Europe may still have time to defend itself from China’s economic pressure, but only if it acts before its leverage disappears.
A recent analysis from the European Union Institute for Security Studies argues that China is not simply a rising giant marching from strength to strength. It is also a country facing growing internal strain. Its economy is slowing. The real estate sector has collapsed. The population is aging. Debt is rising and growth is weakening. Because of these pressures, Beijing is becoming more dependent on outside markets, especially Europe.
That dependence gives Europe an opportunity. If European leaders continue to hesitate, they risk allowing China to deepen its influence over the continent’s industrial future. If they act while the leverage still exists, they may be able to force concessions and protect Europe’s manufacturing base.
China’s Strength Masks Serious Weakness
For years, China was widely seen as an unstoppable economic force. Many analysts believed its growth would continue to accelerate and eventually eclipse the West. But the outlook today looks very different.
China still has enormous industrial capacity and global influence, yet serious structural problems are emerging. Economic growth is slowing. Investment returns are falling. Public debt is climbing. The once booming property sector has suffered a dramatic collapse. At the same time, the country faces the long term drag of an aging population and weaker productivity gains.
These pressures create political risks inside China. The Chinese Communist Party has long tied its legitimacy to rising prosperity. When growth slows, that social contract becomes harder to maintain. Rather than becoming more cooperative internationally, Beijing may become more assertive as it seeks to maintain stability and project strength.
China’s weaknesses therefore do not make it a benign actor. They may encourage it to use economic leverage more aggressively.
Why Europe Is So Important to China
Europe’s importance to China has grown as the United States has tightened trade and technology restrictions. The European Union remains one of the last major advanced markets where Chinese companies can sell industrial and technology products at scale.
The European market matters not only because of its size but also because of its purchasing power. European consumers and businesses are able to buy higher value goods that generate better margins for Chinese companies than sales in many other regions.
That advantage is particularly important now that China’s domestic demand is weak and many industrial firms are facing declining profit margins. Europe has become a crucial outlet for Chinese exports at a time when other major markets are becoming more difficult to access.
China also continues to benefit from access to European technology, research institutions, and innovation networks. In certain sectors that cooperation still provides meaningful advantages, especially in specialized technologies and advanced industrial processes.
These realities mean Europe still holds a degree of leverage in its economic relationship with China.
China’s Strategy: Expand Dependence
China’s broader strategy is to reduce its own vulnerabilities while increasing the world’s dependence on Chinese manufacturing and technology.
Rather than relying on the attraction of its market alone, Beijing has invested heavily in expanding industrial capacity and technological capabilities. The goal is to dominate key sectors and create supply chain positions that can be used as leverage in geopolitical competition.
This approach has already appeared in areas such as rare earth minerals and other critical materials that are essential to modern industry. By controlling production and supply chains, China gains influence over countries that rely on those resources.
At the same time, weak demand inside China has encouraged companies to export more aggressively. Large amounts of industrial overcapacity are pushed into foreign markets, often at prices that undercut competitors. This can gradually weaken industries in other countries and increase dependence on Chinese production.
Over time, that strategy can reshape the global industrial balance.
The Risk of European Deindustrialization
If these trends continue unchecked, Europe could face a gradual erosion of its manufacturing base. In fact, its recent problems with energy have caused its largest corporations to close factories and move them elsewhere – notably BASF and BMW. Cheap imports and intense competition from Chinese firms could place growing pressure on European industries ranging from machinery and chemicals to automobiles and electronics.
The concern is not an immediate collapse but a long term shift. As companies struggle to compete, investment falls and production moves elsewhere. Strategic industries weaken and supply chains become more dependent on external sources.
That risk is especially serious for countries with strong manufacturing sectors. The decline of domestic industry would not only damage economic growth but also weaken Europe’s strategic autonomy in areas such as technology, energy systems, and defense related supply chains.
The cost of inaction could therefore be far greater than the short term economic friction that might come from a tougher policy.
Using Europe’s Market as Leverage
Europe still possesses significant economic assets that China values. Access to the European single market remains extremely important for Chinese exporters. Europe also hosts advanced research institutions and technological capabilities that continue to attract cooperation from Chinese companies and scientists.
Using this leverage does not mean shutting down trade or starting an economic confrontation. It means recognizing that access to European markets and technology has value and linking that access to fairer economic behavior.
European policymakers could impose stricter screening of investments in sensitive sectors. They could strengthen export controls on advanced technologies and improve oversight of research partnerships. They could also use trade tools more aggressively when Chinese companies benefit from heavy state subsidies or distort markets with artificially low prices.
The objective would be to negotiate from a position of strength rather than simply hoping for cooperation.
ACZ Editor Note: Europe must be careful to avoid rampant and random protectionism. They may want to adopt Trump’s strategy of requiring that other countries avoid tariffs by manufacturing locally.
How China Would Feel the Pressure
A more assertive European strategy would create real economic pressure for Beijing. China relies heavily on export income to compensate for weak domestic demand. Losing easy access to Europe’s high income consumers would reduce revenue for Chinese companies and increase pressure on already thin profit margins.
Restrictions on technology cooperation could also slow progress in certain advanced sectors where European research and engineering still play a role.
China would almost certainly respond with its own countermeasures. But Beijing would also face limits. Other markets cannot easily replace the purchasing power of Europe’s consumers, and technological partnerships with Europe remain valuable for Chinese innovation.
That is precisely why leverage matters.
The Window May Not Stay Open
China is actively working to reduce its dependence on foreign technology and markets. Over time that strategy could weaken Europe’s influence in the relationship.
If Europe waits too long to act, the leverage it currently holds could diminish. Beijing’s leaders appear confident that Europe will avoid using its economic power aggressively. If that assumption proves correct, China will continue strengthening its position while Europe’s bargaining power gradually fades.
The choice facing Europe is therefore not simply about managing trade disputes. It is about preserving its industrial future and maintaining influence in a changing global economy.
China remains one of the world’s most powerful economic actors, but its strength is not as secure as it once appeared. Slowing growth and internal challenges are pushing Beijing to rely more heavily on exports, industrial dominance, and economic leverage abroad.
Europe still possesses assets China needs, including a wealthy consumer market, advanced technology, and influential research networks. Those advantages provide an opportunity to defend Europe’s economic interests and rebalance the relationship.
But that opportunity may not last forever. If Europe continues to hesitate, it risks allowing its manufacturing base and technological edge to erode. Acting now could preserve both.
