Balancing competition and cooperation

China and the EU can work together to take bilateral economic collaboration to a new trajectory, creating the conditions for continued mutually beneficial ties

Economic and trade ties have long served as the bedrock of relations between China and the European Union. However, the relationship has recently encountered friction, culminating in the EU imposing a series of trade restrictions on China since the beginning of this year.

To understand and manage these frictions, it is essential to examine how the underlying drivers of China-EU economic cooperation have evolved over the past decades. This helps explain the deeper forces behind the disagreements while pointing toward a more sustainable path for future cooperation.

Over the years, the economic complementarity between China and the EU has undergone three important transformations.

First, driven by the evolving industrial capabilities and economic structures in China and the EU, their vertical complementarity in trade gradually gave way to horizontal complementarity, as the two economies transitioned from specializing in different stages of the production chain to collaborating within similar industries. This shift was reflected in the changing composition of bilateral trade and investment.

Second, cooperation has moved beyond the traditional bilateral framework to become increasingly embedded in global value chains. Following its accession to the World Trade Organization, China emerged as one of the world's major manufacturing hubs. It is estimated that between China and the EU, intermediate goods consistently accounted for roughly half of total bilateral trade, reflecting multilateral supply chain interdependence.

Third, production-based complementarity has gradually given way to innovation-driven collaboration. Since the early 2000s, joint patent applications by Chinese and European companies have risen steadily. More recently, a growing number of European automakers have partnered with Chinese companies on joint research and development, leveraging China's strengths in emerging technologies to accelerate their own industrial transformation.

While these evolving drivers have pushed China-EU economic cooperation to a higher level and opened new opportunities, some challenges have emerged.

The first challenge is the profound transformation of the global trading system. China-EU economic cooperation was once driven by comparative advantage and economic efficiency in the era of globalization. That landscape, however, has been affected by intensifying geopolitical rivalry, the COVID-19 pandemic, the Ukraine crisis and the United States' growing neglect of or even challenge to multilateral trade rules. The WTO-centered trading system has come under strain, while unilateralism and protectionism have gained momentum. Against this backdrop, international economic relations are increasingly being shaped by national security considerations and values-based concerns, casting the shadow of geopolitical tensions, security concerns and shifting international rules on China-EU cooperation.

Second, the EU's anxiety about Chinese competition is escalating. Since the EU formally defined China as simultaneously a partner, a competitor and a systemic rival in 2019, the emphasis has shifted heavily toward the latter two. The 2024 Draghi Report on the future of European competitiveness likewise identified the United States and China as economic and technological competitors. Compared with the long-time dominant US, China's rapid catch-up and breakthrough achievements in some sectors have heightened the pressure on the EU. Those anxieties became even more apparent in May 2026, when the Center for European Reform published its China-related report, arguing that "China increasingly specializes in Europe's industrial strengths".

Finally, the EU's "de-risking" strategy has narrowed the space for bilateral cooperation. Since launching this "de-risking" agenda and European economic security strategy in 2023, Brussels has hyped narratives around issues such as alleged Chinese industrial overcapacity while deploying a broader range of trade and investment restrictions. Together, these policy shifts have pushed China-EU economic cooperation to explore new ways to coexist and cooperate.

Despite these challenges, the resilience of China-EU economic ties should not be underestimated. The two sides have no fundamental conflict of interest. Their economies remain deeply intertwined, with new forms of complementarity emerging. They also face a growing number of shared global challenges that are difficult to address without cooperation.

Meanwhile, the EU is facing a dilemma in which it must balance its "de-risking" agenda against the need to preserve economic efficiency, maintain industrial competitiveness and safeguard the interests of its member states. These competing priorities inevitably limit its policy options.

This suggests that China-EU economic cooperation still holds potential, and its underlying drivers still have room to continue to evolve. The two sides should approach their economic relationship from a long-term strategic perspective. In particular, the EU would benefit from a more pragmatic and balanced approach to its ties with China, recognizing that deeper cooperation with China, in areas such as supply chain integration and innovation, can help strengthen the EU's competitiveness and avoid the risk of a "middle-technology trap". Together, China and the EU should work to create a more stable and predictable policy environment for bilateral economic cooperation.

Looking ahead, the two sides can make tangible progress in four key areas.

First, they should work together to safeguard the WTO-centered multilateral trading system, while working with other countries to advance meaningful reform to preserve this indispensable global public good.

Second, building on the joint climate statement issued during the 2025 China-EU leaders' meeting, the two sides should explore a new model of mutually beneficial cooperation in green industries and new energy, leveraging their respective strengths and focusing on areas such as electric vehicles.

Third, they should seek breakthroughs in digital cooperation by expanding successful practices, enhancing regulatory coordination and standards compatibility, encouraging investment in digital industries and technologies, and making smart manufacturing a flagship area of collaboration.

Finally, China and the EU should unlock the untapped potential of services trade by establishing a dedicated dialogue mechanism and expanding cooperation in areas such as digital services, finance, education and healthcare. A stronger services partnership would help optimize the structure of bilateral trade, ease competitive pressures in manufacturing, and promote a more balanced pattern of economic exchange.

On June 30, China and the EU issued a joint statement following the first meeting of the China-EU trade and investment consultation mechanism.

Under the mechanism, the two sides agreed to establish four initial workstreams covering trade and investment balance, export controls, intellectual property rights and WTO reform, alongside a joint monitoring mechanism. They also reaffirmed their commitment to taking further facilitation measures to maintain the stability of global industrial and supply chains.

These developments suggest that both China and the EU remain committed to addressing their differences through dialogue and creating the conditions for continued mutually beneficial cooperation. Building on the outcomes of the meeting, the two sides should work toward durable mechanisms for managing disagreements and guiding China-EU economic relations toward a dynamic and sustainable balance as they continue to evolve.

The author is a senior research fellow and the head of the Division of European Economic Studies at the Institute of European Studies at the Chinese Academy of Social Sciences.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.