Summary of Key Points
The European Union (especially Germany) is shifting its economic stance towards China from a "moderately cautious" approach to a more "defensive and aggressive" one. On one hand, Chinese companies investing in Europe—such as those from BYD and CATL building factories, engaging in trade (like exporting electric vehicles), or operating e-commerce platforms like Temu and Xiyin—are facing increasing scrutiny, fines, and restrictions. On the other hand, Germany is experiencing a widening trade deficit due to the impact of Chinese industrial capacity, particularly in the automotive and machinery sectors, leading to internal conflicts between the "tough government stance" and the more pragmatic approach of local businesses. Europe's main goal is to have Chinese companies set up factories locally (to create jobs) while forcing technology transfer (to protect its own industries), and at the same time, it uses tariffs and legal measures to block Chinese products and investments in order to prevent the loss of high-end manufacturing capabilities.
The "Hostility" Felt by Chinese Companies in Europe: Policy Barriers Everywhere
Chinese companies facing targeted attacks in their investments, trade, and e-commerce operations in Europe include:
- Manufacturing Investment Hurdles: BYD's factory in Hungary was investigated for alleged "unreasonable subsidies," and CATL's second-phase project there was halted due to environmental water usage concerns; MingYang Smart Energy's wind power project in Germany was abandoned after the government changed its mind, and Goldwind Technology is under intense EU investigation.
- E-commerce Platforms Under Attack: Xiyin's attempt to open a physical store at Galeries Lafayette in Paris was blocked by the mayor; Temu was fined 200 million euros by the EU for product compliance issues (with the potential fine reaching up to 6% of its global sales, or approximately 3.18 billion euros); JD.com's acquisition of German MediaMarkt was delayed due to Austrian obstruction, and the EU investigation led to the suspension of the deal.
- Stringent Investment Review: Germany prevented Italian SNAM (backed by China's State Grid) from acquiring a stake in German natural gas company OGE; future "greenfield investments" by Chinese companies may be subject to mandatory state review, and the "Foreign Economic Act" is being tightened.
These actions are not incidental but represent barriers set up by Europe using legal, environmental, and subsidy-related excuses.
The "China Shockwave" in Germany: Impact on Key Industries
Germany views China's industrial capacity as a "hurricane," with significant impacts in two core areas:
- Widening Trade Deficit: In 2025, China became Germany's largest trading partner, but Germany has a trade deficit of nearly 90 billion US dollars (250 million euros daily), which is a huge strain on the country that relies heavily on exports.
- Decline in Key Industries:
- Machinery Industry: The trade surplus with China was 10.5 billion euros in 2018 but dropped to just 2.8 billion euros by 2025.
- Automotive Industry: Export sales to China decreased from 30 billion euros in 2022 to 13.6 billion euros in 2025, a reduction of more than half. German economic research institutes suggest that Chinese exports have severely damaged the German automotive industry.
German public opinion compares this situation to the decline of Detroit, USA—there is concern that China is not only affecting low-end industries but also targeting high-end manufacturing, necessitating "self-protection."
What Europe Really Wants: More Than Just Factories
Europe seemingly welcomes Chinese companies setting up factories (with rapid growth in greenfield investments), but there are deeper motivations:
- Using Tariffs to Force Investment: The EU has imposed tariffs on Chinese electric vehicles, forcing Chinese companies to produce locally (in 2025, China invested 7.6 billion euros in the European automotive industry, accounting for half of total investments; examples include Chery taking over Nissan's Spanish factory and CATL building a battery plant in Hungary).
- Forcing Technology Transfer: Europe is not content with just having Chinese factories on its soil; it wants to retain the technology. Similar to its past approach with Japanese and Korean car companies, it aims to compel transfer of core technologies through policies. For instance, EU regulations require that Chinese companies hire local workers and share technology when setting up in Europe, and may even use legal means to extract technical knowledge.
- Preventing Eastern European Subsidies: The EU is worried that Eastern European countries like Hungary might provide subsidies to Chinese companies, undermining fair competition, so it wants to establish unified regulations.
In short, Europe wants to reap the benefits of Chinese investment while also trying to secure Chinese technology.
Germany's Internal Contradictions: A Tense Balance Between Government and Business
There is a clear divide between the German government and local businesses:
- Government's Aggressive Measures: Plans to eliminate Huawei/ZTE components from 5G networks by the end of 2026 and wireless access networks by 2029; using research reports (such as those from the Kiel Institute claiming BYD received 2.1 billion euros in subsidies in 2022) to support anti-subsidy investigations; pushing for stricter "Foreign Economic Act" regulations.
- Businesses' Pragmatic Choices: Companies like Volkswagen have moved their electric vehicle research and development centers to Hefei, China, and invested an additional 2.5 billion euros; however, large firms like BMW and BASF continue to invest in China, going against the government's "risk reduction" strategies.
- Businesses' Dilemma: After China introduced countermeasures, German companies are caught in a dilemma: complying with Germany's "Supply Chain Act" by auditing Chinese suppliers violates Chinese laws; not auditing them could result in EU fines.
Germany is in a precarious position, trying to protect its industries while fearing the consequences of trade wars (given that 1 million jobs and 85% of rare earths processing depend on China).
Europe's Enhanced Defense: Moving from "Targeted Anti-Dumping" to "Systematic Blockade"
Europe is no longer content with anti-dumping measures targeting individual products; it is adopting a more systematic approach:
- Upgrading Tools: The EU aims to create an "EU version of Section 301" (similar to the US) to use faster and more comprehensive legal tools against China, turning anti-dumping measures into a tool for strategic defense across all industries.
- Joint Actions: France and the UK are leading efforts to unify European strategies towards China to avoid individual actions.
- Dual Pressures: The EU must balance the pressure from the US digital economy and the threat of Chinese industrial competition, fearing that isolationism could hinder technological development, yet it has to take a tough stance.
For Chinese companies entering the European market, it's no longer just about competing on product quality; they also need to navigate the complex policy landscape created by Europe. The contradictions in Germany reflect the tension between protectionism and economic dependence among countries in a globalized world—a situation that is likely to continue for a long time.