Stricter restrictions on European Chinese enterprises may lead to a "lose-lose" situation, as the EU announces legislation to aggressively promote "EU manufacturing."

On the 4th, the European Commission officially announced the long-anticipated “Industrial Act (IAA).” This legislation, aimed at enhancing the competitiveness of the EU manufacturing sector, is considered to have strong implications targeting China and exhibits a pronounced protectionist tone. In response, the EU-China Chamber of Commerce issued a statement on the 4th, expressing concern and opposition to the potential far-reaching impacts of the relevant provisions on market openness, fair competition, and China-EU economic and trade cooperation, despite understanding the EU’s strategic goals of boosting competitiveness, promoting green transformation, and ensuring economic security.

Multiple Measures to Strengthen “EU Manufacturing”

After weeks of disputes and delays, the European Commission announced the legislation on the 4th. According to a press release from the EU on that day, the IAA is a legislative proposal designed to strengthen Europe’s industrial base by promoting manufacturing development, expanding enterprises, and creating jobs. It focuses on sectors of strategic importance to the EU economy that currently face intense competition and structural pressures, such as energy-intensive industries (steel, cement, aluminum, chemicals), net-zero emission technologies, and automotive parts manufacturing. The EU aims to increase the manufacturing sector’s share of GDP from 14.3% in 2024 to 20% by 2035 through a series of measures in the IAA, thereby enhancing Europe’s resilience, competitiveness, and economic security.

The communiqué states that the EU proposes to introduce requirements such as “EU manufacturing” localization and low-carbon standards in public procurement and support programs. Companies participating in public tenders or receiving related subsidies must meet these requirements—for example, aluminum projects must use 25% EU-produced aluminum and adopt low-carbon technologies.

The legislation also sets additional conditions for major investments exceeding €100 million in strategic sectors: for instance, if a single third country accounts for over 40% of global capacity in electric vehicles, batteries, solar energy, and critical raw materials, the investment must ensure that foreign ownership does not exceed 49%, include technology transfer, and employ at least 50% EU workers.

Additionally, the IAA establishes an exclusive “trusted partner” system. Products from third countries that have signed free trade agreements with the EU or are parties to the Government Procurement Agreement can be considered “equivalent to EU origin” if they meet certain conditions. China is not included on this list.

Japanese media Nikkei Chinese reported on the 5th that the EU’s announced legislation is highly protectionist, aiming to exclude low-cost Chinese products and strengthen European industry competitiveness. Hong Kong’s South China Morning Post described the IAA as a “political bomb” that overturns decades of free trade and economic principles pursued by the EU. The report pointed out that all policies within the IAA target a common goal: imposing stricter restrictions on Chinese companies operating in Europe. It suggests that the IAA reveals three major EU anxieties: how to deal with high-quality, low-cost Chinese products, increasing security concerns over Chinese investments, and the urgent need for action.

According to Germany’s Deutsche Welle, the European Commission Vice President for Implementation, Stella Kyriakides, warned at a press conference: “If we do nothing, it will be obvious that soon 100% of clean technology products will be produced in China… In the coming years, our cement and steel industries could all relocate abroad.”

Still Under Revision Before Finalization

Whether the IAA will ultimately be implemented remains uncertain. Reuters reported that after the announcement, EU member states and the European Parliament must negotiate and finalize the legislation. Given the differing positions of member governments, the content may undergo further revisions. The legislation currently has strong support from France, but Sweden and the Czech Republic oppose strict rules, warning that this could scare away investment and increase costs. Germany remains cautious; Chancellor Olaf Scholz stated last month that “European priority” rules should be used as a “last resort” and incorporated into other trade agreements. German media ARD reported that the content of the IAA has faced strong criticism from German industry groups, with many lobbying organizations arguing that the proposals are overly bureaucratic and protectionist.

According to Politico Europe on the 3rd, the legislation was opposed by up to nine departments of the European Commission last month. Over the weekend, this opposition was reduced to three departments, including trade. The bill was still undergoing numerous modifications up to its final release—such as excluding entire sectors like technology from the scope of the legislation. Critics believe the bill is far from mature and will likely undergo significant revisions when submitted for review by the Council of the European Union (representing 27 member states) and the European Parliament.

EU-China Chamber of Commerce Expresses Concerns and Opposition

In response to this highly controversial legislation, the EU-China Chamber of Commerce issued a statement on the 4th, expressing concern and opposition regarding its content and potential impacts.

“We regret to see that the bill, by introducing broad ‘EU manufacturing’ localization requirements, mandatory technology transfer clauses, and strict scrutiny of foreign investments, is reshaping market access rules in the EU. While we understand the EU’s intention to strengthen supply chain resilience, the current design may shift toward a more exclusive protectionist system, sending uncertain signals to global investors, including Chinese companies.” The chamber emphasized that China’s advantages in clean energy, electric vehicles, and battery industries are the result of long-term market competition and innovation, not unfair competition. It also pointed out that restrictive provisions in the bill could hinder the EU’s own decarbonization efforts, cause Europe to lose high-quality partners and cost advantages, and create a “lose-lose” situation with Chinese market access uncertainties.

The EU-China Chamber of Commerce called on the EU to genuinely uphold principles of fairness, justice, and non-discrimination in advancing related legislation, and to continue providing an open, transparent, and predictable business environment for all market participants, including foreign investors.

Source: Global Times

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