handbook - EMF-FEM

HandbookEuropean industries shaken up byindustrial growth in China:What regulations are required for asustainable economy?Research groups Coordination and steel: Syndex Shipbuilding: Bremen University Automotive: Institute for LabourPart financed by theEuropean CommissionPublished by the European Metalworkers’ Federation 2007Sole responsibility of this document lies with the author and the European Commissionis not responsible for any use that may be made of the information therein.

Table of contentsForeword & Introduction of the project ...................................................................................... 3Participants ................................................................................................................................... 3Time frame .................................................................................................................................... 4Methodology.................................................................................................................................. 4Automotive .................................................................................................................................... 5Introduction.................................................................................................................................... 5Auto sector development in China ...............................................................................................................................52005: China becomes the second world market and the third world producer ................................................5Production and sales in 2005......................................................................................................... 6Leading automobile manufacturers in 2005................................................................................ 6The Key Issue: the relation between the imports of automotive components and thechain of domestic suppliers........................................................................................................... 7Globalisation of China’s production ...............................................................................................................................7Development of innovative production techniques: a new side of technology and managerial techniquestransfer..................................................................................................................................................................................7Increasing sophistication of auto parts manufacturing ...............................................................................................7Impact on European automobile industry................................................................................... 8European OEMs...................................................................................................................................................................8The impact of the growth in China on European OEMs.........................................................................................10The impact of the growth in China on European OESs...........................................................................................10Sector conclusions and policy recommendations .....................................................................................................11Shipbuilding................................................................................................................................... 12Introduction..................................................................................................................................12The last five years........................................................................................................................12The competition between world regions....................................................................................12Forecast.........................................................................................................................................13The consequences of the Chinese developments for European shipbuilding/maritimeindustry.........................................................................................................................................15Increase of the competition situation...........................................................................................................................15Diffusing of the competition situation..........................................................................................................................15The know-how transfer as a key element to develop Chinese shipbuilding industry..............15Sector conclusions and policy recommendations......................................................................15References.....................................................................................................................................16Steel............................................................................................................................................... 17Chinese steel sector development...............................................................................................17The steel consumption in China in comparison with Europe................................................................................18The impact on the European (and world) steel industry.........................................................................................19The search for raw materials: a strategic issue for China…and for Europe?...........................19The question of overcapacity......................................................................................................19Sector conclusions and policy recommendations......................................................................20Cross-sector conclusions – automotive, shipbuilding and steel............................................... 22Policy recommendations.............................................................................................................. 23Seminar report – China and the EU “Research on the future of the European metalindustries – automotive, shipbuilding and steel”....................................................................... 24

Foreword & Introduction of the projectAfter years of blossoming economy China still reports impressive growth rates. There are various reasons for investorsto be active in business relations with China. Some are just looking for short-term profit and others regard it as ahuge market with endless potential. Increasingly China is also seen as a strategic option for investing in productionsites, investing in an environment where the dynamic economy promises long-term growth. While a few years agoproducers in Europe and other parts of the world saw China as the place where one could sell products potentiallyto one billion consumers, nowadays the fear of cheap products from China overflowing the European market oftenmakes the headlines.The European Metalworkers’ Federation (EMF) represents among others the interests of the workers in economicallyand socially important sectors such as the automobile, steel and shipbuilding industries. The discussion about thefuture development in these industries with regard to the development of the potential market in China, and also thedevelopment of Chinese companies as competitors on a global market, were among the reasons why the EMF carriedout the present research project.The present study was undertaken by three research institutes. It is about the recent development in the three abovementionedmetal sectors and the possible future of China’s and Europe’s economy in these particular industries. SinceChina was a net exporter in steel for the first time and the first Chinese cars appeared on the European marketin 2004, it is no surprise that many people working in the automobile, shipbuilding and steel industries fear thatcompetitive products from China will conquer the home market.The trade unions clearly have to ask questions about the future of European industry, and evidently about the futureof jobs in European manufacturing industries. Of course, with regard to China’s political constitution one can hardlytalk about fair competition. Massive violations of basic human and trade union rights, enormous problems with regardsto health and safety standards and environmental protection are facts which influence economics, trade and business.Since an unregulated global market determines the agenda of the strategic policy of many of the multinationals, ethicaland social values are often regarded as an obstacle for successful company policy. Fierce competition on a globalmarket consequently puts the trade unions and their members under pressure. Wage dumping and relocation areonly two catchwords in this context. The EMF study tries to give answers to the important question “Where doesEuropean industry benefit from an increasing engagement with Chinese companies and in China itself?” We also raisethe question about the threats to the metal industry in Europe and evidently to employment in the three sectors. Thedebate will certainly continue and the EMF will closely monitor the development in the respective sectors. The EMFwill continue to raise awareness about the risks for a social Europe when there are insufficient guarantees regardingthe aspect of employment because global players are just interested in markets and profits but not in people.By implementing a research project in 2006 on the future of the European metal industries the trade union actorsaimed to:Draw up a shared assessment of the immediate future of the European industries in questionInitiate a discussion on the role of the social actors in regulating the European industries in question via socialdialogue bodies like European Sectoral Social Dialogue Committees, European Works Councils, internationaldialogue committees within multinationals and regional social dialogue committeesÍ ParticipantsThe project has been conducted by one research group and one Steering Committee. The research group consists ofthree research teams and a project leader from the EMF Secretariat. Each team is responsible for one sector and oneof the teams is also coordinating the research work as a whole. Research on the steel sector is conducted by PhilippeMorvannou and Daniela Gradinaru at Syndex in Paris. Emmanuel Reich at Syndex wrote the chapter Is China’s growthsustainable? Syndex is also coordinating all three research teams. Research on the shipbuilding sector is conductedby Dr. Jochen Tholen and Dr. Thorsten Ludwig at the University of Bremen. Research on the automotive sector isconducted by Francesco Garibaldo at the Instituto per il Lavoro in Bologna.The Steering Committee consists of representatives from the EMF Industrial Policy Committee, the EMF CompanyPolicy Committee and representatives from each of the steel, shipbuilding and automotive sectors (in total nine people).The Steering Committee assesses the work of the researchers, provides an input and comments on the results.There has also been cooperation with the International Metalworkers’ Federation (IMF) and participation in the IMFChina Work Group in Geneva.

Í Time frameThe project started on December 1st 2005 and ended on December 1st 2006, hence lasting 1 year.Í MethodologyThe methodology used in the research is first of all interviews on both company level and on a European level. Theresearchers have also used state of the art research reports conducted by other projects and other organisationsaround Europe.The project has taken place in Europe and no Chinese project partners were involved. Some interviews havebeen conducted with Chinese counterparts on location in China. These interviews have been conducted over thetelephone.The following working methods were used: establishment of a transnational team composed of researchers as well as a steering committee includingmembers from the EMF Industrial Policy Committee, the EMF Company Policy Committee and from theSector Committees automotive, shipbuilding and steel pinpointing the major problems faced by the study conducting interviews drafting of conclusions presentation of results at a conference that took place on 6-7 November 2006.The EMF thanks all the people who contributed to the study who were generous in sharing their knowledge aboutChina. The EMF also thanks the researchers of Syndex, the University of Bremen and the Istituto per il Lavoro.Peter ScherrerEMF General Secretary

AutomotiveÍ IntroductionThe turning point of the Chinese development in the auto sector came in 2001, when China was admitted to theWorld Trade Organization (WTO). Before there was an initial period (1953-1983) of low production capacity andoutdated technology, followed by a first wave of modernization (1984-2000) during which the Chinese governmentproposed a ‘market for technology’ strategy, which aimed to get foreign manufacturers to transfer their technology toChinese companies so as to allow them to win back market share from the foreign players.Auto sector development in ChinaThe first Sino-foreign automobile joint venture was formed in 1984 by DaimlerChrysler and Beijing AutomotiveIndustry Corp. Later on, other global auto manufacturers, such as General Motors, Volkswagen, Ford, Toyota, Nissan-Renault, PSA Peugeot Citroen, Honda and BMW also established joint ventures in China.The establishment of joint ventures helped China’s automotive industry develop at a faster rate mainly because of thehuge transfer of technology and managerial techniques from Western countries and Japan. However, the joint venturescontrolled about 90% of China’s passenger car market at that time and have dominated the market since.After China entered the WTO in 2001, the automotive industry began to grow even faster. The overall output increasedby 38.83% and 36.69% in 2002 and 2003, and the output of sedans were up by 55.2% and 85% respectively. Duringthese two years, there were almost zero inventories at year end. Then there was a slowdown in 2004 because theChinese government launched a few finance-based polices to cool down the market, such as discouraging bank lendingand slowing the approval procedure for investments. In addition to these macro controls, lower personal car loansfrom banks and frequent price cuts also kept consumers away. Many potential buyers delayed their purchases as theyexpected prices to drop further. As a result, production and sales of automobiles started slowing down after thebooming years of 2002 and 2003. In 2004, the total output and sales (excluding imports) of automobiles climbed by14.2% and 15.5% to 5.074 million and 5.071 million units respectively. Sedan output and sales for automobiles came upto 2.31 million units and 2.33 million units respectively.In 2005, China’s automotive market continued to maintain stable growth, with total output reaching 5.71 million unitsand auto sales hitting 5.76 million units, a growth of 12.55% and 13.54% respectively year on year. By adding about160,000 units of imported automobiles in the year, China’s automobiles sales came close to 5.92 million units.2005: China becomes the second world market and the third world producerIn the year of 2005, China surpassed for the first time Japan’s sales of 5.8 million units to rank as the world’s secondlargestautomobile market in terms of numbers of cars sold, only second to the U.S. Apart from being a huge marketfor cars, China has also become a major producer. In 2005, China became the world’s third-largest producer, aheadof Germany, only second to the U.S. and Japan. Without a doubt, China has become a large automobile consumer andproducer market.However, the Chinese auto market is far from saturated according to the economic size, strength and growth modelof the country. For example, the total highway mileage of China is ranked second in the world; however, the ratio ofthe total number of vehicles to the total highway mileage is only one-third of the U.S., one-fifth of Japan, one-sixth ofGermany and half of South Korea. Besides, there are currently 24 units for every 1,000 people in China, still far behindthe figure in the U.S. (700 units per 1,000 persons), and the global average, which are 120 units per 1,000 persons 1 . Inrecent years, the fast-expanding passenger car market acted as the driving force for the booming automotive industrybecause Chinese consumers had more auto models to choose from as more automakers entered the market afterChina joined the WTO. Also, the increasingly growing disposable income of the Chinese people has boosted demandfor cars. Unlike a few years ago, when automobiles were mainly purchased by the government and corporations forbusiness use, they have now become personal consumables and private car consumption has gone mainstream. By theend of 2005, autos purchases for individual use has exceeded 50% of total sales and more than 70% of purchases arein the urban areas. The possession of private vehicles has exceeded 23 million units in 2005.On the other hand, the gap also provides much opportunity for the development of the auto industry. Assuming onein every 100 people purchases one automobile in a year, the demand for automobiles in the country will be 13 millionunits, more than double the country’s auto production in 2005. Although the GDP per capita of China is only US$1,700so far, the average GDP per capita of the coastal region has reached about US$4,000. The purchasing power of theChinese people will lead to a rise in demand for household cars. Therefore, the existing vehicle reserve of China is stillvery small and the market potential is huge, although the auto output and sales have been growing very fast.The development of China’s auto industry is expected to develop at a mature and stable rate. Driven by the country’ssteady economic growth, the auto market will keep expanding and is widely expected to exceed 10 million units by2010 and 16 million units by 2020.1 Source: China Association of Automobile Manufacturers

Production and sales in 2005In 2005, China’s automobile market rebounded from the stagnant market of 2004. Average monthly sales volumesurpassed 475,000 units and December was a record month as sales approached the 620,000-unit mark. Theperformance of the passenger car market improved, with output and sales up by 12.56% and 13.54% respectively. In2005, sedans continued to be the major force behind the growth of the automobile industry, accounting for 49% oftotal automobile sales. In contrast with the booming passenger car market, the commercial vehicle segment declinedby 0.6% and 0.75% in terms of production and sales respectively.2005 Automobile production and sales in ChinaProduction Growth rate Sales Growth rateAutomobiles 5,707.7 12.56% 5,758.2 13.54%Passenger Cars 3,930.7 19.73% 3,971.1 21.4%Sedan 2,767.7 24.42% 2,787.4 24.31%MPV 155.1 30.42% 155.8 42.76%SUV 195.3 15.48% 196.4 20.63%Crossover 812.6 5.47% 831.5 9.87%Commercial Vehicles 1,777 -0.6% 1,787.1 -0.75%Coach 176.8 -2.6% 178.6 -2.34%Truck 1,162.4 4.26% 1,163.4 3.79%Semi-trailer towing vehicle 56.5 -41.67% 56.8 -42.76%Incomplete vehicle of coach 90.2 0.04% 90.5 -0.15%Incomplete vehicle of truck 291 -4.34% 297.7 -2.98%Source: China Association of Automobile Manufacturers Leading automobile manufacturers in 2005Currently, the top five car makers in China are FAW Group, SAIC (Shanghai Automotive Industry) Group, DongfengGroup, Chang’an Group and Beijing Auto Group. In 2005, the top five automotive groups sold 3.86 million autos,accounting for 67% of the total sales in China. The sales for each company exceeded 500,000 units over the year. Thecar makers ranked sixth to tenth are: GAI (Guangzhou Automobile Industry) Group, Hafei Motor (Harbin Hafei MotorCo., Ltd), Chery Group, Jianghuai and Geely Group. Among the top ten automakers, Chery and Geely are the only twocompanies that are not joint ventures. In 2005, the top ten car makers sold 4.82 million units, accounting for 83.7% ofthe total sales in China.2005 Market share of top ten auto manufacturersCompaniesMarket shareFAW Group 17.1%SAIC Group 15.9%Dongfeng Group 12.7%Chang’an Group 11%Beijing Auto Group 10.3%Guangdong Auto Group 4.1%Hafei Motor 4%Chery Group 3.3%Jianghuai 2.7%Geely Holding Group 2.6%Total 83.7%Source: China Association of Automobile ManufacturersTo some extent, the year 2005 was a turning point in China’s automobile industry.

Í The Key Issue: the relation between the imports of automotivecomponents and the chain of domestic suppliersGlobalisation of China’s productionCompared with its foreign counterparts, China’s auto parts industry entered into the new century with the followingprevailing principal characteristics:More labour-intensive in natureRudimentary production techniquesInconsistent conformity of productsLittle capital formulationPrior to the penetration of the overseas market, Chinese firms should exploit their lower capital outlay and labourcosts to establish a strong standing in the domestic market. There is a steady increase in the number of firms whohave attained the prestigious ISO-9000 and the more stringent QS9000 certifications (Shanghai Hui Zhong automobileProduct Co., Ltd. and Shanghai GKN Drive Shaft Co., Ltd.). The achievement implies that Chinese auto parts firms aredoubling their efforts to attain the necessary credentials to raise their international competitiveness. Many believeChina should first focus on establishing itself as a world-class auto parts industry. The establishment of an excellentnational auto parts network is one of the effective measures to convince auto MNCs to make China into a mainbase of operations. Ready access to auto parts components would strengthen their bottom lines, without the needto import costly parts. Streamlining their purchasing and supply chain management functions would raise efficiency intheir overall production processes.This is a critical feature of the Chinese development because in the car sector the key issue is that the cost of importof auto parts is a significant pressure on foreign firms to improve the manufacturing quality of their Chinese suppliers.Supply issues and the import of auto parts contribute to significantly elevated costs for Chinese manufacturing. ThusVolkswagen estimated the cost of manufacturing a vehicle in China 18% higher than the cost of manufacturing inGermany in 2003.For this reason, the goal is to upgrade the chain of domestic supply of auto parts through different actions andinvestments.Development of innovative production techniques: a new side of technology andmanagerial techniques transferLarge auto firms demand higher expectations from their auto parts suppliers today. MNC Auto parts manufacturershave devoted a greater chunk of their budget to R&D on product innovation. Many American and European suppliershave allocated 5% of their budget on product research while their Japanese counterparts spend as much as 6%. Witha huge pouring in of investments, these foreign MNCs have established world-class R&D facilities, which China’s autoparts makers lack the ability to match. Many MNCs manifest their comparative advantage in the development ofcrucial auto assembly parts while the low-valued added assembly stages will be allocated to the Chinese firms. This isespecially common among Japanese firms who often adopt a closed door policy on sharing sophisticated value-addedcomponents even to their partners for fear of eroding their competitive advantage. These intermediate sectors formthe nucleus of the auto parts industry. To move up the value chain, Chinese firms should establish working ties withmore technologically advanced foreign counterparts. Most importantly, the Chinese should incorporate the innovativespirit in their R&D if they are to catch up with the rest of the world. This is already happening in the Shanghai area.Increasing sophistication of auto parts manufacturingIn order to fulfil its ambition to be a world leader in auto parts production, China is planning to develop an excellentauto parts industry. Its auto components must be inexpensive while meeting international standards. Once domesticauto parts companies reach a certain size and financial standing, China’s policies would encourage mergers andacquisitions in the industry. This would increase the size of local companies, making them similar to MNC competitorslike Delphi, Bosch, Visteon and Denso. Domestic companies are developing more sophisticated production techniques.For example, in an attempt to reduce their capital costs, Fulin and Fushi Machinery Groups plan to share engines andgearboxes in their new vehicles.In this decade, China will try to shed its image as a low-tech assembler and to move to production of high value-addedauto components - ABS, GPS, and systems for electronic fuel injection, airbags, and central locking. This evolutionwould be slowed down by the reluctance of many overseas JV partners to share advanced production technologies.These fears are ill founded, because Chinese companies may work with their partner’s competitor. Each of China’stop four carmakers - First Auto Works (FAW), Shanghai Automotive Industry Corp; (SAIC), Guangzhou Auto andDongfeng Auto - have ties with at least two global manufacturers.

China is endeavouring to produce interchangeable auto components, e.g., parts meant for a Mercedes luxury caralso can be used in a Citroen or Opel. This would facilitate mass production while reducing production costs. Nonpollutionauto components were also in the works - solar and electric engines for example. The industry is takingsteps to ensure that domestic auto parts meet the rigorous standards of international accreditation bodies like theInternational Organization for Standardization (ISO). Currently only a handful of the larger companies have attainedISO9000 or QS9000 accreditation - Shanghai Automotive, Wanxiang Group, United Automotive Electronic Systems,Shanghai Ek Chor General Machinery and Fuyao Glass.Some of the larger companies which have attained both are now considering migrating to the more advanced ISO/TS16949:2002 system. This is essentially a “process approach” which refers to the application of a system of processeswithin an organization, together with the identification and interactions of these processes and their management. Itis driven by the philosophy that it is no longer good enough to document what you do and to do what is documentedbut also to verify the effectiveness of the organization’s processes in meeting customer and internal requirements. 2The domestic auto parts companies have pledged to establish their products into well-known international brandsalong the lines of Delphi and Bosch. However, such brand names will curtail quality and reliability of its product, whichChina is clearly lacking. Currently, China has very few established brand names in the international arena. ChineseFuyao Glass is the best known brand in the auto parts industry, with a substantial market share in China, NorthAmerica, Europe and Japan.Beyond attracting Western and Japanese MNCs, the lucrative Chinese automobile industry has aroused investor’sinterests in ASEAN (Association of Southeast Asian Nations). Possessing the most advanced economy in the region,Singapore is one of the few ASEAN counties that can offer attractive working partnership with China in its bidto produce the highly sophisticated parts. A framework on Joint Study Group on Automotive Electronic Parts &Component Industry Cluster (JSG-AEPCIC) has been implemented. Prominent business leaders have participated inthis co-operation. Ng Boon Hoo, the CEO of Sunningdale Precision Industries and Gilbert Ong Peng Koon, Chairman ofArmstrong Industrial Corporation were appointed as the Chairman and the Vice-Chairman respectively. A cooperativeframework was established between the auto sectors in Singapore and Thailand to jointly manufacture and sell highquality auto parts to China.It has become imperative for China to implement necessary changes and harness new foreign technologies effectively,if it would want to reach its goal of developing a world-class auto components network.Without a proper modern auto parts industry, China would fall far behind convincing leading auto MCNs. For instancethe Chinese automotive supplier Huaxiang Company in 2005 had 20% of the turnover of the company attributed to theincreasing exportations. Furthermore, the Huaxiang Company set up an affiliate in Wolfsburg near the headquarters ofthe Volkswagen group. In general, it can be observed that in 2005 China has become a net exporter of car components.From the Chinese point of view this is an important result as it shows that there has been significant improvement inproduct quality during recent years. In the past the low quality levels made it necessary to import a major part of thecomponents. As a result more than 70% of the overall value was to be attributed to importations. Today due to theimproved quality levels new possible scenarios involving Chinese OESs as well as the big first tier suppliers such asDelphi and Bosch are arising. The Huaxiang Company is, in fact, an example for the changing structure of the sector atglobal level. The fact that the Chinese supply industry has become a net exporter shows the level of maturity of theChinese OESs. According to Marchisio the future developments includea) the Chinese OESs with increasing exportations and an increasing share on foreign markets;b) multinational companies (Delphi, Bosch etc.) that shift production processes to China in order to producefor the Chinese market as well as to use China as an export platform;c) Chinese OESs such as Wanxiang that acquire Western companies in order to obtain technological andmanagerial know-how.Í Impact on European automobile industryEuropean OEMsIn 2005, 54.559.023 3 passenger cars were produced worldwide, of which 17.772.480 (32.57%) in European plants andthe new registration of passenger cars in Europe was slightly less than 15 million, it means almost 3 million in surplusthat should be sold outside Europe. If the worldwide production of European brands is taken into considerationthe challenge for European producers is even bigger; for instance in 2005 the production of passenger cars made byGerman manufacturers abroad was up to almost 5 million, that is roughly half of the overall German production.In 2005 the worldwide demand for passenger cars was 53 million vehicles. This means that there is a strong imbalanceamong production and sales data while the pace of productive capacity building, by each historical brand, is increasing inthe attempt to widen the market share and therefore increasing the plant’s utilisation rate and rising profit margins.2 Source: Automotive Industry Action Group (AIAG) ISO/TS 16949:2002 Implementation Guide.3 The figures of this first paragraph come from VDA data base

The capacity installed is for 80 million cars per year. There is on average a worldwide utilisation rate of the plants ataround 75%, which means an overpricing for the consumers; the average rate is the outcome of very different ratesdepending on the producers and this is becoming a competitive factor in terms of costs or profits or both. In themeantime new brands, mainly in China are increasing, mostly in joint ventures with western historical brands, newplants or expanding existing ones. The FDI level in China was 60bn dollars in 2004 4 .According to the Economist: “VW’s problems are particularly acute. Its European factories have 20% surplus capacity,compared with 16% for Renault-Nissan and just 3% for BMW” 5 .It can be noted also that some geographical areas are net importers, for instance the US, Germany and Europe. Oneof the consequences is that competition is focusing on big markets with positive trends such as China, India andRussia; but there are very different situations in these markets because in China there is a growing risk of domesticsurplus capacity and fierce competition among the producers. According to KPMG: “Concerns about overinvestment[in China] have been around for some time and it appears that domestic demand may not be able to absorb plannedproduction capacity in the near future. It is believed by some that exports could be a potential but partial solution tothe issue.” 6As it will be argued later this is a key point in assessing the China risk on the mid or mid-long term analysis. A processof consolidation and concentration of the OEMs, and OES, is under way as the Mercer 7 report points out.If the agreement that is under discussion between Renault-Nissan and GM will be reached there will be an accelerationof the process. The consolidation process is starting also in China for Chinese OEMs. In any case, out of 54,599,023cars produced in 2005 8 more than 50% were produced by the first 8 OEMs 9 .Radical change of the market structure in the automotive industryTraditionalMarket StructureNewMarket StructurePremiumsegment16% 17% 22%Premium productPremium SegmentVolumesegment82% 79%72%Volume SegmentSmall Car /Low CostSegmentSmall Car Segment23%2% 4% 6% Low Cost Segment1985 1995 2004 2007Additional differentation inside the segments; increase of Nichi CarsSource: Mattes/Ford and B&D 2005 (Forecast 2007)Source: Mattes/Ford and B&D 2005(Forcast 2007)The competitive scenario for European car producers is different for the different market segments as this picture 10describes. It is evident that if this forecast is correct the European OEMs mostly affected by the internationalcompetition in the mid term are:OEMs specialised in the volume segment, because of the relative reduction of the market,OEMs specialised in the small car/low cost segment because both are growing and the low cost segmentwill be the first likely target of the newcomers and the small car segment will be the target of almost all theproducers, due to the congestion in the metropolitan areas and the likely growing cost of oil.The case for the premium segment is different because it is expanding also in China (Audi, interview).4 Financial Times – Asia edition: “China goes global”5 The Economist on the 16th of February 20066 KPMG: China Automotive and Components Market 2005, p. 97 Mercer Management Consulting - 20038 VDA data9 OICA Statistics - http://www.oica.net/htdocs/Main.htm10 From the paper presented by Siegfried Roth, European Metalworker’s Federation, Brussels; Chairman of the EMF Automotive SectorCommittee at the IPL European conference in Turin (7-8 March 2005): Relaunching the innovative role of the Europeanautomotive industry in the field of technology, organisation and quality of work and The Role of advanced industrial relations Practices.

The impact of the growth in China on European OEMsThe first and most relevant effect is the role of the dimension of the Chinese market and its future potential. EuropeanOEMs need to have a relevant presence in China as a stabilizing effect on their overall performance, due to dramaticeconomies of scale. For instance Audi sold in the first six months of 2005 roughly 12% of its total sales in China. So themarket scale will produce, for the time being, different effects on different OEMs, depending on which segments it isfocused on and on its market share. All Western OEMs are convinced that, in the medium run, they will gain acceptableprofit margins, also with a low market share, because of the overall market size.It seems therefore that for European OEMs China is basically a market and not an “export platform”. This is confirmedby the interviews with representatives from Volkswagen, DaimlerChrysler and Audi. Only with regard to the Asian andAustralian markets China may function as an export platform in the future. In the case of Chrysler cars China mayalso become a platform for exports to the US market. Given the competitiveness in the US market the managementmight opt for such a strategy. According to the interviews it is not foreseeable when the first of the US-American carproducers will start to import cars from China but it seems to be quite sure that it will happen and every companywants to be prepared for that.The opposite case is Eastern Europe (within and outside the EU) and Russia. As data clearly show, the main interest isthe possibility of utilising these countries as an export platform and secondly to consider their market potential. It isnot likely that from 2007 there will be an additional capacity of 1, 2 million cars in these countries.Possible risks for employment in the EU15 countries comes from the shift of capacity to the eastern Europeancountries, within and outside the EU. It is clear that the added capacity in the New Member States is not related tothe local demand. It is possible to sum up this information in a coherent picture regarding European OEMs. There areseveral risks for the countries in the former EU15; as The Economist puts it, a push for “the big squeeze” 11 dependingon, firstly and mainly, the eastward shift of capacity. China is not a clear and present danger to the EU, as to OEMs,because for the EU-based OEMs China is first of all a market where to sell a part of the overproduction accumulatedin Europe (a very small part of it) and where to invest in order to take advantage of the opportunities resulting fromthe size of the Chinese market. The same can be said for India.In the medium run China will become, as India, a net worldwide exporter 12 and sooner or later it will try to enter intoone of the richest markets of the world, which is Europe. This is, according to the interviews, possible, if nothing changesin Europe in the medium – long run. The evaluation of the competitive capacity is different in other markets such asthe Middle East, Maghreb, Africa and also the United States. The interviewed experts think that in these markets theChinese producers have already become competitive and that their competitiveness will still grow in the future. Thereasons for this differentiation are the standards (safety and ecological) and the nature of consumer demand (whichpriorities among cost, quality, style). In any case China’s worldwide ambition will clash with the Japanese presenceand “dominance”. According to a Global Insight Vehicle Forecast (January 2003) the Japanese cars produced outsideJapan, in 2008, will be as many as 10–11 millions cars out of a total production of 57 millions cars. If the Japanese carsproduced in Japan are added the grand total is 20 million cars. That is 1 out of 3 cars produced worldwide.The competition will become tough on the market segments that are expanding and it is likely that the worldwidemarket will be more segmented than now with new differentiations inside the traditional segments. Not only in thisindustry, a tendency towards “global niches” is appearing, with a new economy of scale in which it is very likely thatChina and India will play an important role as consumer markets.The impact of the growth in China on European OESsAs the previous chart has illustrated, the consolidation process is under way also in the OESs field. This process isunder way in parallel with a big shift in the value chain of the car industry. The Mercer report forecasts a shift from65% in 2002 to 77% in 2015. This shift is for Europe very important because according to Mercer there will be, fromnow to 2015, a regional shift in contribution in the automotive industry with the strongest growth markets in China,India and South-America, that will produce 10 out of the 19 million cars that will be produced until 2015, while Europeachieves the highest absolute growth and becomes the world leading automotive region in terms of added value. Butin the NAFTA and Japan the OEM contribution in added value is decreasing strongly. In Europe the decline will be 12points from 36% to 25%.On the other hand all the interviewed experts, as well as other reports agree on the fact that China is becoming a“powerful OEM supplier at the global level” 13 in a shorter space time and with better chances to become a globalOEM. Is this last statement congruent with the Mercer report? Yes, it is. It is a matter of relative values and pace ofgrowth.11 Feb 16th 200612 China is already a net worldwide but for a very small amount of cars.13 ICE (Italian Foreign Trade Institute) and InterChina Consulting – December 2003, page 12.10

In the case of China it would be, in terms of people employed and added value in the OES sector, a jump of roughly400%, for Europe of roughly 50%. What is still unclear is the Chinese speed in catching up with the sophistication ofEuropean engineering in parts and components. There are different positions concerning this but it should be kept inmind that according to J.D. Powers’ research on quality Korea was able to catch up with European and Japanese qualitystandards in 6 years – from 1998 to 2004 – recovering a difference of 110 scores of 272. According to the interviewedexperts the process will not be a jump but a steady and constant process of improvement and of expanding marketshares. The logistic constraints for parts and components are not as strict as for cars in terms of costs. Some logisticconstraints are due to the actual system of Just-In-Time delivery of parts and components. The new logic of the divisionof labour is the new possibilities of disarticulating the value chain in order to distribute single parts of it according tocost/quality/time opportunities has been fully applied in the supplier side of the car value chain. Accordingly the logisticlimitations are very low in the lower segments of the supply value chain and in service related activities 14 .When summing up different options, information and opinions, the trend for Europe in the business of supplyingOEMs is:A growing relevance of OES business in terms of added value and employmentA shift, through relocation to the New Member States and from the EU to Eastern European countries, alsoas a part of upper tier parts manufacturersWith regard to the lower tier parts manufacturing a shift, through relocation and new plants of westernparts makers, to ChinaA shift to Chinese makers of a part of the supply chain starting from the lower tier parts manufacturing butwith an upward trend in the value chainThis trend will be counteracted or limited by some factors. Among these the most important is the necessity for firsttier parts manufacturers to be very close to the OEMs plants to make the Just-In-Time organisation possible. For thisreason another trend is a faster and bigger shift of services, of EU OEMs, in the supply chain, to China and India.Sector conclusions and policy recommendationsA. Expand the concept of a fair trade to include the labour issuesB. Utilise the window of opportunity of stabilisation and growth for European OEMs deriving from the shortmediumterm effect of China’s growth – and the relative profits – to:1. Maintain some strong specialisation such as the premium segment and other possible global nichemarkets2. Move the European sector in the direction of a sustainable mobility: a new generation of engines, newmobility patterns (vehicles and services) for metropolitan areas, developing an ecological dismantlingcycle.3. Utilise the opportunity of growth for European OESs to “harden the core business” (FIEV, Interview),developing the “R” of the “R&D” equation; this means to become top specialists in designing new technicaland managerial solutions in the global supply chain of the car sector.11

ShipbuildingÍ IntroductionIn the 1970s West European shipbuilding participated in the 1970s boom in accordance with its global position at thattime. In the period of recession in the 1980s, all shipbuilding regions worldwide suffered a heavy decrease in orders.In the wake of the two global oil crises about half of the shipyards worldwide disappeared from the map and thusemployment was halved (Stopford 2004). Due to the succeeding recovery in the 1990s and the boom of the globalshipbuilding, the European yards could not benefit. The real winners were the yards in the Far East:Deliveries worldwide (regions in 1,000 gt) Source: Lloyd’s Register’s “World Fleet Statistics”Í The last five yearsChina appeared in a relatively short time on the map of the world shipbuilding nations. Indeed, the industrial shipbuildingin China goes back to the 19-th century (cf. The European Community in 2004, 9pp). At that time the occupyingpowers began to build up shipbuilding capacities to be able to satisfy their transport needs. Up to this time theChinese shipbuilding limited itself particularly to the construction of sail and fishing boats. Still today some of the mostimportant shipyards in China are located at these historical shipyards.The present development of the Chinese shipbuilding occurs following the same pattern as happened earlier in Japanor Korea. Japan used its shipbuilding industry in the 1950s and 1960s to rebuild the industrial structures of the country.Also Korea looked at the shipbuilding industry as a strategic core for the economic development of the country inthe 1970s. China is now in the process of repeating these paths of development, supported by large governmentinvestments in the shipbuilding industry (Malhotra 2005).After the 1950s all shipyards in China had been put under the control of the Ministry of Communication. Since 1982China State Shipbuilding Corporation (CSSC) is responsible for the Chinese shipbuilding industry. In the 1990s theChinese government felt constrained to initiate structural reforms in the shipbuilding sector on account of the sizeof the Chinese shipbuilding industry and the planned entry of China into the World Trade Organisation (WTO).Approximately more than 2,000 shipyards with more than 400,000 employees in total should no longer be controlledthrough one single conglomerate.Therefore in 1999 the Chinese government decided to split CSSC into two organizations (CSSC and CSIC) operatingindependently from each other. Since then CSSC controls primarily shipyards south of Shanghai, while the newlyfounded China Shipbuilding Industry corporation (CSIC) is primarily responsible for the shipyards in the north. Bothgroups are concentrating more than 60% of the Chinese shipbuilding production with more than 70% of all newbuilding orders placed in China.Í The competition between world regionsIn 2005 China was already the third biggest shipbuilding nation worldwide – behind South Korea and Japan. Thepace with which the Chinese shipbuilding industry has entered the group of the world’s most significant shipbuildingcountries is striking. While the Chinese shipyards delivered only 0.9 % of all worldwide built ships in 1985, the number12

has increased to 4.7 % in 2000 - only 15 years later. The development between 2000 and 2005 must be emphasized. Inthis period China has nearly succeeded in tripling its share of the world market. In the same period the EU-25 share ofthe world market halved itself and also the leading shipbuilding nations Korea and Japan had to accept – even if clearlylower – losses in their world market shares:Shares of regions in the world shipbuilding production from 1975 to 2005 (in % on GT-base)1975 1980 1985 1990 1995 2000 2004 2005EU - 25 38.9 26.8 19.5 18.3 18.9 12.4 8.3 6.9Other EuropeanCountries6.6 9.3 5.7 7.5 4.2 2.4 3.5 2.8Japan 49.7 46.5 52.3 43.0 41.7 38.2 36.1 35.0South Korea 1.2 4.0 14.4 21.8 27.8 38.9 36.8 37.7P.R. of China 0.9 2.3 3.3 4.7 11.6 13.8Other Countries 3.6 13.6 7.1 7.3 4.1 3.3 3.7 3.9World 100 100 100 100 100 100 100 100Source: VSM 2006Basically it can be said that the European shipbuilding industry is leading worldwide in the area of highly technologicalspecial ships, for example, cruise ships, RoPax-and RoRo ships, mega yachts or high tech naval ships. However, up tonow the Chinese shipbuilding industry is concentrated upon the production of standard ships like container ships,oil tankers or bulkers. On the bases of the new building orders in the period from 2002 to 2005 (measured in GT) itappears that China and Europe stand in strong competition, above all, in the segment of the container ships.Nowadays the number of shipyards in China is estimated at approximately 2,000 – 3,000. Nevertheless, onlyapproximately 600 of these shipyards are able to build ocean going vessels. Classification societies assume from thefact that at most 10 per cent of these shipyards are able to produce for the export (Germanischer Lloyd 2005, 15). Asa result of the future consolidation process of the Chinese shipbuilding industry (also by mergers and bankruptcies)western experts expect that the number of Chinese shipyards, competitive at the world market, will decrease in thenext 10-15 years. De Norske Veritas forecasts that in ten years only a maximum of 15 Chinese shipyards will existwhich compete at the world market (Schmidt 2005, 9).Í ForecastWithin the scope of the 5 year plan for the economic development decisive defaults were formulated for the Chineseshipbuilding industry. The State Commission of Science, Technology and Industry for National Defence has set targetsfor shipbuilding output at 10 million dwt in 2005 and 24 million dwt by 2015, estimated to represent 16 per cent in2005 and 35 per cent in 2015 respectively of world shipbuilding output.The forecast of the Japanese Shipbuilders Association indicates that even in the year 2010 China will become Numberone in terms of capacities:Growth of World Shipbuilding Capacities 2004 vs 2010Source: SAJ13

CESA has presented a forecast, which compares the world shipbuilding capacities in 2010 with about 50 mio cgt withthe expected demand in 2010 of roughly 24 mio cgt. That means that in 2010 the worldwide ratio of shipbuildingcapacity versus demand will be 2:1.World shipbuilding capacity and demand in 2010Source: CESA 2006The existing Chinese shipyards will expand their capacities on locations while new docks and facilities will beconstructed in the designated areas. The two state-controlled groups CSSC and CSIC are in the forefront of thisexpansion.The Chinese government has resolved to develop three regional shipbuilding centres in China: the Bohai Bay inthe north, the Yangtze Delta in the centre of the coast and Pearl River Mouth in the south. In these three regionsthe existing shipbuilding capacities should be modernized and new shipyards be built. Locations beyond these mainregions should not be promoted in the future. The shipyards in the officially mentioned regions are asked to increasetheir productivity by improved management processes and raised qualification of the employees. The lowering of theproduction costs is declared as the main target of these measures.Concerning the future development of the Chinese shipbuilding the up to now underdeveloped ancillary structure isthe main problem in China. Compared to the main competitors at the world shipbuilding market most analysts agreeon the fact that the Chinese shipbuilding industry dates back from approximately five to eight years behind the Koreanand the Japanese shipbuilding industry.But according to the plans of the Chinese governmental bodies, these difficulties should be overcome in 2010 at thelatest and in 2020 China would become a “Shipbuilding Superpower”:Long-Term Plan of the Chinese Government (State Commission of Science, Technology and Industryfor National Defense) (units: 10,000 dwt; %)Construction Quantity Share Remarks2004 800 142005 1,000 16 2005 actual performance: 12 mio dwt, 18 % share2010 Shipbuilding power 25 Sharing the markets in Japan, S. Korea and China2015 2,400 35 China acquires the number one share2020 Shipbuilding Superpower China achieves world standards in shipbuilding technology andbecomes the world leader in both, name and reality.14

Í The consequences of the Chinese developments for Europeanshipbuilding/maritime industry• Increase of the competition situationWorldwide (in particular in China, but also in South Korea and in Vietnam) increasing production capacities inshipbuilding lead to a reinforced competition on orders. The competitive pressure is not only strengthened by therapid expansion of the shipbuilding capacities in particular in Chinese shipyards, but in addition, by the extremely lowlabour costs in China and the unclear financing methods (state loans etc.). In expectation of a possible stagnation of theglobal shipbuilding market from 2011 onwards it may be supposed that the Chinese shipyards will compete more withJapanese, South Korean and also European shipyards in a special segment. This possible development is based on theacceptance that Chinese shipyards will enter especially the market for technologically simple ship types (like containerships) which are built at the moment especially by Japanese, South Korean and partly also by European yards. Japaneseas well as South Korean shipyards could through this development become active in segments of ship types moresophisticated technically. This process would create a tougher competition with European shipyards. Thus the SouthKorean shipbuilding federation explained in June 2006 the entrance of the Korean shipbuilding in the cruise market forthe future. But even if the South Korean and Japanese shipbuilding industry would enter the cruiser market, it wouldnot compensate possible losses of market shares to the Chinese shipbuilding industry, as the global market for cruisersis very limited, compared with the global markets for container ships, bulkers, oil tankers etc.• Diffusing of the competition situationIn 2006 China was already the fifth largest commercial nation worldwide and will climb in 2020 to number 2 according topredictions of the World Bank. Besides, merchant vessels show the most important means of transportation to exportthe Chinese goods, to import the raw materials and to organise Internal-Chinese trade (along the high industrializedcoastal regions and the Jangtze river). To modernise the fleet, and to create at the same time new transport capacities,China will cover the rising needs for ships from domestic ship production. Therefore, during the next 10 years, highlycomplicated ships such as for example cruise ships are of little interest to the Chinese shipbuilding industry.Not the field of low tech ship production but the logistic branch could be, in the future, the “battlefield” of competitionbetween Europe and China.Í The know-how transfer as a key element to develop Chineseshipbuilding industryThe know-how transfer from Europe to China, by the European shipbuilding industry, the ship owners and banks whichbuild and finance ships in China, by the classification societies, but also by “blueprint trade” of the European shipyardsand/or the design offices commissioned is key for the further development of the Chinese shipbuilding industry.There are two contradictory trends:For the European shipbuilding industry the uncontrolled run-off of know-how is very dangerous,For the European marine supply/equipment industry in the medium term this transfer remains withoutmajor negative consequences, on the contrary, it strengthens at first their global competitive situation.Í Sector conclusions and policy recommendationsWhat can be the strategy of the European shipbuilding industry facing the Chinese competition?1. Product mix: Intensifying the concentration on the high tech ship segment as well as on other ship types suchas container ships, double hull tankers etc.2. Improvements in vertical relations of the European shipbuilding industry (supply chain)3. Improvements in co-operation between shipyards including those comprising of smaller yards(horizontal co-operation)4. Reinforced co-operation in sensitive fields like R&D and qualification of the workforce5. Development of Pre- and After-Sales Services6. Leadership 2015 and EU Social Dialogue7. Consistent EU industrial policy for maritime industry.15

Í ReferencesCESA 2006: Presentation to the EMF China Seminar, Brussels, 7 November 2006Germanischer Lloyd (2005): Im Riesenreich der Mitte immer vor Ort, in: non-stop-Magazin 04/2005, page 13-20,Hamburg.IAW (2006): Jochen Tholen, Thorsten Ludwig: Shipbuilding in Europe – Structure, Employment, Perspectives; Universityof Bremen; www.iaw.uni-bremen.de/downloads/termine/SchiffbauEuropa-paper-en.pdfMalhotra, T.C. (2005): Asia: Shipbuilders to the World, in: www.scandoil.com/moxie_issue/issue_5-6/2005_5-6/asiashipbuilders-to-the-world-.shtml;access at 21.05.2006.Schmidt, Ralf (2005): Chinese shipyards – ample room for improvement, in: HSH Nordbank (publ.): Asia Report 04/2005,page 9-10; Hamburg.Stopford Martin (2004): World Shipbuilding 2004, Advance Press conference SMM 2004, Hamburg 25.5.2004,www.hamburg-messe.de/presse/presse_smm/stopford_en.htm (16 September 2004)Suzuki, M. (2006) Current State and Outlook of the Chinese Shipbuilding Industry, Paper, presented to the IMF’sShipbuilding Action Group Meeting, Placid Harbour, Maryland, USA, 28 August 2006The European Community (2004): Background report Shipbuilding in China, BrusselsVSM (2006): Jahresbericht (Annual Report) 2005, Hamburg16

SteelÍChinese steel sector developmentThe Chinese steel industry was not an issue in 2003 for the world.At that time:the birth of Arcelor was still in mind after the announcement of the future closure of many continental blastfurnaces in both Belgium and France in order to reduce once more the capacities in Europe, Corus went through big financial problems in steel but also through internal difficulties due to the mergerbetween Dutch and English management, the ECSC treaty had ended one year before and let European steel producers and workers without anyinstitution for industrial dialogue; the only discussions in course were dealing with R&D, a great part of North American steel producers went bankrupt and the assistance of the Bush governmentwith protectionist measures (201) and financial support to pay for workers pensions and lay offs was calledinto question.In brief, the western steel industry was severely affected by economic instability.The Chinese steel boom has completely changed the situation.World steel production by zone Source: IISIOnly Asia has seen its steel production rise over the past five years.At the beginning of 2004, the steel world was surprised by China’s economic growth.The comparison between Europe and China’s steel output over the past five years is illustrative. 17

Crude steel production in China reached 350 MT in 2005 and more than 400 MT is forecasted for 2006. The rhythmof the Chinese steel production growth over the past three years has been remarkable, with over 22% per year.Capacity is estimated by CISA at 414 MT for 2005 and 439 MT for 2006.Since 2002, China did not have sufficient capacities to satisfy its huge internal demand and investments in steelcapacities were carried out within a very short time, without any control from central authorities and without foreigninvestments or technology transfer.• The steel consumption in China in comparison with EuropeThe public buildings, works sector and the industry represent more than 92% of the steel consumption in China.China’s steel major consumers in 2006 Source: Metal Bulletin’s 4th Far East Conference Source: EUROFERTheir growth is mainly based on the public buildings and works sector which represent the first outlet, with 63%. In theEuropean Union, this sector only uses 24% of the steel production. The automotive sector is the second consumer inthe European Union, with 18% of the steel consumption, whereas in China the car industries are the third steel-usingsector with 5% of the steel production. As for the shipbuilding industry, the ratios are almost identical.After a deficit in 2005, China net export position in steel was confirmed in the first month of 2006.Today, the Chinese steel industry could be characterized by a self-centred development, and it is confronted with thelack of industrial concentration, imbalanced product mix, poor industry layout, very hard working conditions combinedwith small production units equipped with obsolete and polluting tools and facilities. For these reasons, the ChineseGovernment launched in 2005 a restructuring strategy which aims at settling the overcapacities, modernizing the steelindustry, improving the quality of products globally in order for China to be among the most powerful countries inthe steel world.18

The impact on the European (and world) steel industryThe first impact of the increase in the Chinese steel output has been the price increase of raw materials, the difficultyto buy steel on the market. It gave the opportunity to European steel producers to increase their prices.For the first time, steel prices have not declined for more than three years. This has enabled the steelmakers tobecome very profitable.EBITDA 2003-2005 (% of sales) Source: Companies Annual reportThe other side of that phenomenon was the development of public offers, the first one by Arcelor to Dofasco and thebiggest one by Mittal Steel to Arcelor, now the first steel maker of the world. Without analysing the Chinese boom inthe steel sector as the origin of Mittal Steel’s takeover, we can say that the Chinese boom made it possible.Í The search for raw materials: a strategic issue for China… and forEurope?The Chinese steel boom has awakened the old steel world first through a major increase of the demand to exportersof steel and secondly through another large increase in raw materials, mainly the iron ore, coal and scraps. The priceof the raw materials used in the steel industry has risen over the past three years.In all materials, China’s companies and government have developed a strategy of management for security and pricecontrol. It is the case in ferrous raw materials even if without complete success for the moment and also in non ferrousmetals such as nickel which is used in the production of stainless steel.Í The question of overcapacityThe weight of the Chinese steel industry in the world steel sector (the largest producer) transforms the question ofthe over capacity in China into a global question.We can imagine the huge impact of an increase in exports coming from China on the scale of the overcapacitysurplus.We are talking about more than 120 MT of overcapacity, ie. more than 10% of the world steel output which willdestabilise the entire sector when arriving on the market.Some analysts view the net export situation of China since the beginning of 2006 as the confirmation that it willhappen.From that perspective, the Chinese overcapacity should be a global issue if the Chinese authorities do not succeedin the regulation of their own steel production. And it is obvious that this hypothetical situation will have politicalconsequences, knowing that the great majority of the companies are controlled by both the central and the localgovernments, even if we do not know exactly which ones.Up until 2005 and the first part of 2006, we have seen neither on the international steel market nor in China theconsequences of a structural overcapacity situation.The prices of steel, even if they have decreased in 2005, have globally enabled Chinese companies as well as others inthe world to reach a profitable situation. This was the case in 2005 and in 2006.19

The price evolution over the past three years got better for all steelmakers without great differences between Chineseinternal prices and others producers prices.So we conclude that an equilibrium was found despite the major increase of the Chinese steel output because theChinese production was essentially consumed on the internal market.As we can observe, a potential increase in Chinese exports will be a possibility for Chinese producers but not underany type of conditions, as the anti dumping measures used by European and American countries and beyond may makeit impossible.Furthermore the perspective of building new capacities within the next two years will not change this situation.The apparent steel use is growing, +136.6 MT of consumption in two years included 84 MT in China (61.5% of thetotal)Apparent steel use 2005-f 2007 (MT)2005 2006 2007 2007/2005China 315 356 399 84World except China 698,4 731 751 52,6World 1013,4 1087 1150 136,6Source: IISIThis additional consumption of steel will be fed by 120-134 MT of new capacities.Capacity addition 2005-2008 (MT)China 100Latin America 12CIS 10India 10Asean 2Total 120-134Source: OECD steel comiteeThe conclusion is that restructuring plans in China aim at reducing but also replacing the obsolete capacities.So the increase of exports from China is a phenomenon which explanes what North American analysts denounce:the government has provided benefits to exporters included steel exporters in the form of tax credits;it has also provided a rebate of value added taxes of 11% on steel exports.We can add that the difficulties encountered in restructuring the steel industry may have social reasons.Given that, nearly 200 MT of steel products in China are manufactured by small and energy consuming companies whohave no way to meet the new industrial policy, a massive restructuring will result from this situation.So beyond the overcapacity debate we come to the social question.Í Sector conclusions & policy recommendationsThe Chinese steel industry boom which started in 2003 is not a neutral event without consequences for the future ofsteel. On the contrary, it is the driver of change in this industry all over the world.First producer, first consumer of steel with an industrial policy which is willing to transform China in an auto sufficientcountry producing all qualities of steel from the most current one to the high added value products, with mainproducers being in the great majority owned by public authorities, the gap between China and European rules is veryimportant.At the moment it has not been a danger, and on the contrary, the consequences of the Chinese steel boom havebeen profitable for the world steel industry and beyond. But the surge in 2006 of a current of steel exports marksa phenomenon where the need for good management of the sector in China is not satisfied. In other terms, thedifficulties encountered by the Chinese authorities in the restructuring process should not be exported.20

In an industry where the cost of work is not a major issue, the danger does not lie with relocation as in otherindustries, but in the destabilisation of the market by marginal tonnage which would break the equilibrium betweenconsumers and producers.We do not have precise information, but all analysts including the Chinese government know that it is necessaryto resume some steel facilities characterised by inefficiency in energy consumption, health conditions, bad workingconditions … all of this has been said in an international forum for no less than five years.The experience of the social dialogue in the European steel restructuring may be a good discussion for Chineseofficials to solve the social problem they are confronted with.In the meantime, it will give the Chinese governmenttime to concentrate on the Chinese steel industry and to modernize it.The second conclusion we have in this study is that Europe must be more present in raw material issues to guaranteeaccess for their manufacturing industry. The new competition we observe all over the world to control the sourcesof raw materials after a period of low prices and great availability must be taken into account when thinking aboutindustrial policy in that matter.The third conclusion which is implicit, is that beyond the new environmental guidelines published by the Chinesegovernment in 2006, Europe and China must think together about a new way of developing industry.In brief, the Chinese can not match the European development model because one earth would not be sufficient. Thesustainability of our future common development has not yet a common definition.All of these subjects are in discussion at high level between the Chinese government and the European Commissionwithout any participation of the civil organisations. Is this efficient?21

Cross-sector conclusionsautomotive, shipbuilding and steelChina’s growth had a very positive effect on the level of industrial activity and its results with regard to all threesectors. The Chinese market has rapidly become one of the most important in the world and China will become thenumber one in all three sectors.In each of the industries covered by this study this growth is based on increased capacities supported by a Governmentledstrategic plan which includes: Concentration and consolidation in the three sectors Exports strategy both in car assembly and car parts production Investments abroad in raw materials supplie of steel.The capital of the companies concerned is for the majority state, province and local authority owned. Foreigndirect investment is permitted in each sector with different rules but always including a transfer of technology orknow-how.The impact of the modernization of the Chinese metalworking industry is very positive and the Chinese products arevery competitive on world markets.All these results are obtained with an economy where: There are huge differences between regions, companies and technologies are in the three sectors The existence of state aid is important in each of the sectors and the Chinese Government has declared theexistence of state aid in the steel sector within the framework of the WTO. Information about the social and environmental conditions of the industrial Chinese development is ingeneral missing.However, the Chinese industries have acquired technical and managerial capacity.The impact on the European sectors of the shipbuilding, automotive and steel industry has been mostly positive sofar.Many yards and integrated steel works have been saved by the demand created by the Chinese market. The Europeansteel equipment industry has benefited from Chinese industrial development.Shipbuilding in China is a major part of world trade and seaborne trade is the leading trade segment in China.If the predictions are confirmed, the competition between European and Chinese producers will be more and moreaggressive. The progressive maturity of the Chinese industry will transform China into a fierce future competitor. Inthat sense the flattening out after rapid growth will pose a threat to European employment in the three sectors.Relocation between Europe and China is possible in both the auto and steel sectors but not in the shipbuilding sector.The form that such relocation will take will be different in each sector but the danger is already present.In order to tackle this problem, the strategy of European companies must be adapted to each sector by: Specialising in niche product and/or advanced technology in shipbuilding to produce high-value ships Consolidating and developing a strong presence in China to benefit, for the time being, from the size effect ofthe automotive manufacturers’ and suppliers’ market. This window of opportunity for European producersshould be used to tackle the strategic question for the automotive industry in the future: sustainable mobility,including a new generation of engines, new mobility patterns for metropolitan areas. Preserving real and cost-effective access to raw materials with a real advantage in the concentration processto establish world leaders.But in the three sectors traditional issues about industrial policies must be dealt with at European level:Cooperation between producers and between producers and suppliers all over Europe is vital to enhanceR&D and maintain the technology advanceDeveloping the skills of the workforce and worker participation in the strategic assessment of thecompanyDefinition of the strategic direction so as to permit a common vision of the future.Along the same lines, the R&D steel platform, which includes the objective to strongly reduce CO2 emissions by2030, may strengthen the European steel industry’s possibility to maintain an important activity on the continent. Thesame goes for shipbuilding where the Chinese industry is increasingly demonstrating its capacity to be competitive inrelation to Japan and Korea.22

Policy recommendations1. Communication between trade unions active in China related activitiesTrade union officers working on China related projects or issues should create a communications network, wherethey report news and events to each other as well as meet on a regular basis. (Compare with the EMF Eucob@nCorrespondents network).2. Give more attention to European companies active in ChinaTrade unions should constantly monitor and put emphasis on individual European companies that have activities(mainly production) in China. The monitoring can lead to an indirect flow of information of state owned enterprisesas well since there are emerging joint ventures with SOEs.3. Evaluate the aftermath of China: what comes next and why?Countries and regions around the world are already knocking on the door to follow in the footsteps of the Chineseeconomic growth. These are Vietnam, the Middle East and the Maghreb countries. It is important to monitor thecompetitive advantages these countries have to be able to adapt accordingly ad not lag behind.4. What countries are competitors to China?Countries competing with business opportunities that can be placed in China are Japan and Korea. This can be athreat to China because these countries have developed economic systems and regulations, which simplifies businessrelations.5. Lobby the European Commission to include trade unions in talksIt is vital for the development of labour issues in China to include trade union representatives in talks with Chineseofficials.6. Chinese opportunities in EuropeChinese companies are more and more looking for opportunities in Europe. It is already an established fact in exportof cars and joint ventures with European companies in for instance agriculture and services. There is a benefit forEuropean companies and employment is offering the right opportunity to the right Chinese company. Emergingmarkets is for instance tourism.7. European Commission Maritime CoordinatorThis person should be petitioned by both the shipbuilding industry and the trade unions to achieve recognition ofsector related issues.23

Seminar reportChina and the EU“Research on the future of European metal industries- auto, shipbuilding and steel”Date: 6th-7th November 2006Place of venue: Elewijt Centre in Brussels6th November 2006Í Peter Scherrer, EMF General SecretaryIn his welcome address, Peter Scherrer, General Secretary of the European Metalworkers Federation (EMF), stated thatthe discussion about the future development in the auto, shipbuilding and steel sectors with regard to the developmentof the potential market in China, and also the development of Chinese companies as competitors on a global market,were among the reasons why the EMF carried out the present research project.It is of no surprise that many people working in the automobile, shipbuilding and steel industries fear that competitiveproducts from China will conquer the home market.The trade unions clearly have to ask questions about the future of European industry, and evidently about the futureof jobs in European manufacturing industries.Of course, with regard to China’s political constitution one can hardly talk about fair competition. Massive violations ofbasic human and trade union rights, enormous problems with regard to health and safety standards and environmentalprotection are facts which influence economics, trade and business.Since an unregulated global market determines the agenda of the strategic policy of many of the multinationals, ethicaland social values are often regarded as an obstacle for successful company policy.Fierce competition on a global market consequently puts the trade unions and their members under pressure. Wagedumping and relocation are only two catchwords in this context.The EMF study tries to give answers to the important question “Where does European industry benefit from an increasingengagement with Chinese companies and in China itself?” We also raise the question about the threats to the metalindustry in Europe and evidently to employment in the three sectors. The debate will certainly continue and theEMF will closely monitor the development in the respective sectors. The EMF will continue to raise awareness aboutthe risks for a social Europe when there are insufficient guarantees regarding the aspect of employment given globalplayers are only interested in markets and profits but not in people.After years of a blossoming economy, China still reports impressive growth rates. There are various reasons forinvestors to be active in business relations with China. Some are only looking for short-term profit and others regardit as a huge market with endless potential.Increasingly China is also seen as a strategic option for investing in production sites, investing in an environment wherethe dynamic economy promises long-term growth.China is also developing well as a WTO member and constant government reforms ensure foreign business partnersof a successful future ahead.Peter Scherrer closed by thanking all the people who contributed to the study and who were generous in sharingtheir knowledge about China. The EMF thanks in particular the researchers of Syndex, the University of Bremen andthe Istituto per il Lavoro.Í Philippe Morvannou, SyndexPhilippe Morvannou from Syndex was the co-ordinator of the research work. He continued with a brief presentationof the industrial development in China and an introduction of the project.China is the new industrial continent of the world. China has shown impressive growth for a long time and this hascontributed to the decrease of poverty, an increase in the world’s working population and in world exports. Thegrowth factors the study has taken into account are productivity, number of workers and hours worked. There hasbeen a shift from agricultural production to industrial production in China.24

During the interviews the researchers were met with surprise among the interviewees concerning the trade unioninterest in China as well as the problem of confidentiality when providing information in the interviews.Sector AutoÍ Presentation of research resultsChair: Bert Keulen, De UnieBert Keulen introduced the automotive sector by saying that the Chinese automotive manufacturers are entering intothe European market, and the question at hand is only the tempo of their market expansion. But besides threats Chinacan also be an opportunity especially for suppliers regarding our technological knowledge in important fields such asenvironmental issues and safety aspects in the automotive sector.•DiscussionWhat are the expectations for the US market?The interviewees had two different opinions. One was more optimistic in saying that the Chinese will enter into theUS market in five years time. Another opinion was that this will happen already in two or three years time.How is R&D developed in China?R&D is performed by universities and research institutes, but the innovators in China are also studying in Europe andreturning home to China with the same knowledge as the Europeans possess.•Stephanie Mitchell, DG Enterprise and Industry, European CommissionStephanie Mitchell started on a personal note and talked about her experiences in China in the early eighties. At thattime Chinese development was measured by the level of nutrition in food, imports of fertilisers and the amount ofcalories a person would eat per day. A century before that, there was a saying in England back then that if only theChinese would lengthen their gowns by an inch, the English cotton mills would never stop running, which evidentlydid not result.From a demographic point of view the aging population in China is a problem that will become noticeable within tenyears. This will be enhanced by the one child policy and an increase in social unrest. The bad working conditions infactories in the coastal area is causing many people to go back home and to tell their family members not to movefrom the inland and western regions. Domestic awareness is growing and the wage pressure is going up.There is a lack of market control in internal investments in China, with central regulators not able to control provincialand local level manufacturing and capital allocation. On the other hand, the control of foreign investment is rigorous.Many of the goals set out in the Eleventh Five Year Plan have already been met and China is still pushing forward. Arethe Chinese trading on fair terms? This question is one which the European Commission is following closely as wellas violations of WTO law and practice.•Oscar Marchisio, Fuzzy Net BeijingThe Chinese strategy is affecting the whole world – the ASEAN countries, Africa and Europe. China is playing a leadingrole and will continue to do so when it comes to economy of scale, work organisation and the continued speed ofgrowth. In the automotive industry assembly plants will be organised in China and this will keep Europe out of directinput and knowledge of the life cycle of cars and future models. The Chinese are currently importing design, systemsand engines but this is already changing. Two models, Cherry and Gili, two companies solely owned by the Chinese,have also complete control over the design, engines and systems. There is no European knowledge or influence inthese companies.The key questions for the automotive industry in China are petrol usage and US petrol shortage and how the annual20% automotive growth in China will affect worldwide petrol supply. What is the strategy for energy supplies in China?The link to Africa is very strong and this is demonstrated by the recent agreement between China and African statesconcerning raw material supplies. The European geopolitical approach to this development is vital because the worldis already at its limit of supplies.•Lars Holmqvist, CLEPALars Holmqvist continued on the same topic by saying that the world is running out of fossil fuels and China has putthe issue on the table. He continued his presentation about the automotive suppliers by saying that 75% of the car’svalue comes from the suppliers, 50% of the R&D spending comes from the suppliers and a majority of patents are alsofrom the suppliers.25

European Automotive Manufacturing Industry (in €)Official number of employeesIndustry estimatesWhere of SuppliersManufacturing outputR&D spendingWhereof Suppliers2.1 million6.5 million5.2 million700 billion24 billion12 billionEuropean companies’ share of the world market is 31.7% and out of the ten biggest producers in 2005, four wereEuropean (three Japanese, two American and one Korean).Production trends in Europe2005* 2006** 2010**Cars (millions) 17,6 17,9 19,0Light Commercial Vehicles (millions) 2,4 2,5 2,7Heavy Trucks (thousands) 684 695 690Buses (thousands) 76 82 85Production trends in China2006 Jan - June Change in % from last yearTotal passenger Cars 2,958,375 35.7%Total commercial Vehicles 1,163,787 8.1%Total Trucks 792,821 7.8%Buses 112,436 14.1%Lars Holmqvist gave the following reasons to invest in China. The domestic market is huge, there is a cheap cost base(Chinese labour costs approximately 5% of those in Germany and 20% of those in Eastern Europe). China imposestariffs of 25% on imports of car parts, constituting over 50% of fully-constructed cars, from EU, US and Canada,therefore it is better to produce there.It is difficult to get access to the Chinese market. There are trade barriers and the regulations are unfair. The Chineseaccept Europe as a trade partner as long as Europe is needed for China’s own development and the Chinese areinterested in maintaining good relationships. Intellectual Property Rights (IP) is the major problem and it is importantto maintain discussions with the European Commission on this topic.European suppliers are often saying that Japanese Toyota is an exemplary business partner and the Japanese setminimum standards on its suppliers when it comes to the rate of factory accidents, values. This may be the reason whythe Japanese are easier to work with than the Chinese.Vital factors for survival are research and development, innovation, education, regulations, co-operation betweencustomers and suppliers and finally protection of IP.Í Presentation of research resultsSector SteelChair: David Worgan, Community•Enrico Gibellieri, EMF Steel expertThe European Union experience is that steel has been undergoing a positive development for five years. The risein prices of steel products, despite the raw material price increases, resulted in positive economic results from theEuropean steel companies. Chinese steel is still produced on several low volume production sites. There is an ongoingrestructuring process for the concentration and modernisation of state owned enterprise in the Chinese steel sector,which has heavy social consequences such as redundancies. Although this process is promoted by the Chinese centralgovernment there is resistance from the local authorities that have a certain level of autonomy and influence. Inaddition the spontaneous organisation of steel workers is causing social unrest with the consequence that many26

outspoken people are imprisoned. An industrial policy exists in China, but the details are unknown to the outsideworld and it is difficult to contact employees to learn about circumstances at workplaces. The industrial structure isclosed to foreign direct investment and the only possible European response is to engage in dialogue with the Chinesegovernment. There are no other instruments in place in order for Europe to face the development within the steelsector in China.•Christian Mari, EUROFERChristian Mari talked about the world steel consumption and said that it is not the same as in China. In the last tenyears the consumption has increased by more than 70%. The apparent consumption (AC) in 1980 was 33 million tons(Miot) and in 2005 it had risen to 327 Miot. The production capacity is higher than the consumption and productionwill keep rising. In the 1980s the crude steel production was 50 Miot, in 2005 it was 349 Miot and for 2006 it isestimated at 413 Miot.Steel production is facing problems of energy and water supplies. These are part of the risks that are threateningChinese steel production along with the level and behaviour of investment activity, which poses the biggest risk. Acollapse in investment spending could be triggered by a collapse in investor confidence, by a banking crisis due to nonperforming loans, a change in exchange rate policy as well as political and social instability.A policy response is required from the Chinese government to meet these problems. For instance:People’s Bank of China (PBC) raised bank lending rates by 27bp on 27th April.PBC increased reserve requirements by 0.5% effective as from July 5th, which implies large state andcommercial banks now need to hold 8% in statutory reserves with the PBC.The National Development and Reform Commission (NDRC) announced measures to rationalize capacityin aluminium, cement, coke and ferroalloy sectors. (end-April)Greater planning regulations plus proposals for more stringent application of property taxes and increasedcontrols on mortgage lending / larger mortgage down-payments (May 17th)The world faces overcapacities of 300 million tons by 2010 if regulations are not met. 265 MT new capacities in China 125-175 Mt capacity closures would be needed 50 – 90 MT closures envisaged at this moment China’s steel exports would reach 40 Mt in 2006 Growing further next yearThe drawbacks for China are amongst others the fact that labour migration between inland and coastal regions isdestabilising. There is tension in the rural community caused by the land formerly used by farmers, which is now usedfor sky scrapers. The environment is also under constant pressure and there is a problem with the water supply andair quality in many places.•DiscussionReconstruction of the Chinese steel industry:Consolidation of the Chinese steel industry is underway. There are several sources that say that this process is notunder state control, but the process is underway separately in provinces and in individual mills. The problem is also thatthere are no regulations concerning the process which means that bad, low producing plants can not be closed downeasily. The measures imposed by the Chinese government are rarely implemented and there is rather a deconcentrationthan a concentration of production in the country. Low cost steel producers are not found in China. The cost of labouris low, but the efficiency is not as good as in other places and this makes production more expensive. The fragmentedstructure of decision making in China, meaning that the Communist Party is not absolute in its decision making efforts,can cause global destabilisation in the steel sector. The competition between Chinese companies and companies in therest of the world is unfair as well. The Chinese government protects its companies through subsidies and the EU needsto set up anti dumping measures to protect itself from increased consumer prices.27

Í Presentation of research resultsSector ShipbuildingChair: Heino Bade, Chairman of EMF Sector Committee Shipbuilding•Dr. Reinhard Lüken, CESADr. Lüken started by listing the main considerations related to China with regard to shipbuilding. These are: Key demand driver Massive capacity increase Competitive factors Threat or opportunity? Response from yards Policy responseChina is the world’s main manufacturer: It has moved from being a net exporter of energy sources and raw materialto a net importer. This has strong impact on the demand for shipping, e.g. the tight supply and demand situations foroil products have led to strong growth in ton-miles (consumption +1%, ton-miles +14%). Looking at the forecast forshipbuilding supply and demand we see a supply of 35 mcgt in 2006 but the production capacity in 2010 could be ashigh as 50 mcgt. The forecast for demand expects an average of approx 25 mcgt, thus, even if forecasts in the past wereoften proofed wrong, we must expect dramatic overcapacities. While many countries contribute to this increase, Chinais growing by far at the fastest rate and will increase five times its current volume.The competitive factors to be taken into account for the Chinese shipbuilding industry are low labour cost, butalso low labour productivity (fluctuation), weak infrastructure (supplier base, energy shortages etc.), access totechnology, market distortion (including direct state support and unsustainable business practices when it comes tothe environment and social aspects).Does China pose an opportunity or a threat? China is the driving force of the current shipping boom and has thuscreated enormous opportunities also for equipment demand. How long will this opportunity last? Shipping could befaced with over-supply, equipment will be sourced domestically in China and the question whether or not there willbe equal treatment for direct foreign investments is not clear.Market distortion in China is an overhanging threat to the business. The distortion comes in the form of state funds,intransparent procedures, and government interests in companies and unsustainable business practices related tosocial and environmental factors.How should Europe respond to the developments in the Chinese shipbuilding industry? The approach of the industryincludes the following aspects: LeaderSHIP 2015 Innovation is key No alternative to European co-operation Must ensure critical mass to maintain infrastructure Combination of different competitive advantages in Europe (including low labour cost in Eastern Europe)Europe must also react in its policies:Europe must develop a realistic and practical approach to China including the preparation to counteract onshortcomingsNot to trade protectionism but protection against the undermining of minimum global standardsMajor role for Unions – not against globalisation but in favour of global rules•Heino Bade, Sector Committee ShipbuildingHeino Bade gave a brief statement but one which was to the point on what he thinks Europe needs to do to survivein the global shipbuilding industry.Europe must take China seriously. Shipbuilding is a key sector for China and it receives state support. Shipbuilding is adriver behind the industrial growth in China and it is an export market for the Chinese. It also covers its own domesticdemand, which means it does not need to import. There is cut throat competition between China and Europe whenit comes to access capacities and prices.28

Europe should not only focus on high tech ships, this assumption is wrong. There should be a broad mix of productsamong value added products. Europe needs to produce better ships and better products in general. Innovation andR&D are the key areas.•DiscussionWhat is the trade union role?A trade union should not remain neutral. It should suggest methods and mobilise the employees.Political conclusions:Horizontal co-operation between shipyards is a recommended policy approach in Europe. This includes small andmedium sized companies. The co-operation could co-ordinate and organise research, that otherwise would be tooexpensive for an individual yard.Cost mix:The situation between China and Europe can be compared with the situation between Eastern and Western Europe.The cost mix between Eastern and Western Europe is different. There are different interests, higher wages and lowerproductivity. Eastern Europe can not compete with Western Europe.Social Dialogue:There should be an agreement between the social partners that the future challenges should be solved jointly. To acton time is a key point for the partners.Í Podium discussion of Conclusions & ResultsChair: Peter Scherrer, EMF General SecretaryThe Podium consisted of:Anita Gardner, IMFJyrki Raina, Nordic INBert Keulen, De UnieDavid Worgan, CommunityHeino Bade, Sector Committee Shipbuilding•Conclusions, results and policy recommendations from the research team byPhilippe Morvannou, SyndexPhilippe Morvannou concluded that the three sectors auto, ship and steel have three common points. The first beingthe fact that industrial growth in China has been remarkable and never seen before. The Chinese industrial policy isproactive and governed by the central government. The second being foreign direct investment transfers R&D intoChina. Finally the third concerns capacities. The European response to these three points should be at the same levelas the Chinese threat. Europe needs an industrial policy to meet the challenge of China. Raw material needs to begiven renewed attention and overcapacity is a global problem which needs new forms of regulations in order to bemanaged.•The panellists were invited to deliver final remarks for the three sectors.1. AutomotiveThe trade union response to secure the automotive sector in Europe is to strive for and support innovation. Regardingthe ongoing shift from OEM to OES, the suppliers are given a more important, leading role. The OEM must thinkglobally and under a different agenda when considering where to produce at a low cost and with a higher profit. Theagenda for EMF and CLEPA has more in common, which could be a basis for co-operation. There must be investmentsin innovations created by the suppliers. Protection of innovations is of benefit to Europe. Action programmes can becreated between the employees and the employers especially in the field of employee development to support andcontribute to this innovation process. There should be a joint address to the European Commission demanding a jointEuropean strategy for sustainable growth involving the social partners to enhance the car 21 initiative.2. SteelSteel is a key industry in Europe. To prevent steel from disappearing, the Chinese must be put under the same pressureEurope is currently under. Rationalisations and mergers are part of the current developments in the sector and thirdworld mills are taking over. Europe must participate on this new level playing field. The trade union voice should beheard and lobbying the European Parliament as well as national parliaments is part of the trade union possibilities inchanging the agenda. Europe needs to meet the challenge head on.29

3. ShipbuildingThe order books are full in the shipbuilding industry in China but there are also threatening overcapacities. To monitorthe threat of overcapacities there should be a dialogue on this matter between CESA and the EMF.The discussion on the developments in China and in Asia should be rational. Journalists in the past few years have beenproven to be completely wrong. The expected threat of the so called “Five Tigers” (South Korea, Taiwan, Singapore,Hong Kong and Macao) turned into bankruptcy and a major financial crisis in Asia. Europe can not afford to focus itsresources on such misconceptions. Europe must defend itself against low cost solutions and the neoliberal way offocusing business opportunities on low cost – low wages countries.The European industrial policy must be put into practice. Europe is weak as it is and has no mission statement. Whatare the real objectives of European shipbuilding?The Social Dialogue in Europe must become stronger. One way to facilitate this is through the EU funded programmeEuroship 2015. The European transport system can also be modified to change road transport into waterway transport.The maritime contribution has not been examined thoroughly and the potential savings in environment and energyresources has not yet been fully explored. A tri-party dialogue is needed on a European level and it has to be followedup on a national level to be able to be implemented. The European Union can contribute with innovation grants.•Jyrki Raina, Nordic INJyrki Raina presented the Nordic point of view. He started by comparing the situation in the white goods sector andthe relocation process to Central and Eastern Europe. Nordic trade unions had accepted that change has become partof everyday life and some jobs would disappear. We have to handle individual problem cases at the same time as weinvest in proactive industrial policy. This applies also to the growth in China.Basically, Nordic trade unions see globalisation and free trade as positive elements, even though trade is not so freeand WTO regulations do not include trade union rights. We must continuing working on these two issues. Europecan not compete with labour costs. Hence we must invest in R&D, innovation, training and qualifications of workers tomeet the challenge of the Chinese industrial growth.Economic growth in China is a positive thing for the Chinese people and for European exports. According to studies,the total relocation of jobs is small; job loss and job gain are natural processes. Europe needs to treat China withrespect but should not be naïve. We have to be tough on the respect of Intellectual Property Rights (IP) and WTOrules.Trade union policies can not be avoided when talking about China. It is time to move to away from drinking tea andstudy trips to the Great Wall to doing real work. As an example, Nordic and German unions have organised trainingfor local level representatives at European-owned companies in China.The European trade unions should:1. help Chinese workers to create real trade union representation at the local level, which would lead to realcollective bargaining2. maintain a critical dialogue with ACFTU (All China Federation of Trade Unions) to support the fledglingreform process3. Monitor multinational companies (MNC) everywhere and intervene when necessary4. Keep pressure on the Chinese government concerning the question of freedom of associationThe EMF should react against the current race to the bottom campaign, run by American companies in an attempt toblock the new labour law draft, which gives increased rights for workers.•DiscussionEuropean Social Model:The European Social Model is under pressure. It should be clear that there is an alternative to the American modeland this gives room for the trade unions to react. It is difficult to surpass the ACFTU, but it is important to maintainthe dialogue.•Anita Gardner, IMFAnita Gardner described the work that the International Metalworkers Federation in Geneva is pursuing. The activitiesmainly focus on three activities. Information gathering is one important part. This includes the website with newsstories about labour violations, links to research and also affiliates’ activities in China. A second part is research insectors with particular focus on transnational companies (TNC). A third part is a planned workshop which is to be30

held in Shanghai 2007. The preparation of the workshop started with a mission to China which included talks withthe ACFTU. The mission explored what possibilities there are for the workshop, what issues should be discussed andwhich workers should be present.There is an incentive to bring trade unions together to work on the issue of China through structured co-operationwith other unions. The EMF study is an important starting point.European unions are well placed to put pressure on the Chinese and on European companies in China to ensureworkers’ rights are respected. There should be continuous discussion about labour conditions in China.•DiscussionIs Europe assisting China in outdoing the European companies?Is China a risk? It appears Europe is actually helping the Chinese to out do Europe. Europe is training Chinesemanagers and the managers then return to China with new knowledge. Why is this done? The trade unions shouldbe asking questions about this and about labour and co-operation between themselves. Trade unions should makedemands to the European Commission and to companies and not be so slow and careful when it comes to protectingits interests. The development is serious and evasive answers from neither companies nor the European Commissionshould be accepted.The new Chinese Labour Code:There is currently debate around the world concerning the new labour law that is about to be approved in China. Thenew law has caused many international companies to react saying that if the Chinese government increases the rightsof the Chinese workers they might withdraw from China. Trade unions around the globe are reacting strongly againstthis approach. It is important that trade unions speak out against the companies and support the Chinese reforms.•Closing remarks by Peter Scherrer, EMF General SecretaryIn conclusion there are a few points that should be stressed.Co-operation between the EMF and the IMF:The study has been a starting point for relations and co-operation between the EMF and the IMF on China relatedissues. This co-operation continues also after the conference in the form of EMF representation in the IMF Chinaworking group. The co-operation between the EMF and other trade unions can also be developed into a network.International Framework Agreements (IFA):Trade unions should put pressure on multinational companies (MNC) to implement IFA and act in accordance withinternational labour conventions. For MNC to comply with IFA strong trade unions are needed.Innovation initiatives:For Europe to be able to survive in the automotive and shipbuilding sectors, steel innovation and R&D are vitalcomponents. The dialogue concerning these items should be maintained with the European Commission and theemployer organisations. The possibility of increased WEU funded grants should also be a topic of discussion.Fair trade:It is important that European and Chinese companies play the market on equal terms. Questions of regulations onimports, exports, tariffs on trade and intellectual property rights should be governed in accordance with internationalregulations.Environment:Just like trade regulations, it is also important that environmental standards are maintained. The development of theKyoto protocol is one example and the political pressure must be kept high to ensure the future development ofenvironmental protocols. The trade unions can contribute by speaking with one united voice on this matter.31

International Trade Union House (ITUH)Boulevard du Roi Albert II, 5B-1210 BrusselsBelgiumPhone: +32.2.227.10.10Fax: +32.2.217.59.63www.emf-fem.org