For years, European policy toward China was anchored in the belief that Beijing’s rise would inevitably lead to domestic liberalization. When that expectation failed to materialize, the European consensus shifted toward a reactive approach of risk management. However, recent developments demonstrate that China is not the unstoppable titan often portrayed in European discourse. Instead, Beijing faces significant structural headwinds, including a shrinking workforce, an aging population, high debt levels, a severe property crisis, and sluggish domestic consumption.
These internal vulnerabilities have not led to moderation; rather, they have prompted Beijing to tighten political control and adopt a more assertive international stance. By seeking to reduce its own dependencies while fostering the dependence of others, China is exporting its domestic economic challenges. The country’s excess industrial capacity, bolstered by massive state subsidies, is flooding global markets with goods at aggressive prices, threatening the competitiveness of European manufacturers. This creates a critical power imbalance, as European reliance on Chinese technology and innovation in key sectors leaves the continent vulnerable to political coercion.
Despite these risks, Europe retains significant room for maneuver. China remains heavily dependent on access to the European Single Market, particularly as access to the United States becomes increasingly restricted. Europe continues to be a vital destination for Chinese firms seeking high-value profit margins. Additionally, European technological excellence and industrial know-how remain valuable assets, though this leverage is gradually eroding.
To address this, Europe requires a fundamentally different China policy that abandons the hope of systemic change through trade. A full decoupling is neither feasible nor desirable, but the integration of economics and security is now essential. A new, interest-driven strategy should prioritize four pillars. First, Europe must protect and expand its technological advantages in areas where China remains dependent on European capabilities. Second, the European Union must diversify its supply chains and export markets, working more closely with partners in the Global South and creating incentives for investors to operate outside of China, even when faced with higher costs.
Third, Brussels must develop and demonstrate credible escalation tools. The effectiveness of the Anti-Coercion Instrument depends on its credibility; increasing the ease of its activation would significantly enhance European deterrence. Finally, Europe should engage in a leverage-based diplomacy. Dialogue must be tied to concrete concessions from Beijing, including curbing export surges that harm European industry, reducing the flow of dual-use goods to Russia, and enforcing stricter localization conditions for Chinese investments.
While such a strategy carries the risk of retaliation from Beijing, the cost of inaction is far greater. Continued passivity threatens the erosion of Europe’s industrial base and undermines the perceived ability of democracies to defend their core interests. By shifting toward a pragmatic approach that combines dialogue with a willingness to defend its priorities, Europe can establish a more balanced and sustainable relationship with China.
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