THE current trajectory of Sino-EU bilateral trade is imperiled by a suite of misaligned economic, trade, industrial and fiscal-monetary policies. This policy misalignment is eroding the foundations for enhanced economic cooperation, constructive coordination and equitable industrial collaboration necessitating immediate and systemic rectification. The European Union’s posture suggests a preoccupation with its structural trade imbalance and diminishing aggregate output, which appears to be manifesting in a deliberate constriction of Chinese market access. This is achieved through a proliferation of discriminatory investigations and deployment of unilateral instruments a suite of economic statecraft that increasingly targets Chinese economy, its industries and corporate entities. This represents a shift from positive-sum integration to a zero-sum competitive mindset.
Critically, under the guise of regulatory due diligence, the EU is engaging in extraterritorial information requisition, demanding extensive, non-essential proprietary and domestic data from Chinese entities. This practice represents a clear case of regulatory overreach, having devolved from legitimate market supervision into an intrusive probing of sovereign boundaries. This erodes mutual economic credibility, compromises the integrity of sustainable supply chains, and destabilizes the transactional equilibrium of bilateral trade and commerce.
The paradox of the EU’s stance is starkly illustrated by European Commission President Ursula von der Leyen’s recent address to French business leaders at the Mouvement des Entreprises de France (MEDEF), where she affirmed the necessity of dialogue with China “by using our instruments.” This formulation reveals a profound strategic dissonance: a call for dialogue delivered while brandishing coercive economic tools. This posture, akin to a unilateral ultimatum, fundamentally undermines the trust-based, consensual framework required for dispute resolution, rendering genuine negotiation secondary to power projection.
This behavior constitutes a form of subtle hegemonism and overt economic protectionism, reinforcing the very “de-risking” narrative that fuels geoeconomic fragmentation. The EU’s position is thus characterised by a lack of strategic policy clarity, mired in self-referential and self-validating narratives. A trade deficit, in itself a neutral macroeconomic outcome of comparative advantage, savings-investment balances, and global value chain positioning, has been problematized and reframed as an imbalance requiring aggressive policy intervention. Notably, EU exports to China have continued to expand, albeit at a velocity decoupled from the rapid growth of Chinese imports. It seems that the technological gap that historically underpinned EU export competitiveness has substantially narrowed; while China’s domestic import-substitution industrialization has accelerated, displacing European high-value-added imports.
A significant paradigm shift has occurred in the investment strategy of EU multinational corporations. By pivoting from exporting to China towards “producing in China,” these firms have adopted a “make where you sell” model. This effectively transforms potential exports into in-market production, a phenomenon best understood through the lens of internalization theory and horizontal foreign direct investment. The EU’s own tightening of export controls in strategic high-technology sectors, such as semiconductors, has directly suppressed its capacity to generate export revenue, a classic case of a self-inflicted competitive disadvantage.
In this context, modern trade economics suggests that a sustainably balanced trade apparatus relies not on protectionist barriers, but on enhancing domestic productivity, fostering innovation ecosystems, and increasing the global competitiveness of export-oriented sectors. The trade deficit narrative fails to capture the full complexity of China-EU commercial relations. The “matching boxes” of each side’s export profiles are increasingly disparate, creating systematic imbalances.
A recent and highly significant development underscores this tension. China’s Ministry of Justice and Ministry of Commerce jointly concluded that the EU’s cross-border investigative practices, specifically within its probe into JD.com under the Foreign Subsidies Regulation (FSR), constitute unlawful extraterritorial jurisdiction. This determination has led to a directive that no organization or individual should comply with or assist in the implementation of such measures, framing it as a necessary defense of sovereign integrity. It is unequivocally clear that these actions, under the pretext of “investigation,” constitute a demand for extensive non-essential domestic information on a cross-border basis. This has escalated from standard market regulation into an improper and legally contestable exploration of sovereign boundaries, a matter that must be a critical agenda item in any future bilateral dialogue.
Regulatory and strategic decisions of the EU have led to structurally higher energy costs compared to global competitors. Stagnation in funding for the foundational research and development that fuels long-term growth in the knowledge economy is on the decline. Institutional labor market rigidities that impede dynamic adjustment, skill reallocation and productivity growth in the EU. The channels for Sino-EU dialogue remain open and represent a repository of good faith. The established China-EU trade and investment consultation mechanism, with its four operational working groups and over twenty rounds of substantive consultations, demonstrates a persistent institutional capacity for engagement. The agreement on a price undertaking mechanism for electric vehicles exemplifies that divergences are not insurmountable; with sincerity and mutual respect, pragmatic, mutually agreeable solutions can be engineered.
A genuinely competitive EU would seek to win markets through superior efficiency, innovation, and total factor productivity, rather than by erecting barriers and legitimizing its existence through the deployment of counter-geopolitical “instruments.” The EU’s new geo-economic doctrine should be a mantra for trade expansion and deficit reduction through enhanced global interaction, not retrenchment. Mutual respect, sovereign equality, and mutually beneficial cooperation must remain the guiding principles for Sino-EU engagement. Competition is a natural feature of this relationship, but it must be a form of cooperative competition a rules-based, positive-sum rivalry that pushes both sides toward innovation and new collaborative frontiers, rather than a malicious, zero-sum struggle for dominance that risks a mutually destructive trade war.
Policymakers in Brussels must adopt a posture of strategic autonomy, formulating independent geopolitical and geo-economic policies. This requires a decisive move away from the hegemonic script and a recommitment to a path of rational, interest-based, and mutual-gain-oriented economic statecraft.
—The writer is President, the Centre for Knowledge and Public Policy, Regional Expert: China, CPEC, BRI & World Affairs.
