EU unveils strategy to compete with China, US

The European Commission (EC) unveiled its flagship “Competitiveness Compass” initiative on 29 January, the first major project of its 2024-29 term. The initiative is designed to serve as a strategic roadmap to foster innovation in sectors such as AI, semiconductors, quantum tech and biotechnology in Central and Eastern Europe (CEE) and the bloc as a whole.

Announcing the Competitiveness Compass at the World Economic Forum in Davos, EC President Ursula von der Leyen said: “We must fix our weaknesses to regain competitiveness… now we have a plan, we have the political will, what matters is speed and unity. The world is not waiting for us: all member states agree on this, so let’s turn this consensus into action,” von der Leyen added.

Inspired by ex-European Central Bank governor Mario Draghi’s report, the initiative aims to create a more conducive environment for emerging companies, addressing regulations on state aid, foreign subsidies, and anti-trust measures, and identifying five key actions for Europe to more effectively compete with foreign powers such as China and the US.

CEE mulls pivot to high-value innovation

Thanks to competitive costs, skilled labour and integration into EU supply chains, CEE has played a key role in the European economy since the EU-8 joined the bloc in 2004. However, as the EU pivots towards high-value innovation and strategic autonomy, CEE countries must adapt quickly or lose out.

A key concern for CEE is the potential decline of its traditional role as a manufacturing hub. Rising labour costs and the EU’s push for digitalisation and green technologies mean that CEE economies must transition from cost-driven growth to innovation-led development.

The report states that Europe is falling behind the US and China in key technological sectors, a warning that is pertinent for CEE, where research and development (R&D) investment remains below the EU average. Without significant policy action, the region risks being left behind in next-generation industries.

Nevertheless, the EU’s push for strategic autonomy presents new possibilities for CEE economies. Efforts to reduce dependence on external suppliers could accelerate nearshoring and reshoring trends, creating opportunities in battery production, semiconductor manufacturing, and defence, if the region can attract investment in infrastructure, innovation ecosystems, and regulatory simplification.

Digital, decarbonisation, energy in focus

The policy document highlights the importance of digital innovation, with the EU promoting new policies to simplify regulations for startups and scale-ups. However, for the initiative to be effective, CEE firms must gain equal access to funding and growth opportunities in AI, quantum computing, biotechnology, and robotics. The tech sector has expanded rapidly in CEE over recent years, and the region could transition to an innovation-driven economy rather than reinforcing existing imbalances within the EU.

The Clean Industry Programme aims to accelerate decarbonisation while maintaining industrial competitiveness. This will present a major challenge for fossil-fuel-dependent CEE, and Poland, Romania and Bulgaria will all require significant EU support to meet the bloc’s climate targets.

While the EC has proposed tailored action plans for high-emission industries, questions remain over implementation speed and whether funding will be sufficient to ensure a just transition. Without targeted assistance, the risk of deindustrialisation in key sectors is high.

Strategic autonomy, supply chains

The EU’s efforts to secure access to raw materials, clean energy, and sustainable transport fuels could reshape CEE’s role in global supply chains. Several CEE countries are strategically important for the extraction and processing of critical raw materials essential for clean technologies.

The bloc’s new public procurement rules prioritise European suppliers in critical sectors, which could boost CEE economies. Success will depend on whether regional industries are effectively integrated into new EU supply chains and whether necessary infrastructure improvements are made.

The impact on CEE of the Competitiveness Compass will depend on policy implementation and addressing economic disparities within the EU. For CEE countries, securing a stronger role in EU decision-making processes could ensure that these policies support the region’s long-term growth.

To maintain competitiveness, local analysts said, CEE policymakers should prioritise investment in R&D, digital infrastructure, and education while advocating for EU-wide reforms that reduce bureaucratic burdens on businesses. Without decisive action, the gap between Western Europe’s high-tech economies and CEE’s industrial base may widen, threatening the economic convergence gains of the past two decades.