Welcome to Red thread, Euractiv‘s weekly newsletter on EU relations with China and the wider Asia-Pacific.
I am Christina Zhao in Oceania, he joined Anupriya Dutta in Europe.
This week, we look at why Beijing thinks Brussels won’t escalate trade tensions…
Ursula von der Leyen surrounded by national leaders at the EU summit (Photo by Thierry Monasse via Getty Images)
“Europe is not in a good place.”
This was the decision by of China Global Timesthe Communist Party’s state media spokeswoman as EU leaders gathered in Brussels for a long awaited discussion how to respond to Beijing’s growing dominance of global manufacturing and trade.
From China’s perspective, the most important thing about the summit was not what Europe said. This is what Europe failed to do.
Brussels had been signaling a tougher approach for months. Commission President Ursula von der Leyen repeatedly warned about Chinese industrial overcapacity, state subsidies and the EU’s growing dependence on critical supply chains. At the summit, she presented figures showing that the bloc’s trade deficit with China is now roughly €1 billion a day.
However, last week’s EU summit suggested that while many leaders acknowledge those weaknesses, they remain divided on how far they are willing to go to reduce them.
Germany, France, Italy, Poland and the Netherlands called for a more muscular response. Others were more cautious. Spain – one of the EU’s friendliest states for Beijing under Prime Minister Pedro Sánchez – RECITED resisted tougher measures, arguing that China should be seen as a potential partner rather than a strategic challenge.
The final conclusions reflected these divisions. China was not even mentioned by name. Instead, the leaders referred to “global macroeconomic imbalances”, competition, risk supply chains and resilience, while calling for continued dialogue with key economic partners.
Most importantly, they did not adopt new tariffs, quotas or trade restrictions – a concession that did not go unnoticed in Beijing. There was no official objection from the foreign ministry as China saw no reason to escalate such veiled criticism.
Comments from Chinese officials, state media and party-aligned commentators have been consistent: Europe talks tough but lacks the economic courage to follow through.
Reducing dependence on Chinese supply chains would mean higher costs for EU consumers, disruptions for producers and the risk of retaliation from Beijing.
of Global Times the comment was extremely open. “China accounts for nearly a third of global manufacturing output. If Europe were so foolish as to provoke a trade war with China, there can be no winners,” he wrote, implying that efforts to disengage would be economically painful and politically difficult.
This accompanying cartoon captured Beijing’s assessment in vivid terms, describing the EU summit as a violin played by many hands – a discordant tune.
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What if Chinese households spent more?
When EU leaders call on Beijing to address “macroeconomic imbalances,” it’s diplomatic code for: China produces far more than it consumes and exports the surplus to the rest of the world.
Even a spending boom in China would not solve Europe’s worries.
According to World Bank data. Economists attribute this in part to Chinese society’s deep-rooted culture of thrift and saving for the future. A relatively limited welfare system and an investment-led growth model, which channels a large share of national income into investment rather than households, have also given people strong incentives to save rather than spend.
The most effective way to boost consumption, according to VUB researcher Laia Comerma, would be to increase household purchasing power by improving China’s social safety net, raising wages and lowering education and housing costs.
However, that would require Beijing to direct resources away from the investment-heavy development model that fueled China’s rapid growth over the past four decades, Comerma told Red Thread.
However, Europe’s concern is not only that China consumes too little. It is also that China produces a lot. “Domestic demand is only part of the problem,” she said, pointing to heavy industrial subsidies, excess production capacity and rising exports.
In other words, Europe isn’t just asking China to buy more. It also requires it to change the very economic model that turned it into a manufacturing superpower.
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Japan’s rare earth headache continues
Chinese shipments to Japan of heavy rare earths used in high-performance magnets remained frozen in May, extending a supply squeeze that began late last year, according to customs data.
The restrictions, tightened after a diplomatic rift over Taiwan, have accelerated Japanese efforts to building alternative supply chains. For Brussels, which is even more dependent on Chinese rare earth processing than Tokyo, the development offers another reminder of how economic dependencies can quickly become geopolitical leverage.
A desperate solution: Some Japanese manufacturers are reportedly dismantling old electronics to recover rare earth magnets.
Lithuania’s meltdown is short for China
China’s state media welcomed reports that Lithuania is seeking to restore diplomatic representation at the chargé d’affaires level, portraying the move as evidence that Vilnius is backing away from the Taiwan policy that prompted a diplomatic freeze in 2021.
of Global Times called the opening of a “Taiwanese Representative Office” a “big mistake” and argued that any restoration of relations would require Lithuania to make further concessions, including renaming the office.
Catalyst: Lithuania’s clash with China helped trigger the EU’s Anti-Coercion Instrument, designed to counter economic pressure from foreign powers.
‘Mother of all deals’
India and the EU are on track to sign a long-awaited free trade deal by December, with the agreement expected to enter into force between February and March 2027, Indian Commerce Minister Piyush Goyal said. Times of India.
The agreement would give duty-free access to 93% of Indian exports to the EU, while reducing tariffs on European products such as luxury cars and wine. Officials in New Delhi have described the political pact, reached in January, as the “mother of all deals”.
A future giant: India’s economy, the world’s fastest growing, is expected to overtake Germany’s by the end of the decade.
E3 taps into Taiwan tensions
The de facto British, French and German embassies in Taipei on Wednesday issued a rare common warning on Chinese coast guard operations east of Taiwan, saying the “new” activity threatens regional stability and freedom of navigation as Beijing increases naval pressure on the self-ruled island.
Beijing said the patrols are a law enforcement response to planned maritime border talks between Japan and the Philippines, while Taiwan has condemned the move.
Back to the negotiating table
China’s Commerce Minister Wang Wentao will meet trade commissioner Maroš Šefčovič in Brussels on Monday as both sides seek to manage trade tensions ahead of next month’s EU-China summit. The meeting comes days after EU leaders asked the Commission to deliver results from talks with Beijing.
A bitter pill for Europe
China has overtaken Europe in pharmaceutical innovation, according to a senior Pfizer executive, underscoring Beijing’s growing challenge to one of the EU’s most strategic industries.
Speaking at an event organized by Europe’s pharmaceutical lobby, Alexandre de Germay, Pfizer’s chief international commercial officer, said China accounts for 40% of global oncology clinical trials and launched more innovative drugs than Europe in 2024. He added that clinical development is three times faster and roughly half as expensive in China.
Now for the hybrids
The European Commission is preparing countervailing duties for hybrid vehicles made in China, according to a report by Handelsblatt, potentially expanding its commercial offensive beyond electric cars.
The German paper said Brussels, which already imposes tariffs on Chinese imports of electric vehicles, could move after securing support from most EU states. A spokesman for the Commission declined Red Thread’s request for comment.
Choosing sides in AI
The EU, along with the Netherlands, Germany and Greece, joined the US-led Pax Silica initiative on Tuesday, a non-binding effort to strengthen AI supply chains between the allies.
Meanwhile, Beijing unveiled a roadmap earlier this month to expand industrial data supplies for AI training, part of AI+ strategy aimed to cement China’s leadership in this sector. Together, the announcements show how Washington and Beijing are trying to secure an edge in the global AI race.
Three’s climate company
The EU, China and Canada opened talks in Brussels this week to coordinate positions ahead of this year’s UN climate summit, signaling support for the Paris Agreement as the US remains outside the pact. EuractivS ‘ reported Robert Hodgson.
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