By the China–Europe Business Association (CEBA)

China–Europe economic relations are undergoing a significant shift in 2026. Trade remains substantial, while investment and industrial ties between businesses on both sides continue. Yet issues that were once largely considered matters of markets and corporate strategy are increasingly being discussed in the context of industrial policy, economic security and supply-chain resilience. This is particularly evident in electric vehicles, batteries, critical raw materials and advanced manufacturing.

Understanding China–Europe economic relations today therefore requires looking beyond whether trade volumes are rising or falling. The more important question is how the industrial structure behind that trade is changing.

China remains one of Europe’s most important trading partners. In the second quarter of 2026, the European Union imported €153.6 billion worth of goods from China, representing 21.9% of total extra-EU imports and keeping China as the EU’s largest source of imported goods. During the same quarter, the EU’s trade deficit with China reached €103 billion, its highest quarterly level since the third quarter of 2022. Machinery, electrical equipment, vehicles and other manufactured goods continue to account for a significant share of bilateral trade.

These figures point to two realities. On the one hand, after years of discussion about supply-chain adjustment and “de-risking,” China and Europe remain deeply connected through trade. On the other, Europe increasingly views the trade imbalance through the broader lens of manufacturing competitiveness, employment and industrial security. The EU is seeking tangible progress on trade rebalancing in its economic discussions with China, while China continues to emphasize open markets, fair trade and the importance of World Trade Organization rules. The two sides differ considerably in their interpretation of the causes of the imbalance and the appropriate policy response, but both continue to see value in maintaining dialogue.

The automotive industry offers perhaps the clearest illustration of this changing relationship. Trade tensions surrounding Chinese battery electric vehicles remain unresolved, while plug-in hybrid vehicles have also emerged as a new area of discussion. At the same time, Chinese automakers have not stopped expanding in Europe. Instead, a growing number are considering European manufacturing, partnerships with local producers and other forms of localization as they adapt to an environment in which local production and local value creation are becoming increasingly important.

Looking beyond automobiles to batteries, energy storage, robotics, industrial equipment and green technologies reveals a broader and more consequential trend: the European strategies of Chinese companies are gradually extending from exports to investment and localization.

For Europe, this creates a difficult balancing act between attracting investment, advancing the green transition and protecting the long-term competitiveness of European industry. For Chinese companies, it changes the logic of entering and operating in the European market. Companies seeking sustainable growth in Europe will increasingly need to demonstrate not only the competitiveness of their products, but also their ability to contribute to local employment, taxation, supply-chain development, technology partnerships and long-term industrial value.

European companies are making similar adjustments. Recent research from the European Commission and the European Investment Bank indicates that geopolitical risk is increasingly being treated by European businesses as a long-term feature of global operations. Sixty-four percent of surveyed EU firms believe they are equipped to deal with geopolitical risks, while tariffs and regulatory compliance are becoming more prominent trade barriers than logistics and shortages of raw materials. At the same time, nearly nine in ten companies still expect their exports to remain stable or grow.

This is an important signal. European businesses are not abandoning internationalization because the global trading environment has become more complex. They are redesigning the way they internationalize.

Supplier diversification, regionalized production, regulatory capability and supply-chain resilience are becoming integral parts of corporate strategy. For Chinese companies, this means that price, quality and delivery will remain important to European customers, but they will no longer define competitiveness on their own. Supply-chain transparency, environmental standards, data and product compliance, local service capabilities and the ability to maintain deliveries during periods of disruption will increasingly influence procurement decisions.

This also helps explain why “de-risking” should not simply be interpreted as doing less business with China. Judging by actual corporate behavior, it may be more accurately understood as an effort to reduce single-source dependencies and uncontrollable risks while preserving commercially valuable relationships.

European companies are seeking greater choice and resilience in their supply chains, while Chinese companies are simultaneously expanding manufacturing and service capabilities in Europe. These two developments are occurring at the same time. The result is not necessarily a simple weakening of China–Europe industrial ties, but rather a redesign of how those ties are structured.

This leads to one of the central contradictions likely to shape China–Europe economic relations over the coming years: the more visible industrial competition becomes, the deeper companies from both sides may find themselves operating within each other’s industrial ecosystems.

Chinese electric vehicle manufacturers entering Europe will compete with European automakers, but they will also depend on European engineering, logistics, finance, certification, talent and supplier networks. European industrial companies face increasingly capable Chinese competitors, yet may continue to find significant opportunities in China for advanced equipment, critical components, materials, industrial software, medical technologies and professional services.

The boundaries between competitor, customer, supplier and partner are therefore becoming increasingly blurred.

For this reason, framing the future of China–Europe economic relations simply as a choice between “cooperation” and “competition” is becoming less useful. The more important question is whether China and Europe can develop a commercial relationship capable of managing competition: where more transparent and balanced market rules are needed, where clear boundaries should exist because of legitimate economic-security concerns, and where sufficient common interests remain to support continued investment, technological cooperation and market development.

The China–EU Trade and Investment Dialogue launched in June 2026 should be understood in this broader context. Its agenda extends beyond traditional tariff issues to trade and investment balance, export controls, intellectual property and wider questions concerning the international trading system. Technical discussions continued into September, making the next stage of the dialogue an important test of whether institutional engagement can produce tangible progress.

For businesses, however, the significance goes beyond the number of individual disputes that one round of negotiations may resolve. The more important reality is that China–Europe economic relations are entering a period in which differences will need to be managed over the long term.

Trade tensions, industrial policy and economic-security considerations are unlikely to disappear from the business environment. At the same time, there is insufficient evidence to conclude that China and Europe are moving towards comprehensive economic separation. The more likely reality lies somewhere between these two extremes: greater competition and risk management in certain strategic sectors, alongside continued trade, investment and technological cooperation across a much broader range of areas where commercial interests remain aligned.

This places similar demands on companies from both sides. Chinese businesses need to view Europe less as an export destination and more as an industrial market requiring long-term commitment, with greater attention to localization, compliance, supply chains and corporate responsibility. European businesses, meanwhile, need to reassess China rather than relying on assumptions formed a decade ago, identifying where their technology, brands and industrial capabilities can continue to create distinctive value as China enters its next phase of industrial development.

Seen from a longer-term perspective, the most important change in China–Europe economic relations may not be a transition from “cooperation” to “competition.” It may instead be a transition from a relatively straightforward model of trade complementarity towards a more complex industrial relationship in which competition, cooperation and interdependence coexist.

Such a relationship will undoubtedly be more difficult to manage. But it may also be a more realistic reflection of what happens when two major economic powers become deeply embedded in global industrial and value chains.

Ultimately, the stability of future China–Europe economic relations will depend less on whether competition can be eliminated than on whether both sides can establish predictable rules for managing it — while continuing to identify the areas in which they can still create value for one another.

China–Europe Business Association (CEBA)

Connecting China and Europe. Advancing business, industry and long-term cooperation.