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Relations between the EU and China are entering a decisive phase. China remains one of Europe’s most important trading partners, yet growing trade imbalances, industrial overcapacity, unequal market access and concerns over state-supported competition are putting the economic relationship under increasing strain.

In her SOTEU address on September 16th, European Commission President Ursula von der Leyen said the EU will use every possible means to reduce its "unsustainable" trade deficit trade with China. Von der Leyen said that the imbalance, with a goods trade deficit of €1 billion a day last year, had reached a tipping point and that Europe was already suffering from the second China shock through deindustrialisation. The European Commission has called for tangible progress by October, warning that tougher measures could follow if Beijing fails to address European concerns.

For European industry, however, the challenge goes beyond trade defence. China is simultaneously a crucial market, supplier and increasingly powerful global competitor. Europe’s machinery and equipment manufacturing industry sector illustrates the dilemma particularly clearly: companies must compete not only with increasingly innovative Chinese manufacturers, but also with the speed, scale and industrial policy support underpinning their expansion. Chinese companies benefit significantly from state support, which distorts international competition to the disadvantage of European manufacturers.

Europe therefore needs to consider its own industrial policy. Sustainability ambitions, economic security and fair competition must be combined with a regulatory and political framework that enables European companies to innovate, invest and react quickly to changing global markets.

As political pressure increases on both sides, avoiding an escalating trade confrontation will also require constructive solutions. This Euractiv policy debate will discuss how Europe can defend fair competition and strengthen its industrial base while maintaining a mutually beneficial economic relationship with China.

Questions to be addressed:

- How can the EU address its widening trade imbalance with China and unfair competition while avoiding an escalating trade conflict?

- What should the EU do if dialogue with Beijing fails to deliver tangible progress, and which trade and industrial policy instruments would be most effective?

- How can Europe create the right political and regulatory framework for sectors such as machinery industry to become faster, more innovative, sustainable and globally competitive?

- Where can the EU and China find constructive solutions that combine fair competition and reciprocity with continued trade, investment and cooperation on sustainability?

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