to respond to China’s procurement protectionism. MedTech manufacturers in Europe are often small and medium-sized enterprises, and they already struggle with getting into the Chinese market. China’s new procurement policy has also had a significant impact on Chinese imports of medical devices: a 1.3 billion euro trade deficit for China in medical technology products in 2019 turned into a 5.2 billion euro surplus in 2020. In Africa, Asia and Latin America, competitive European manufacturers are now confronted with competition from Chinese MedTech companies that have the backing of the Chinese state. The competitive distortions in the Chinese market now spill over to the global market – making European MedTech manufacturers even more disadvantaged. Europe should consider a case at the World Trade Organisation (WTO) against China’s policies which reduce European market presence for medical devices. Once agreed, a new International Procurement Initiative might be a useful instrument to wield pressure against the Chinese government to agree to free and fair competition. Europe can also negotiate with China – for instance in the framework of the Comprehensive Agreement on Investment (CAI) or through the new initiative on trade and health that Europe proposed to the Ottawa Group in 2020. These responses should focus both on remedying China’s current policy for growing its domestic medical technology industry by distorting its market and setting out the core policies and rules that should guide the future market for medical technologies. Fredrik Erixon and Anna Guildea are Director and Research Associate, respectively, at ECIPE. Oscar Guinea and Philipp Lamprecht are Senior Economists at ECIPE. The authors are grateful to a number of experts in the private sector and from the European Commission, the Federal Ministry for Economic Affairs and Energy in Germany, China’s Ministry of Industry and Information Technology that have taken their time to share their knowledge with us.
Topic:
Health, Science and Technology, European Union, and Public Procurement
Political Geography:
China, Europe, and Asia