{"id":305091,"date":"2026-02-22T23:40:23","date_gmt":"2026-02-22T23:40:23","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/305091\/"},"modified":"2026-02-22T23:40:23","modified_gmt":"2026-02-22T23:40:23","slug":"european-industry-faces-an-existential-china-challenge","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/305091\/","title":{"rendered":"European industry faces an existential China challenge"},"content":{"rendered":"

Last year, China\u2019s seemingly indomitable export machine shrugged off US tariffs to record its largest ever trade surplus of nearly US$1.2 trillion<\/a>. But a look under the hood of the Chinese economy shows just how reliant Chinese growth has become on exports.<\/p>\n

Recent analysis suggests that net exports accounted for more than a third<\/a> of China\u2019s GDP growth in 2025 \u2013 the highest figure since 1997 when China\u2019s economy was smaller than Italy\u2019s. Stubborn deflation and overcapacity now provide powerful impetuses for companies to target growth offshore. Exports accounted for<\/a> more than 20% of electric vehicle manufacturer BYD\u2019s unit sales in 2025, well over double 2024\u2019s figure.<\/p>\n

Across China\u2019s economy, some analysis suggests that more than half<\/a> of China\u2019s manufacturing value-added is now exported. And there is no indication that China\u2019s reliance on export-led growth will abate anytime soon. China\u2019s two other recent growth drivers, property and infrastructure, show clear signs of exhaustion. Fixed asset investment, which measures investment in property, infrastructure and factories, fell<\/a> by almost 4% last year; the first annual decline outside of Covid-19 in well over two decades. New starts in housing are more than three-quarters below<\/a> the 2021 peak, while cash-strapped local governments have been much more parsimonious with their infrastructure spending.<\/p>\n

Nor have Beijing\u2019s almost ritualistic exhortations to boost consumer demand stretching back to the early Hu Jintao era<\/a> translated into structural reforms to support consumption. In fact, consumption\u2019s contribution<\/a> to GDP growth has declined<\/a> in recent years<\/a>. There is little evidence that President Xi Jinping has any intention of undertaking the fiendishly complex and politically fraught<\/a> reforms required to boost household consumption. Moreover, Beijing seems actively ideologically disinclined<\/a> towards Western-style consumerism.<\/p>\n

It is more likely than not that exports will continue to be the linchpin of Chinese prosperity. This is not good for the global economy. Whereas increased output in China used to be a net positive for global growth, as Chinese mercantilism has intensified, this trend has now inverted<\/a>. Put differently, China is proportionally selling much more than it is buying.<\/p>\n

There is a growing fear that European industry is in the process of being hollowed out.<\/p>\n

Europe is particularly exposed to what French President Emmanuel Macron has described as a \u201cChinese tsunami<\/a>\u201d. The old continent, which remains relatively open to trade, has a steeply growing<\/a> trade deficit with China, whose exports to Europe were up more than 8%<\/a> last year. Trade pressures have been compounded by the diversion<\/a> of previously US-bound exports towards Europe, and the rather unhelpful depreciation<\/a> of the renminbi by more than 8% against the euro across the last year.<\/p>\n

Brussels has tried in earnest to deploy defensive trade measures, while assiduously conforming with World Trade Organisation rules that its American and Chinese<\/a> competitors treat as shibboleths. These measures have included tariffs on electric vehicles, restrictions on access to public procurement<\/a> in certain circumstances, and retaliatory steps<\/a> against companies found to be benefiting from distortionary subsidies. While playing whack-a-mole has helped blunt the impact of Chinese competition in individual sectors, Europe\u2019s overall approach looks decidedly scattergun and somewhat arbitrary<\/a>.<\/p>\n

Over the last year, Europe has been moving towards a much more systemic strategy. The European Commission\u2019s latest proposal, made with strong French backing, is the Industrial Accelerator Act (IAA). In crude terms, the IAA \u2013 the draft of which is due late this month \u2013 would emulate China and indeed the United States<\/a> in instituting a mandatory \u201cbuy local\u201d requirement across public procurement.<\/p>\n

Although this might sound like arcane policy wonkery, public procurement is a very powerful tool for European capitals, being worth around \u20ac2 trillion (US$2.37 trillion) annually. The idea is that successful tenders and products benefiting from public money such as subsidies will require a minimum percentage of local content. Late last year, some in Brussels were aiming for a figure as high as 70%<\/a> for certain sectors.<\/p>\n

The IAA\u2019s other main pillar is to restrict<\/a> investments from certain countries (namely China) in sectors where dominance is most concentrated, and to make permissible investments contingent on technology transfer and local employment. Deciding what exactly constitutes European content and which sectors should be prioritised has unsurprisingly been subject to fierce horse trading<\/a>.<\/p>\n

Greater unanimity exists at the conceptual level. There is a growing fear that European industry is in the process of being hollowed out. Nowhere is this more pronounced than in the automotive sector, which employs<\/a> around 14 million people. Chinese investments with limited apparent local employment<\/a> or content<\/a> have caused consternation in Brussels and throughout the supply chain. The exigency for European automakers to compete with Chinese brands has often involved shifting production<\/a> to China and sourcing more Chinese components<\/a>. This is one important factor<\/a> behind the loss of more than 100,000 jobs in the European auto parts industry in the last two years.<\/p>\n

This points to a particularly knotty catch-22 facing European industry. What benefits individual brands is not necessarily in the interests of European supply chains. However, to be sustainable, these same supply chains require globally competitive European brands.<\/p>\n

Balancing competitiveness with the urgent imperative to adapt to a more Hobbesian, might-is-right based economic order will be no mean feat.<\/p>\n","protected":false},"excerpt":{"rendered":"Last year, China\u2019s seemingly indomitable export machine shrugged off US tariffs to record its largest ever trade surplus…\n","protected":false},"author":2,"featured_media":305092,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":["post-305091","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-il","tag-israel"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/305091","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=305091"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/305091\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/305092"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=305091"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=305091"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=305091"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}