Two sides can manage industrial competition through rule-based consultations for mutual benefit
During the second meeting of the China-European Union trade and investment consultation mechanism in Beijing on Oct 8 and 9, both parties reaffirmed their commitment to addressing differences within the framework of World Trade Organization rules, while continuing to advance discussions on trade and investment balance, export controls, intellectual property and WTO reform. This dialogue comes amid the EU's ongoing concerns over a widening bilateral trade deficit, intensifying industrial competition, and the security of critical raw material supplies.
According to Eurostat, the EU's trade deficit with China reached 359.8 billion euros ($403.8 billion) in 2025. This growing deficit, coupled with heightened industrial competition, has become a source of profound concern within the EU, intertwining with discussions on EU industrial policy, economic security and the "de-risking" framework concerning China. The EU's concerns primarily stem from the enhanced competitiveness of Chinese manufacturing, which affects Europe's traditional industries. This shift reflects how the China-EU industrial relationship is evolving from vertical complementarity to intra-industry division and horizontal competition. However, attributing trade imbalances and industrial pressures solely to China's manufacturing capacity or "unfair competition" is an oversimplification derived from the EU's misperception about the mutual benefits in EU-China trade.
Take the example of new energy vehicles. China was an early adopter of NEVs for industrial upgrading and green transition, investing heavily in electrification, battery technology and intelligent applications. This was facilitated by a complete industry chain and a large-scale market. In contrast, the EU automotive industry faces pressure due to its slower transition pace, higher energy costs, slower innovation conversion, market fragmentation and rising green transition costs. On the surface, it seems that China's emerging industries are challenging the EU's traditional strengths, but fundamentally, it's a result of relative changes in manufacturing capabilities and adjustments in industrial competition patterns. To alleviate its industrial pressure, the EU may focus on reducing energy costs, improving the single market and enhancing innovation capacity, rather than resorting to protectionism as a substitute for internal reforms.
Against this backdrop, the positive significance of this round of consultations is even more pronounced: pragmatic negotiations focused on mutual concerns. Regarding hybrid and plug-in hybrid vehicles, both sides reached a trade understanding in line with WTO rules. On market access, efforts will continue to resolve issues related to financing bans on medical devices, agricultural products and inverters. Meanwhile, China expressed concerns about the EU's Foreign Subsidies Regulation, export controls and recent trade restrictions. Both parties will continue deepening exchanges on intellectual property protection, WTO reform and future-oriented investment cooperation. The meeting resulted in a 16-point consensus, and both parties agreed to hold a ministerial video conference in January 2027 and a third regular meeting in March.
From an industrial perspective, the most direct impact is on the automotive sector. The hybrid vehicle trade understanding may alter the growth pace of Chinese vehicle exports to the EU and affect companies' product arrangements and market planning. For the EU's automotive industry, it provides some time for its electrification transition, but does not automatically bridge the gaps in technology, cost and industrial chain efficiency. The ongoing price commitment and review procedures of the electric vehicle anti-subsidy case also leave room for resolving tariff disputes through corporate, rule-based solutions. For EU companies, improved tariffs and market access can help expand exports of their competitive products to China, while facilitating rare earth and permanent magnet export licenses can help enhance the supply stability of industries such as automotive, wind power and electronics. For Chinese companies, if the technical dialogue on the Foreign Subsidies Regulation and communication on export control cases can translate into more transparent procedures and clear standards, it will help reduce uncertainties in investing, acquiring and participating in public procurement in the EU. Whether these impacts can truly translate into business benefits still depends on the follow-up implementation details and the EU's enforcement.
This arrangement of mutual adjustments in specific areas, while leaving room for further negotiations, reflects the necessity of avoiding a lose-lose situation in China-EU economic and trade relations. Both parties are unlikely to achieve their envisioned optimal outcomes without dialogue and cooperation. Rather than pursuing unilateral maximum benefits, it's better to avoid expanding losses through mutual adjustments. China's expansion of imports of high-quality goods and services and further improvement of the operating environment for EU businesses in China are pragmatic responses to the EU's reasonable concerns. The EU should reduce unreasonable export restrictions and enhance the transparency and predictability of trade remedies, subsidy reviews and security reviews, avoiding generalized restrictions and discrimination against Chinese companies in the name of economic security. The ongoing communication on enterprise price commitments and review procedures in the EV anti-subsidy case also indicates that both sides are still attempting to avoid tariff escalation and trade confrontation through technical, rule-based arrangements.
However, the EU's "dual-track" approach — negotiating with China while increasing restrictions, and viewing the understanding on hybrid vehicles as a result of its pressure — as well as the joint German-French proposal for a so-called red button quick trade remedy tool, has drawn a clear response from China's Ministry of Commerce. The ministry stressed that the bilateral understanding is mutually beneficial and based on WTO rules. It urged the EU not to think about gaining benefits through pressure and emphasized that the notion of "EU pressure working" is baseless; it clearly defines the consultation results as maintaining the interests of Chinese companies while addressing EU concerns. The EU should not underestimate China's determination and ability to safeguard its interests. Consultations require sincerity from both sides. It calls for mutual action: urging the EU to work with China to promote the healthy and stable development of economic and trade relations, rather than moving toward confrontation.
Only by adhering to seeking common ground while reserving differences, expanding openness, and promoting incremental cooperation to drive trade "upward balance", rather than pursuing "downward balance" through mutual restrictions, can both sides transform industrial competition into an upgrading force, turn economic and trade ties into a foundation for mutual benefit, and provide more stability for an uncertain global economy.
Ding Chun is the director of the Center for European Studies at Fudan University. Wu Jiwei is a postdoctoral fellow at the Fudan Institute of Belt and Road & Global Governance.
The authors 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.
