Europe is among the most vulnerable regions to the so-called China shock — a combination of surging cheap imports, industrial price wars, and accelerating de-industrialisation — yet the continent continues to fall short of mounting a credible defence, according to an article published by the European Council on Foreign Relations (ECFR). The analysis, released in May 2025, attributes Europe's inaction largely to Beijing's coercive leverage over EU policymaking.

The Scale of Europe's Exposure

The ECFR article argues that Europe faces a structural disadvantage rooted in China's state-driven economic model. According to the analysis, the renminbi is undervalued by between 15 and 30 per cent, functioning as a de facto export subsidy on every Chinese product sold abroad. Chinese industrial subsidies run at roughly 4 per cent of GDP — approximately double the EU average — while a record number of Chinese companies are reportedly loss-making. The result, the article contends, is a fierce domestic price war that pushes Chinese manufacturers to export their way out of financial distress, with Chinese banks dependent on that export growth to keep rolling over extended credit.

Why a Comprehensive Policy Has Stalled

A policy package capable of rebalancing the relationship — including import tariffs, public procurement restrictions, FDI conditionality, and mandatory supply chain diversification standards — has reportedly been derailed repeatedly by Berlin and other EU capitals. The ECFR article notes that the European competitiveness debate has instead been dominated by fights over marginal solutions. German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni have made deregulation and cutting red tape the centrepiece of their responses. Meanwhile, many European multinationals have consistently warned against adopting legitimate trade defences, citing fears of trade conflict and retaliation.

Beijing's Coercive Playbook

The article highlights a sharp escalation in Chinese economic coercion targeting Europe. In April 2025, China's State Council enacted the Provisions on Industrial and Supply Chain Security, which instructs Chinese companies not to comply with EU investigations or sanctions. Beijing also cut off dual-use supplies to seven European defence contractors over Taiwan, and issued explicit threats over the EU's proposed Industrial Accelerator Act and its Cybersecurity Act. Critics argue these moves are designed to have a chilling effect on EU policymaking — and, according to the ECFR, they are working.

What the Analysis Recommends

The ECFR article is unambiguous about the path forward: 'Europeans can only successfully deal with the China problem when industrial protection and economic deterrence are combined into a comprehensive agenda. Either Europe finds a response that addresses both, or it will address neither.' The analysis distinguishes between genuine disagreement among EU member states and Beijing's deliberate coercive leverage, arguing the latter is the primary driver of inaction. Notably, while Chinese innovation and competitiveness are described as real in specific sectors, the article frames the systemic price advantage as 'largely a product of state capitalism' rather than organic productivity gains.

What Comes Next

The pressure on Brussels to act is unlikely to ease. With the EU's Industrial Accelerator Act and Cybersecurity Act still under development, Beijing's explicit threats put European legislators in a difficult position. Whether the bloc can consolidate a unified trade defence posture — overcoming the resistance of major economies like Germany and Italy — will be a defining test of EU strategic autonomy in the years ahead.