Guojin Securities: EU Anxiety Behind the "China Trade Shift" Narrative

In 2025, China’s exports to the European Union increased by 8.4% year-on-year, with a trade surplus reaching $291.78 billion, surpassing the US trade deficit for the first time in history (which was $280.35 billion). As a result, the EU has become China’s largest source of overseas trade surplus.

Previously, mainstream European media such as the Financial Times frequently emphasized the so-called “trade transfer” narrative, suggesting that the US market’s “closure” forced Chinese manufacturing capacity to flood into Europe, portraying the EU as a “drainage zone” for China’s excess capacity. While this narrative has influence in public opinion, its implicit premise is that China’s exports to the EU are mainly driven by low-priced end products, essentially passive dumping.

However, based on the actual structure and sources of China-EU merchandise trade in 2025, the trade transfer narrative does not align with the facts.

1. The essence of China-EU trade after removing the “trade transfer” label

Looking at the product composition, in the first 11 months of 2025, industrial machinery and equipment (HS84) and electrical equipment (HS85) constitute the two core sectors of China’s exports to the EU, with exports of $89.38 billion and $135.99 billion respectively, with year-on-year growth rates of 9.9% and 5.7%. Together, they account for over 45% of China’s total exports to the EU.

In the industrial machinery sector, export growth is mainly driven by automation and specialized equipment. This aligns closely with the investment pace of the EU manufacturing sector under rising cost pressures and accelerated automation transformation, reflecting demand for upgraded production systems.

Exports of industrial robots (HS842870) to the EU reached $110 million, with growth exceeding 200%, corresponding to automation upgrades, line modifications, and labor substitution needs in EU manufacturing.

Electronics and electrical equipment exports are driven by the EU’s energy transition and electrification process, mainly including new energy equipment, energy storage systems, core grid equipment, and power-related devices.

Wind turbines (HS850231) exported to the EU in the first 11 months of 2025 totaled $270 million, up 73.5%.

Lithium-ion batteries (HS850760) exported to the EU reached $26.31 billion, up 39.6%, constituting a major incremental source of energy storage exports. Corresponding electric battery components (HS850790) exported $460 million, up about 34.4%.

Liquid-insulated transformers, typical engineering equipment, saw exports of approximately $548 million for large-capacity products (HS850423), up 59.2%, and $510 million for medium-capacity products (HS850422), up 53.3%. Their growth is highly related to the EU’s ongoing investments in grid expansion, renewable energy integration, and power infrastructure upgrades.

Static converters (HS850440) exported to the EU totaled $7.91 billion, with an 8.0% increase. Although the growth rate is moderate, their volume ranks among the top, widely used in wind power, photovoltaics, power grids, and EV charging infrastructure. Their steady growth reflects continuous EU investments in energy systems and power infrastructure.

Overall, nearly half of China’s exports to the EU are concentrated in machinery, electrical equipment, and other industrial and technological categories, mainly serving the EU’s manufacturing operations, energy transition, and infrastructure development, demonstrating a high degree of alignment with EU development goals.

Additionally, it is noteworthy that, according to ITC Trade Map statistics, in the first 11 months of 2025, China’s exports to the EU in special or unclassified trade items (HS99, including cross-border e-commerce) experienced a year-on-year growth rate of up to 59.2%, ranking among the top categories. This seems to echo the long-standing EU narrative that “small parcels” impact the domestic market.

Previously, Reuters and other media cited EU customs data indicating that in 2024, the EU processed about 4.6 billion low-value parcels, with about 90% coming from China, doubling compared to 2023. Against this background, EU member states reached an agreement on December 12, 2025, to implement a temporary tax scheme on small parcels: from July 1, 2026, a fixed fee of €3 will be levied on shipments with a value below €150, with a tiered approach based on different product categories within the parcel.

However, further combining Chinese customs statistics, policies based solely on parcel counts and short-term year-on-year growth are insufficient to reflect the true evolution of cross-border e-commerce export value. The divergence between rising parcel numbers and shrinking export amounts likely reflects structural factors such as order fragmentation, declining average transaction value, and changes in statistical standards, rather than substantial trade value expansion.

From the B2C perspective, individual cross-border e-commerce goods (HS98.05) have always had limited volume in exports to the EU and have shown a continuous decline post-pandemic. After peaking at $810 million in 2020, exports sharply declined to $420 million in 2021, further compressed to $100 million in 2022, with a year-on-year decrease of 74.9%. Since then, the scale has remained low, with negative growth for three consecutive years from 2023 to 2025, reaching only $70 million in 2025, down 11.1% year-on-year. Overall, B2C small parcel exports to the EU have been in long-term contraction.

On the B2B side, exports of simplified cross-border e-commerce goods (HS99.00) expanded rapidly in 2021–2022, reaching $1.12 billion in 2022, up 69.1%. However, in 2023, exports sharply fell to $280 million, further declining to $180 million in 2024. In 2025, on a low base, there was some recovery, with an 18.7% increase to $210 million, but the absolute scale remains only about one-fifth of the peak period.

Therefore, attributing EU market pressure directly to China’s “low-price dumping” via duty-free small parcels lacks sufficient data support in terms of timing and scale.

The EU’s current policy anxiety is less about actual trade structure shocks and more about a preemptive narrative formed under tightened regulation, reflecting increasingly protectionist tendencies.

As China’s second-largest import source after ASEAN, the EU’s exports to China in the first 11 months of 2025 show a strong “high-end supply” characteristic, highly concentrated in industrial equipment, technological systems, and high-value intermediate goods.

Industrial machinery and electrical equipment (HS84 and HS85) together account for over 36%.

In machinery, semiconductor manufacturing equipment (HS848620) with a scale of $9.33 billion remains the largest, with stable growth. Meanwhile, high-end power and aerospace-related equipment have seen significant increases. For example, imports of high-thrust turbofan engines (HS841112) exceeded $4 billion, up 140.2% year-on-year, with related components (HS841191) also growing by 42.1%.

High-end integrated circuits have become the most notable incremental source among electrical products. Imports of processors and controllers (HS854231) exceeded $10.6 billion, maintaining a high growth rate of 50.6%, while other integrated circuits (HS854239) surged by 195.6%. These growth rates reflect China’s dependence on EU high-tech products in key areas such as advanced chips, industrial control, and automotive electronics.

Pharmaceutical products are another high-value segment.

In the first 11 months of 2025, imports of pharmaceutical products (HS30) remained high at $23.3 billion, with the largest category, finished medicines (HS300490), exceeding $9.2 billion, up 8.7% year-on-year.

China’s structural rebound in imports from the EU essentially results from the EU’s high-tech manufacturing sector’s structural recovery and China’s industrial upgrade needs.

In 2025, several EU high-tech manufacturing sectors’ industrial production indices (IPI) hit new highs in recent years, demonstrating high synchronization with China’s increased imports. For example, the EU’s aircraft and spacecraft manufacturing IPI reached its highest point in nearly six years in November, precisely when China’s imports of high-thrust turbofan engines doubled. Similarly, the index for electronic components and circuit board manufacturing rose to a historic high of 125.6 in November, directly supporting China’s procurement of high-end EU integrated circuits.

China’s rigid demand for high-end chips, aerospace power units, and other core equipment has effectively promoted EU industrial capacity utilization and R&D funding recovery. Meanwhile, China’s over $23 billion pharmaceutical imports in 2025 are a significant external demand for the EU pharmaceutical industry. This demonstrates that China-EU trade not only supports China’s industrial upgrading but also drives structural recovery of EU domestic industries, achieving substantive trade mutual benefit.

In summary, China-EU trade is not a zero-sum competition with unilateral dumping, but a deeply nested, mutually empowering, structured division of labor. This division manifests as a “two-way pull”: China’s incremental exports to the EU are highly aligned with Europe’s energy transition and automation upgrades, representing technological intermediate goods; while EU exports to China, leveraging its “high-end supply” advantages in semiconductor equipment and aerospace power units, provide critical technological complements for China.

2. EU anxiety under the “trade transfer” narrative

The EU frequently promotes narratives of “trade transfer” and “overcapacity,” rooted in its development anxiety amid current geopolitical shifts.

In this round of global geopolitical changes, the EU finds itself in a “quagmire”: security-wise, highly dependent on transatlantic alliances; economically, deeply embedded in global supply chains and external markets. This structural constraint means that when US-China tensions spill over, energy security and supply chain risks rise, the EU often bears the brunt first, yet lacks sufficient strategic buffers and autonomous adjustment space.

Therefore, the EU is beginning to systematically adjust its development paradigm, as outlined in the “EU Strategic Agenda 2024–2029” and the “European Commission Political Guidelines 2024–2029,” shifting policy focus toward “security-driven competitiveness reshaping.” Specifically, the EU prioritizes defense and critical technological capabilities, energy alliances (including grids, energy storage, and cross-border interconnections), and sovereignty-inducing industries such as AI, quantum computing, semiconductors, and net-zero technologies. It aims to rebuild industrial momentum and long-term growth through regulatory simplification, industrial funds, and skills alliances.

From a policy perspective, the goal of EU strategic autonomy is to enhance security and sovereignty, with the most immediate focus on re-industrialization and industrial competitiveness. Building clean industries, key technologies, and critical industrial capacities can support energy security, supply chain resilience, and defense capabilities, reducing vulnerability in an increasingly competitive external environment.

However, in the process of re-industrialization, the EU inevitably feels competitive pressure from Chinese manufacturing.

Over the past decades, China’s manufacturing has achieved leapfrog development. UNIDO data shows China’s share of global manufacturing output rose from 2.8% in 1990 to 32.0% in 2024, surpassing the combined share of major manufacturing economies like the US (15.0%), Japan (6.3%), Germany (4.6%), and South Korea (3.3%), and continuing to climb into higher-tech levels.

This structural change means that as the EU promotes its domestic industrial revival, it faces more direct and tangible external competition constraints.

In this context, the EU has increasingly used anti-dumping, anti-subsidy, and other trade and competition policies to buffer external shocks and protect its industrial base. For example, since 2023, the EU has initiated 45 anti-dumping, anti-subsidy, and safeguard investigations against China, mainly in chemical raw materials and products (19 cases) and metal products (5 cases), with 22 cases in enforcement and 21 under investigation.

Nevertheless, EU policy practice also shows more pragmatic signals. For instance, on January 12, China and the EU reached a “price commitment” guideline on EVs, which sends a positive signal for managing friction.

This reflects a growing EU awareness that relying solely on trade restrictions is insufficient to truly revive its manufacturing sector. In the context of rapid technological iteration and profound changes in industrial competition logic, traditional trade remedy tools can only delay impacts rather than reshape competitiveness.

3. Potential cooperation space in China-EU trade

Trade remedy tools are mainly short-term buffers and cannot fundamentally revitalize the EU industrial system. Against this backdrop, the EU updated its economic security strategy at the end of 2025, marking a shift from principle-based “de-risking” to a more operational phase of risk assessment and resilience governance.

The “Strengthening EU Economic Security” strategy emphasizes that the EU’s core goal is not to fully withdraw from external cooperation but to systematically and institutionally manage risks in key areas while maintaining openness. The new strategy focuses on six areas: supply chain dependence, inbound investments, defense industry, critical technologies, data security, and critical infrastructure, establishing a systematic policy toolbox aimed at reducing structural dependencies, enhancing strategic autonomy, and avoiding long-term passive pressure in the context of US-China competition.

Specifically, the EU concentrates on six types of structural risks:

• Preventing over-reliance (over 60%) on a single third country or operator for critical goods and services, especially those that could be “weaponized”;

• Avoiding foreign investments that lead to new strategic dependencies or lock-in of low-value-added activities, emphasizing that inbound investments should translate into substantive technology transfer and local value creation;

• Ensuring the industrial base for defense and aerospace industries, preventing being left behind in fast-paced innovation cycles;

• Consolidating control over key technologies such as AI, quantum, semiconductors, and biotech, preventing technology leakage through mergers, acquisitions, or R&D collaborations;

• Reducing risks of third-party access to sensitive EU data and systems via hardware, software, or corporate ownership;

• Ensuring the stable operation of critical infrastructure like transportation, energy, and communications under physical, cyber, and hybrid attacks, and preventing external “pre-positioning” at the standards and system levels.

Within this economic security framework, the relatively feasible cooperation areas mainly involve engineering-intensive, control rights not transferred abroad. For example, hardware for energy transition, grid and interconnection equipment, energy storage systems, clean industrial transformation, and manufacturing automation are more suitable for cooperation centered on equipment supply, engineering delivery, and cost efficiency. Chinese companies can reduce the risk of “single point dependence” through multi-source supply, local certification, and security audits.

Meanwhile, the EU remains open to “value-added” inbound investments, provided Chinese capital can enhance EU industrial capacity through manufacturing, supply chain integration, skills training, and limited technological collaboration—beyond mere ownership or market share expansion, i.e., “technology for market.” The specific cooperation models are to be explored by enterprises within a compliant framework. For China, the key is to keep core technologies domestically, maintain technological leadership through continuous innovation, and ensure a strong manufacturing position in the global division of labor.

However, it must be emphasized that the institutional premise for such cooperation is that, in advancing security reviews and industrial policies, the EU must also safeguard the legitimate rights and interests of Chinese enterprises within the EU, avoiding excessive, selective, or unpredictable interventions under the guise of security. Otherwise, overuse of security tools could evolve into de facto investment and operational uncertainties, as reflected in interventions like the Netherlands’ restrictions on ASML and Italy’s potential use of “golden power” to limit China COSCO’s shareholder rights.

Overall, the EU’s persistent reinforcement of narratives like “trade transfer” and “overcapacity” more accurately reflect its current geopolitical pressures rather than pure trade issues. Its high dependence on transatlantic alliances for security and deep integration into global supply chains place it in a “quagmire”—bearing the first impact when spillovers from US-China tensions and energy/industrial risks increase, yet lacking sufficient autonomous buffers. Under this context, re-industrialization and industrial competitiveness rebuilding are the EU’s most critical policy goals.

Within this framework, China-EU cooperation is not absent; rather, it is more feasible in areas emphasizing engineering capacity, industrial support, and efficiency advantages. The key is that the institutional environment must be predictable: rules should be transparent, policy boundaries clear, and enterprises’ legitimate rights protected steadily. Only under such conditions can China-EU industry cooperation based on complementary advantages be sustainable in the long term.

Risk Reminder

The EU, influenced directly or indirectly by US regulation, imposes more restrictions on China trade/investment; the EU intervenes in Chinese enterprises citing national security; EU domestic industry recovery falls short of expectations, leading to increased trade restrictions and stricter investment conditions on Chinese firms.

(Source: Guojin Securities)