What happened
China is relying on the European Union to absorb its overcapacity amid economic troubles, with weak demand at home and US tariffs squeezing Beijing. Experts say that a trade war with the EU is unaffordable for China, and the country needs Europe to absorb its surplus goods.
The EU has become a vital outlet for Chinese overcapacity, particularly in the machinery and transport equipment sectors. European manufacturers, especially in Germany, have suffered significant losses due to China's industrial transformation. The European Commission has expressed concerns about the EU's trade deficit with China, which has reached a "tipping point" of 1 billion euros per day.
Chinese Foreign Minister Wang Yi has urged the EU to avoid a trade war, stating that China and the EU are comprehensive strategic partners. Experts believe that China is trying to prevent a second front in its trade disputes, in addition to its ongoing tensions with the US.
The EU has already imposed tariffs on Chinese-built electric vehicles, and Beijing has retaliated with duties on European goods. China's economic troubles, including sluggish household spending and shrinking domestic demand, have left the country under persistent overcapacity pressure. If exports also stall, China will be squeezed "from within and without," according to experts.
China's trade surplus with the EU reached 1.67 trillion yuan in the first eight months of 2026, about 30% of its total trade surplus. The country's industrial overcapacity and surging exports could speed up deindustrialization across the EU, with Chinese products eroding European manufacturers' profit margins due to fierce price competition.
