Experts call on EU to increase photonics investment

A new study reports that investments worth billions of euros have enabled China to become the world’s biggest photonics powerhouse, prompting European photonics experts to urge the EU to increase funding or risk falling behind

Photonics21, a consortium of European photonics industries and stakeholders, has published a new study showing the tremendous growth of China’s photonics industry, with a global market share increasing from 10 percent to more than 30 percent over the past two decades. The organisation says this dwarfs both the US and Europe, each with 15 percent respective shares.

The research, called Political Steering Processes in China in Core Segments of the Photonics Industry, was conducted by international management consultancy EAC and reveals how China’s political system steers and funds the industry.

Photonics – the science and technology of generating and harnessing light – is a linchpin that supports and enhances critical technologies like quantum, 5G, AI, IoT, biotechnology, aerospace, intelligent manufacturing, and life sciences. It is crucial for applications in displays, lasers, lighting, ICT, and photovoltaics.

According to Photonics21, the new study shows that, despite China’s GDP growth gearing down from a rapid ~7 percent to a steadier ~4 percent over the next few years, photonics production in China is still expected to reach €315 billion in 2025.

This global dominance has prompted calls by European experts to increase funding for optics and photonics technologies.

“Policymakers must take heed of China’s market and technological leadership,” said Lutz Aschke, president of Photonics21. “China is penetrating sectors traditionally dominated by Europe, such as laser manufacturing, sensing, optical components and systems. Basic research and enabler processes need to be strengthened and matched by investments in future markets such as AI. We have to take timely measures.

“While Europe currently holds the second position in the global photonics industry, there is a pressing risk of falling behind. Without significant investment, Europe faces the threat of losing ground in this crucial technology sector, which could undermine its economic competitiveness and technological independence.

“To maintain and defend this position, it is essential for national and European policymakers to prioritise this strategic sector. We need to implement a European strategy on critical materials and components for key industries and technologies to secure a resilient photonics supply chain in Europe. Specifically, research and development activities, as well as the production of photonic components in Europe that are critical to the industry supply chain, should be strengthened.

“The future of our innovation and industry rests on our ability to match China’s strategic advancements and secure our place in the global market. We must urgently increase funding for Europe’s photonics industry to keep pace and close the gap with China.”

€5 billion in China’s regional clusters

The EAC report shows that China’s unique photonic industry clusters have allowed the central government to take a back seat, enabling regional strategies and market demands to drive the photonics boom.

According to the study, China’s financial backbone consists of local governments, investment institutions, and enterprises. These entities are set to exceed national contributions with around €5 billion for photonics innovations over the next few years. The research shows that public funds account for only 20-30 percent of this regional revenue. In contrast, the remaining 70-80 percent is composed of funds from investment institutions and enterprises.

These clusters are based in eight different cities in major industrial areas across China, each with its own focus and strategy. In Suzhou, a 10 billion RMB (approx. €1.3 billion) photonics industry fund aims to establish the Suzhou Taihu Photonics Center, enhancing scientific innovation. Wuxi plans the Taihu Optics Valley with significant investments, including a 3 billion RMB (approx. €390 million) fund for silicon photonics and a 2 billion RMB (approx. €260 million) industrial park.

Wuhan, known as China’s Optical Valley, boasts a 10 billion RMB (approx. €1.3 billion) venture capital fund. Beijing plans a €30 million optoelectronics fund, while Xi’an’s 750 million RMB (approx. €97 million) fund supports its photonics industry. Chengdu offers incentives like 10 million RMB (approx. €1.3 billion) grants for optoelectronics investments. Shanghai identifies photonics as a future-leading industry, and the Guangdong-HK-Macao Greater Bay Area has received the equivalent of €1 billion in photonics investments since 2021.

Billions in industrial development plans

Photonics21 says the research shows that a significant part of China’s success lies in a series of proactive industrial development plans, including Made in China 2025, the 14th Five-Year Plan and Beyond, and the National Science and Technology Plan. While the US passed its CHIPS and Science Act in August 2022, a landmark piece of legislation aimed at bolstering the United States’ semiconductor manufacturing capabilities and fostering technological innovation, Photonics21 says that China has had something much bigger in the form of its National Integrated Circuit Industry Investment Fund (ICF) or the “Big Fund”. According to EAC, 2024 marked the start of Phase III of the ICF, which has a budget of €39 billion. Integrated photonics is one of the technologies funded in the third phase of the ICF.

“Our latest market research reveals that China’s strategic investments leveraged through its regional cluster funds alongside its national funds specifically for integrated photonics have helped the region advance as a critical technology leader,” said Daniela Bartscher-Herold, partner at EAC Munich and co-author of the new study. “Rather than be left irreversibly behind, it would be advisable for Europe to significantly increase its funding to close this gap in critical technologies. Without substantial investment, the EU risks losing its competitive edge and relinquishing its leadership in this key industry.”