Keynote speech delivered by Executive Vice President Valdis Dombrovskis at the Bund Summit in Shanghai on 23 September 2023.

[Check against delivery - a video recording is available on Europe by Satellite: https://audiovisual.ec.europa.eu/en/video/I-246081]

Ladies and gentlemen,
It is a pleasure to be with you today, especially in Shanghai with its long and varied history – and this famous waterfront that symbolises this dynamic city and major financial centre.

I would like to thank the organisers of the Bund Summit for inviting me to address this prestigious event.

Today, the world economy is going through a period of profound shifts.
Not so long ago, the world economy was going through a seemingly endless time of trade and investment integration – a process that came to be known as ‘globalisation’.

Just in the last few years, we have endured one shock after another. These shocks exposed weaknesses in existing trade and investment arrangements.
They also led to major changes in economic policies.

With the COVID-19 pandemic, for example, we saw widespread supply chain disruptions across the global economy. It was the beginning of a spiral of inflation that advanced economies had not witnessed in decades.

This was followed by monetary tightening in most major economies that transformed the financing landscape for businesses and sovereigns alike.

Then, in February 2022, Russia started its full-scale military aggression against Ukraine.
It dealt a further blow to global economic prospects. It also caused a commodity and food price shock that disrupted markets across the world, fuelling inflation even further.

Another factor is the rise in geopolitical tensions that stem from the strategic competition between China and the United States.

This increases uncertainty for international businesses, leads to more state involvement in the economy and risks starting subsidy races.

Some of these shocks are now unwinding.
Still, global growth has slowed down substantially in 2022.
For now, it is likely to remain weak by historical standards.
Many downside risks remain, along with a lot of uncertainty.

There is another effect as well.
The shocks that I mentioned are causing countries to shift the focus of their policies from efficiency to resilience.

They now see it as essential to shore up their capacity to withstand future crises and be ready to manage risks in a far more uncertain environment.

As the world becomes more polarised, this is today’s reality.
It makes it even more important to preserve the stability of the global trading system.

International trade is becoming more and more weaponised, as the rules-based global order is eroded in favour of one that is based on power alone.

The bottom line, unfortunately, is that economic, and geopolitical fragmentation is on the rise.
And this brings its own risks.

For example, the number of non-tariff trade restrictions has increased sharply since the pandemic.

We should not underestimate the magnitude of these challenges and geopolitical shifts. The EU and China can work together, as partners, to address them.
 
I will return to this a little later.

First, though, let me outline how the European Union decided to respond to the difficult and changing international context.
We have managed to weather the shocks of the pandemic and a war raging on our doorstep.

The EU achieved this perhaps better than many people were expecting. Given the size and impact of the shocks, our economy has shown remarkable resilience. We avoided a recession and preserved our social stability and cohesion.

But it has not been easy – at all. We still face many challenges, and much uncertainty. A mild growth rebound is expected for 2024 - 1.4% for the EU economy - following a period of weakness this year, with GDP rising by just 0.8%.

High inflation has taken its toll, particularly with food prices - which hit household budgets hard throughout Europe.

The EU’s three Baltic States – Estonia, Lithuania and my own country Latvia – were hit worst by the inflation wave that was sweeping across the continent.

Companies, especially smaller ones at earlier stages of their development, are finding it hard to access finance.
Rising interest rates just make their situation worse.

EU policies have evolved to cope with these major global shifts, also to protect our people’s prosperity and well-being – as we work to strengthen our resilience and open strategic autonomy.

We see the green and the digital transitions as vital for strengthening the sustainability of our economic growth model.

The green transition will reduce our dependence on fossil fuel imports – particularly from Russia.

It will not only improve the EU’s energy and resource security, but also help us to achieve our emission-cutting targets in the battle against climate change.

The digital transition will help us to leverage our strengths and maintain long-term competitiveness as we embrace the opportunities of the digital age, for companies and people alike.

At the heart of the EU’s new policy approach is the Next Generation EU recovery instrument.

This €800 billion programme aims to make EU economies and societies more sustainable, resilient, and better prepared for the challenges and opportunities of both transitions.

It is a performance-based programme, so EU countries receive payments once they carry out agreed reforms and investments.

Ladies and gentlemen,

The shocks that I am talking about are not only having an effect in Europe.
In almost every sector, arena and debate forum, we are seeing – and reading – what seems to be a whole new vocabulary:

“Onshoring, re-shoring, near-shoring, friend-shoring.
Decoupling, de-globalisation”.

This indicates a deep rethinking, on many levels – and brings me to the subject of openness.

The European Union is one of the world’s most outward-oriented economies. And we want to keep it that way.  

Creating an open market among its members was one of the EU's founding principles.
We are also committed to free and fair global trade.

And ‘fair’ is the key word here. We welcome global competition.
But it must be conducted fairly.

If you look at our trade relations with China, for example, it is one of the EU’s largest trading partners in goods and services.

Last year, the EU registered record bilateral trade with China of €865 billion. But this is very unbalanced, because the EU has a trade deficit of almost €400 billion.

The EU also needs to protect itself in situations when its openness is abused.

Our recent strategy on economic security aims to maximise the benefits of openness, while minimising our strategic dependences and vulnerabilities.

It involves gaining a deeper and exact understanding of the key risks that we face - and acting accordingly: to ‘de-risk’.

This means minimising our strategic dependencies for a select number of strategic products. Acting in a proportionate and targeted way to maintain our open strategic autonomy.

But let me stress: de-risking is not decoupling.
And the EU has no intention of decoupling from China.
 
These are some of the areas where the EU has been acting decisively to address its vulnerabilities.

China, too, faces a series of unprecedented challenges.

Given China’s economic influence in the world, how it chooses to tackle them will have international consequences.

As the world’s second largest economy and a manufacturing and trade powerhouse, China plays a major role in almost all global value chains.

Its approach will affect the entire global economy, whose growth over the past decades has been underpinned by the dynamic growth seen in China.
 
And it will matter a great deal to the EU, as one of China’s key economic and trading partners.

We believe that China would need to manage a challenging process of macroeconomic adjustment that heads towards a more sustainable growth model. This would imply:
•    relying more on domestic demand
•    reducing high corporate and local government debt
•    improving its business environment
•    fulfilling its climate change pledges.

All this against a background of an ageing population, which is a challenge that we also face in Europe.

The reforms that are really needed will be difficult: healthcare and social security, the labour market, business environment and the role of state-owned enterprises.

However, reforms in all these sectors would help to produce a more diversified and dynamic economy.
That will be to the benefit of both China and the rest of the world, including the European Union.

It is obviously up to China to decide its own way forward in tackling the challenges that it faces.
But as I said, exactly how that happens is immensely important to the rest of the world.

With a rapidly expanding middle class, China’s 1.4 billion consumers are a major source of demand for many businesses.

Broadening access to China’s market for foreign companies and maintaining a stable business environment is necessary to ensure fair and mutually beneficial trade relations.

It is also necessary to maintain our mutual trust as partners working together to address a number of global challenges.

An issue that most immediately springs to mind is food security. Earlier, I mentioned the commodity and food price shock caused by Russia’s aggression against Ukraine.

As a result of Russia’s cynical tactic of weaponising food in its relentless war, people in developing countries are the ones suffering the most.

Their governments have no choice but to import grain and other foodstuffs to feed the population.
This now has to be done at high prices and reduced availability.

The world must take a stand against this unacceptable and disgraceful behaviour by the Kremlin.

So I would like to invite China to put its weight behind reviving the Black Sea Grain Initiative, together with Türkiye and the United Nations.

There are other global issues where China’s active participation is a key requisite for success.

This concerns, for example, tackling climate change and debt distress.

On climate change, China plays a critical role in what has emerged as the major 21st century challenge facing mankind.

As the world’s largest CO2 emitter, it accounts for some 30% of global emissions. There is a long way to go in making its economy sustainable and more environmentally friendly.

But it must also be said that China has been making one of the most significant financial and policy commitments to the energy transition – nearly US $300 billion in 2021 - including by launching the world’s largest carbon market.

The EU and China have a long and valuable cooperation on climate change.
This includes within the G20 Sustainable Finance Working Group, co-chaired by the People’s Bank of China and the US Treasury, and the G20 Sustainable Finance Roadmap.

I also recall representing the EU at the launch of the International Platform on Sustainable Finance in Washington, four years ago – along with China, as its founding members.

Regarding debt distress: according to the International Monetary Fund, around 60% of low-income developing countries are already in debt distress, or at high risk of it.

Higher interest rates, and therefore higher borrowing costs, place more pressure on national budgets – making it more difficult for low-income countries to service their debt.

It is particularly urgent that creditor countries and institutions take joint action. As the world’s largest official bilateral creditor, China has a leading role to play.

It is important to build on the steps taken under the G20 Common Framework for Debt Treatment.

This is how we can make sure that debt burdens are sustainable and avoid risking a lost decade of development for many low-income economies.

The recent progress made on individual countries – Ghana and Zambia, for example – is promising.
And so is China’s own engagement.
It shows us the path that we need to follow.

Ladies and gentlemen,
I began my address by mentioning recent shocks that have affected the world, not just China and the European Union.

Their result has been a rise in geopolitical tensions, economic fragmentation and a slowdown in the global economy.
The combined impact has been particularly harsh for less developed countries.

Put all these challenges together – and it is a daunting scenario that faces the world.
No country can address these enormous challenges on its own.

We still need to find a way of working together to address common issues that affect the global community – and without the distraction of problem areas that may temporarily divide us.

Our long-term interest is to embrace reforms and stay open to international cooperation.

Here, we see China as an important partner.
One with whom the EU wishes to work towards a more balanced trade and investment relationship.

Thank you.

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