How should Europe position itself for systemic rivalry with China?

In 2019, when the European Union (EU) labelled China as a cooperation partner, a negotiating partner, an economic competitor, and a systemic rival, Europeans adopted a fifty shades of gray China policy. They hoped that this more nuanced and complex approach would enable Europe to cooperate, compete, and push back on China in all areas and orient all member states in one policy direction. Asserting that Europe-China relations were in a “systemic rivalry” was a watershed moment. With that expression came Europe’s formal acknowledgement that while it would pursue cooperation and competition with China, it also understood that it shared fundamental differences regarding governance models with Beijing. It also recognized the end of any hope that engagement with China would lead Beijing to embrace liberal democratic values.

The subsequent six years have been transformative for Europe-China relations. For Europe, China has morphed from a purely foreign and economic issue to an overall challenge for the prosperity and stability of European societies. The expression “systemic rivalry” seems both outdated and inadequate. The scope for cooperation between Europe and China has shrunk due to geopolitical developments in the Euro-Atlantic space, China’s economic and political trajectory, and China’s support for Russia’s war in Ukraine. Even global common goods, such as the environment and the fight against climate change—where Europeans have been vying to bring China on board—are no longer insulated from the competition for resources, influence, and overall industrial competitiveness.

Competition has spread across all areas of the relationship: China and Europe are in an overall competition of systems. Europe must become competitive in that competition.

A good example of this trend came in September 2025, when the world saw a photograph of Xi Jinping and Vladimir Putin side by side at the Shanghai Cooperation Organization meeting in Tianjin, China. At that summit, Xi hailed the advent of a new world order no longer dominated by the United States. Leaders from India and Turkey attended the summit, in addition to more traditional partners such as Pakistan, Iran, Kazakhstan, Belarus, and others. This attendance demonstrated the appeal of the Chinese system beyond Russia, which can’t afford to dispense with Chinese support, especially in Ukraine.

China’s challenge to the future of European prosperity

China is challenging the prosperity of the European Union as a bloc and the social contract that bonds European societies—namely, that economic prosperity needs to be connected with a democratic, inclusive, and egalitarian domestic order. The Chinese industrial model deliberately creates unfair trade practices. Through overinvestment, subsidies, overcapacity, and overproduction, Beijing establishes a skewed playing field between China and other countries. Additionally, China’s forceful dual-circulation strategy, aimed at increasing the Chinese domestic economy’s self-resilience and self-reliance while making the world dependent on that economy, also affects Europe’s potential prosperity. Faced with heightened competition, European companies are losing their competitiveness and their innovative advantages in strategic sectors. Chinese overcapacities will undoubtedly spread to industrial machinery and components, pharmaceuticals, and legacy semiconductors, all decisive sectors for the European industrial base. The upcoming “China shock 2.0” is at an unprecedented scale and will impact key sectors, assuredly giving rise to unemployment and job losses in Europe in the near future.

This acute pressure on European competitiveness comes with a new era of tit-for-tat economic coercion. China’s recently imposed restrictions on exports of critical raw materials signal that Beijing is now willing to weaponize controls to create pressure points on Europe and systematically escalate tensions.

Europe must prepare itself. From now on, every time Europe launches an investigation to address level playing field issues and build actual reciprocity, Beijing will respond in kind. This dynamic was clear when China imposed provisional measures on European dairy and pork after the EU began investigating Chinese subsidies in Europe. Escalation and unforeseen developments—including risks of miscalculations—in EU-China ties have become normalized.

China’s challenge to the European security order

As early as 2016, when China was surging investments into Europe, Europeans were recognizing the necessity of tying their China policy to their evolving national security interests. Over the past decade, China has become a multidimensional security challenge for Europe. Its investments pose national security risks, and it has increasingly weaponized trade and dependencies. China’s deliberate support to Russia’s war in Ukraine also upped the ante by posing a challenge to the European security architecture. This new Chinese test to the European security order is here to stay, and new security challenges will emerge in the future.

Ensuring the security of European critical infrastructure is another challenge. Even before the COVID-19 pandemic and the war in Ukraine revealed that Europe’s foreign dependencies were a problem, Europe had already started building a toolbox of policy instruments to make its citizens and market more resilient to disruptions.¹ Since then, Europe has accelerated the shift toward strengthening its economic security with a revised strategy. This strategy provides guidance on implementing the EU’s economic security strategy, which should further strengthen the existing toolbox.  

European views of China as, first and foremost, a security threat were hardened by two factors. First, Xi’s policy of “comprehensive national security” made it more difficult for European companies and citizens to work and live in China, resulting in a decrease in the number of Europeans living in China. Second and most importantly, China’s support for Russia’s war efforts in Ukraine was a turning point for Europe. China’s decision to provide nearly 90% of dual-use goods on the G7’s high-priority export control list to Russia, Europe’s most menacing security threat, made it impossible to return to the prewar status quo in Europe-China relations.

Russia and China’s strategic alignment comes with a high price for Europe. By providing an economic lifeline to Moscow, supporting the Russian industrial-military complex, and providing Moscow with a diplomatic platform, China is not only what NATO described as a “decisive enabler” of Russia’s war efforts but also a direct challenge to the European security architecture. While Beijing’s and Moscow’s strategic objectives differ regarding the future of the European security architecture, China has echoed Russia’s call for rethinking this architecture on several occasions. While enabling Russia in its war against Ukraine doesn’t amount to what would traditionally have been a challenge to the European security architecture, one can’t deny the deliberate decisionmaking process in Beijing, which contributes to alienating Europe by undermining European economic and security interests.

European policymakers will face new China-related security issues, from hybrid threats to trade weaponization to more traditional military threats. The list will span from information manipulation all the way to Taiwan contingencies. The future of Chinese social media platform TikTok inside the EU, and with that the use of foreign interference and information manipulation inside and outside Europe, is already a top area of concern. The use of AI, as well as surveillance concerns, such as in connected devices with data collection, is also likely to become a key issue. Security issues in the Indo-Pacific, including maritime security, security of critical maritime infrastructures, Taiwan contingencies, developments in the South and East China Seas, and efforts to avoid underestimated trade or economic disruptions, will remain fraught. In all these issue areas, as well as in cyber, space, and the Arctic, China’s ambitions will continue to challenge European security interests.

In addition, unresolved transatlantic debates on burden sharing and burden shifting, and no clear plans to address European and U.S. capacity—or lack thereof—to simultaneously operate in both the European and Indo-Pacific theatres, also reveal Europe’s inadequate response to the new security environment.

Recommendations for a new European China policy

Transforming European China policy should have one goal: ensuring that the European model can coexist with the Chinese system. Three priorities to advance this goal are managing trade with China, protecting Europe’s citizens and territories from all China-related security threats, and boosting European technological sovereignty. In order to push forward this set of priorities, three steps should be taken: (1) protecting the European social contract, (2) proposing a new economic compact with an innovative approach to the public-private partnership, and (3) championing international partnerships.

1. Protecting the European social contract.

European policymakers have a responsibility to explain and demonstrate the linkages between China’s model and European national security concerns and socioeconomic prosperity. Currently, European citizens lack awareness that China is engaged in a systemic competition with Europe and that it has economic and social consequences for them. Policymakers are also faced with the challenge that, while Europeans’ perceptions of China are evolving, they are doing so at a slower pace than China’s political and economic challenge for Europe is growing. Spending political capital and resources on addressing the China challenge over the long term, at a time when dealing with the United States and ensuring security vis-à-vis Russia are more immediate and visible priorities, is a difficult task.

A systemic competition in which Europe defends its values, rules, and interests is costly, but it is the only way forward to ensure European prosperity and security. Only if European citizens understand the scope and scale of the challenges ahead will they accept the costly measures needed to defend their companies and their security. Trade unions will have to explain to workers and citizens the costs of Chinese overcapacities when those are—in part—responsible for factories closing across Europe. Such an endeavor requires the creation of a solid China knowledge base at the national and local levels to inform a much-needed, nuanced, and difficult debate. Such knowledge should accrue not only among the European bureaucracies at the national and EU level, but should also involve politicians and their staffers in order to fully integrate national debates on foreign and security policy.

Every European government has a responsibility to develop a China policy that can withstand election cycles. Doing so requires building political, security, economic, and societal resilience at the national level, starting with an assessment of vulnerabilities across these domains and taking the necessary measures. While each member state will have a different degree of political and societal resilience, measures should be taken at the European level to ensure a limited and fair competition between member states.

Europe-China relations are a tale of 27 different economic and political realities, as well as competition among member states to benefit from the scale of the Chinese market and now technology; for instance, in attracting Chinese greenfield investments in the battery sector today. This race to the bottom is manageable only if loopholes in the European single market are urgently addressed and if the European Commission is given the means to protect its citizens and market. Europe should not hesitate to implement the economic security agenda presented in June 2023, which would endow the EU and its member states with the financial tools to harness their economic might for geopolitical purposes.

The new EU economic security doctrine, to be released by the end of 2025, will establish guardrails to ensure security and economic prosperity at the same time. This means engaging in a discussion with member states on consolidating risk assessments at the national level to identify economic vulnerabilities and possible choke points that could be exploited by China. It is also time to consider empowering the European Commission by enlarging the scope of its responsibilities for national security—which up until today remains a national competence. A balance needs to be achieved between maintaining national security prerogatives at the member-state level while responding to a new reality in which only the EU can adequately respond to challenges from China. For example, the European Commission might be empowered to make binding decisions on suspending Chinese investments in Europe on national security grounds. Today, member states are still the decisionmakers of last resort in the framework of the foreign direct investment screening mechanism.

2. Proposing a new economic compact, comprising public and private sector actors.

Governments, companies, and citizens will need to work together and make compromises in responding to the China challenge. It will not be possible to protect and support all sectors from a potential China shock, and companies may have to pay a security premium, while citizens may suffer job losses or transformations. The EU, too, will have to make compromises: it is already facing criticisms for its inability to implement the entirety of the Draghi report, a document produced by the former European Central Bank president outlining measures the EU must take to face productivity, demographic, and competition challenges. The report notably recommends the EU to mobilize a minimum of 750 billion to 800 billion euros ($829 billion to $884 billion) per year, to match American and Chinese ambitions and to keep pace with them. It also enjoins the EU to issue common debt instruments—similar to NextGenEU, a 750 billion euro package allocated to member states affected by the COVID-19 pandemic—to coordinate industrial policy and to push for public investment. The report argues that without these instruments, not only will the EU not be able to compare with the United States and China, but it will also fail in defending itself and in delivering its mandate for a green and digital transition.

In addition to high energy costs, inflation, and declining manufacturing production, the competition stemming from China will affect sectors in which Europe was previously competitive. The future of the European industrial base is at stake, with looming consequences for unemployment that cannot be addressed only through EU trade barriers or industrial policy. Indeed, Chinese overcapacities will affect sectors like low- to mid-range machinery and components manufacturers, as well as medical devices and pharmaceuticals, sectors in which European industries excel. European leaders will not be able to save all sectors and will have to take responsibility for the subsequent economic fallout.

In effect, managing trade with China will require a new understanding between companies and governments that unlocks a meaningful economic security agenda, enabling an ambitious industrial policy that also resists the economic shocks stemming from the United States and China. De-risking and diversification can work, but only if companies are on board and an integral part of the process—and even then, some will argue that in a systemic competition, de-risking may not be enough. Instead, they will say that decoupling would be the way forward.

Helping these companies in the technological race is also going to be a challenge for Europeans, who, as of yet, don’t have digital champions. Moreover, Europe’s digital infrastructure is almost fully reliant on external technology, critical components, and materials. Indeed, companies shouldn’t have to implement their own individual de-risking strategies. Otherwise, situations such as the one Nexperia, a Chinese-owned but Dutch-based chipmaker, faced recently will become increasingly common. In an unprecedented move, the Dutch government gave itself the power to intervene in the private company’s decisions, preventing Nexperia from transferring assets or hiring executives without the Dutch government’s prior approval. This move could be emulated by other European governments, thereby increasing Europe-China tensions.

European companies must be included as key actors in any ambitious European framework on China—while acknowledging that short- or mid-term business interests may conflict—and should benefit from support and rules to boost their global competitiveness. At this stage, all economic tools and financial incentives that aim to promote and protect Europe should be made available, not only for innovation but also for scaling up companies that would compete with the Chinese model outside of Europe: The Competitiveness Compass, the future Industrial Accelerator Act, sectoral industrial policies (the European Chips Act, Critical Raw Materials Act, AI Act, the future RESourceEU), and the trade, security, and cooperation agreements that the EU is signing should be the basis for the promote pillar of the EU’s strategy. At the same time, this can only function if de-risking becomes a reality—meaning that European companies will need to reconsider their China strategies and prioritize their mid- to long-term survival over short-term profits. The EU will also have to use all the protective tools at its disposal to ensure its companies can operate on a level playing field vis-à-vis China in a coordinated, fast, and wide-ranging manner.

3. Cooperate with partners to build European geopolitical power.

The world has changed since the last European China strategy. It has even changed since the first Trump administration, when several coordination instruments between the EU and the United States were instituted in order to jointly tackle the China challenge. The second Trump administration is much more willing to economically coerce its allies, even more so than its rivals. Europeans are slowly but surely taking stock of the considerable change in Washington’s approach.

Looking at China with a hard security lens is a distinct shift for Europeans, all the more because Europeans have outsourced their hard security to NATO and to the United States for the past 75 years. Europe’s relationship with the United States remains existential to the EU’s survival—after all, the EU developed under American acquiescence, both deliberate and sometimes passive. Yet even as Europe focuses on redefining the terms of the EU-U.S. relationship, its approach to reducing dependency on China is markedly different. Indeed, when Europe’s relations with both the United States and China are strained, most European political capital is concentrated on trying to fix the Washington-Brussels relationship, not the Beijing-Brussels relationship.

When the 2019 joint communication on EU-China relations—defining the relationship as a triptych made of competition, partnership, and systemic rivalry—was published, the EU did not expand the role allies and partners would play in ensuring that the EU could attain its goals. In practice, however, cooperation with like-minded and other partners was a pillar of the European approach. In a three-pronged approach, the EU was ready to cooperate with all actors. From multilateral platforms such as the G7, also labelled by China’s foreign minister as “the clique,” through which most of the China coordination took place, to bilateral formats such as the EU-U.S. Dialogue on China, Europeans cooperated with all partners. In fact, the Europeans were rather politically agnostic and worked together with the U.K. Conservatives, the first Trump administration, and successive Australian and Canadian governments with a common objective.

Building partnerships also means projecting power through an attractive European offer that would also serve to reinforce European competitiveness and resilience. For that, the EU intensified its efforts to commit to complex and multilayered partnerships, from trade agreements to defense and security partnerships. In addition, a key pillar of this new approach to partnership is to also propose a tailored-made global European offer through Global Gateway, the EU’s plan to spend billions of euros on investing in global infrastructure projects. Mobilizing public and private capital, at a time of narrowing investments, in order to fund a sustainable digital transition across the world, aims to position the EU more prominently in a competitive world. To achieve that goal, EU institutions are working with member states, the European Investment Bank, and the European Bank for Reconstruction and Development, and they have brought in 306 billion euros of investments since 2021. And it can work: The EU has already overshot the target and is now aiming at 400 billion euros by 2027.

Conclusion

Transforming Europe’s China policy requires that member states fully apprehend the urgency for a renewed approach and accept the ensuing economic costs and the political capital to invest. Ensuring that the European model coexists with China and acting proactively requires a strong European political drive. While the EU is thinking about embracing a more comprehensive global role, the siren calls of populism and far-right parties questioning the benefits of globalization are increasingly hard to ignore. Europe’s window of opportunity may soon close. It must diversify its portfolio of partnerships, propose a new economic compact based on trust between companies and governments, and take the necessary measures to protect its social contract.

The moment is urgent, and for Europe the cost of hesitation will be far higher than the cost of action. Clarity, unity, and resolve are necessary for Europe to succeed.