EU companies should prepare for the worst over U.S.-China digital decoupling

In a statement European business groups have said, EU business must “prepare for the worst” over digital decoupling between the U.S. and the Chinese economy, which could significantly impact EU businesses in China.

In a statement the European Chamber of Commerce in China and MERICS, a Berlin-based think tank said, U.S.-China political, trade and financial decoupling are a concern.

The United States is in the process of removing Chinese made software and hardware components from its communication network over economic and military espionage concerns. China, which is heavily dependent on semiconductor imports, is pushing for digital self-reliance. European companies are caught in the middle.

Speaking at a briefing ahead of the report’s launch, Chamber president Joerg Wuttke warned of a “gathering storm”. He went on to add, digital goods and services would be the sector where decoupling is likely to hurt companies the most.

Many EU businesses are already grappling with some of these issues, with different definitions of “data” already having a “significant negative impact” on nearly half of the companies surveyed, said the groups in the report. 19% of companies had abandoned or postponed new projects, goods or services over Chinese regulations on personal information.

“As the world moves towards increasing techno-nationalism, the possibility of complete digital disintegration requires sober analysis,” reads the report; the development comes just after two weeks since the EU and China reached an agreement which purportedly provides European companies greater access to China’s market.

Protectionism in China, despite trade agreements, makes it hard for foreign companies to survive in the market where Chinese State-backed companies have a clear advantage over their peers, said Jacob Gunter.

European companies will be forced to either operate in those stifling market conditions or separate their operations entirely from China and find a ways to use more “neutral” architecture, states the report.

“The costs of either option are considerable. Every step taken down the path of decoupling inflicts further damage on innovation, efficiency, cost-saving and economies of scale,” reads the report.

“We are on a ride downhill … it’s gathering speed,” said Wuttke. “I don’t see any exit ramp at this stage.”

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