Zhou Bo opened the panel by emphasising China's recent diplomatic gestures, such as the lifting of sanctions on the European Union, which he interpreted as a clear signal of Beijing’s desire to improve relations with Europe. He expressed cautious optimism that under a second Trump presidency, relations might paradoxically progress—aside from the complications introduced by the war in Ukraine. Zhou suggested that it was unfair for China to bear indirect consequences of a conflict it is not participating in and underscored that although China maintains a so-called “unlimited” partnership with Russia, its position remains restrained: President Xi has publicly declared opposition to the use of nuclear weapons in Europe, and China has not provided missiles to Russia.Yang Yao provided an economic lens to the discussion, focusing on the structural sources of tension between Europe and China. He outlined that China’s manufacturing sector now constitutes roughly 35% of its total output, but accounts for only 17% in value-added terms and 14% of GDP. Notably, more than half of this output is exported. Yao argued that understanding China’s vast manufacturing capacity requires recognising its unusually high savings rate—around 45% of GDP. This is not just a function of limited social security provisions; rather, it is culturally ingrained and supported by household, corporate, and government saving behaviours.
This abundance of capital and production capacity places China in direct competition with Europe, particularly in high-tech sectors such as electric vehicles. According to Yao, China’s competitiveness in these areas stems not from cheap labour but from technological advancements, prompting Europe’s recent tariff responses. Yao proposed that deeper bilateral investment could serve as a solution, restoring trust and fostering reindustrialisation in Europe. He remained optimistic about future China–EU relations, suggesting that rational interests would ultimately prevail over political suspicions, particularly once the war in Ukraine reaches a ceasefire.
In contrast, Janka Oertel characterised China as the greater economic challenge for Europe compared to the United States. She argued that Europe is better positioned to navigate U.S. protectionism through strategies like localisation and the Inflation Reduction Act, which help cushion the effects of American tariffs. However, Europe lacks a comprehensive industrial response to Chinese competition. In particular, Germany’s position is unique due to its heavy dependence on manufacturing—a sector particularly vulnerable to structural competition from China.
Oertel explained that Brussels is currently developing a targeted “toolkit” to address firm-level market distortions through a mix of defensive and offensive trade policies. While she acknowledged the value of cooperation with China in certain areas, she expressed scepticism toward Yao’s suggestion that foreign direct investment (FDI) should be expanded. She cautioned that Chinese investments in critical sectors—such as wind turbines—should be treated with strategic scrutiny, even if investments in other areas like batteries or solar panels may be more acceptable. She concluded that Europe must become both more protective and more innovative, and crucially, more unified in its industrial policy.
During the open discussion, Isabel Hilton highlighted the divided sentiments within Germany, where some companies maintain a pro-China stance due to favourable business outcomes. Oertel responded that German companies must localise and de-risk their investments in China, while the German government should pursue dual de-risking strategies toward both the U.S. and China. She also emphasised the need to resist narratives promoted by large firms that are deeply tied to Chinese interests.
Yao reiterated the economic foundations of China’s manufacturing surplus, pointing again to high savings and broad state subsidies—factors common in many industrial policies globally. He argued that China’s green technologies and industrial capacity are intended for global use, drawing a historical parallel to Britain’s contributions during its industrial peak.
In response to Hilton’s question about the mismatch between Chinese production and domestic consumption, Yao acknowledged that consumption in China has been rising gradually but is returning only slowly to pre-COVID levels. He noted that significant inertia in consumer behaviour means the rebalancing of China’s economy will likely take decades—an outcome that, while slow, is not pessimistic in the context of long-term structural change.
On the issue of trust and security, Zhou distanced China from security threats, including a recent incident involving a cable-cutting ship near Europe, which he said warranted investigation. He denied Chinese involvement in the Ukraine war and reiterated the need for mutual understanding. Oertel acknowledged the strategic rationale behind China’s ties with Russia but maintained that Europe need not accept or endorse it. Both sides, she suggested, must find ways to communicate and cooperate without deliberately ignoring fundamental differences.
During the Q&A session, several questions touched on entrepreneurship, greenlisting Chinese investments in Europe, and political conditionality. Yao reiterated that China’s high savings culture is real and substantiated by data, and noted that rural social security coverage has significantly expanded. On political conditionality, he argued against foreign intervention, saying institutional change in developing countries takes decades or more and cannot be forced. China’s non-interventionist approach, he claimed, is appropriate in international affairs.
Zhou commented on China’s position regarding Russia, pointing to President Zelensky’s positive description of peace proposals from China and Brazil. He reiterated that any ceasefire would likely have to be negotiated by Washington and Moscow, but once agreed, China might be willing to play a role as guarantor.
Yao concluded by warning against exaggerating the impact of Trump’s return, noting that many governments globally are already moving toward more securitised, subsidised, and self-reliant models. He described the world as having entered a “post-globalisation” phase, one that requires new trade rules and possibly new institutions. He also noted that institutional change takes more time than one would anticipate.
Oertel closed by reaffirming the need for more serious engagement from China, particularly on high-level issues such as TikTok and data security. China’s reluctance to address these matters publicly, she said, has contributed to European concerns. Yao responded by urging both sides to seek mutual understanding, arguing that China’s foreign policy approach avoids interference in domestic affairs and should be interpreted accordingly.
by Yangyang Zhao (ESC Research Assistant)
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