Report: From Economic Growth to Statecraft: What China’s Trade Policy means for Europe

China is one of the world’s most influential economies, shaping global trade, investment, technology and industrial development. This report examines China’s economic model and its implications for trade and investment policies, its impact on Europe and how the EU can balance openness with resilience in an increasingly complex geopolitical environment.

What are the main features of China's economic model, and why should Europe understand them?

China’s economic growth and development model combines market mechanisms with extensive state direction. As a result, economic activity is shaped by political priorities, industrial policy and long-term strategic planning. Central and local governments play a pivotal role in directing investment, supporting key industries and promoting technological development. While this model has contributed to rapid economic growth, industrial upgrading and technological advancement, it has also created challenges for global trade and led to market distortions.

For Europe, understanding these dynamics is essential. China’s trade and investment policies cannot be analysed solely through conventional market-based economic theories. They are closely linked to broader strategic objectives set by the Chinese Communist Party, including economic security, technological self-reliance and geopolitical influence. A clear understanding of these underlying drivers is necessary to design effective and proportionate policy responses.

How has China's use of trade and investment changed as part of its wider economic and geopolitical strategy?

Rather than serving purely economic purposes, trade and investment are used to support technological upgrading, strengthen supply chain resilience, reduce external dependencies and enhance China’s global influence. This can be seen in the use of industrial subsidies, export controls, investment policies, technology transfer strategies and strategic engagement in global supply chains. China portrays itself as committed to international trade and investment, but in practice this commitment is conditional on economic openness supporting domestic development goals and national priorities. As a result, trade and investment policy has become an important instrument of economic statecraft.

The EU often describes China as a partner, competitor and systemic rival. Is this still a useful framework?

The framework remains useful because it captures the complexity of the EU–China relationship. China continues to be an important trading partner, and cooperation remains necessary in areas such as climate policy and global economic governance. At the same time, China is a major economic competitor in an increasing number of industries and technologies, and many economic dependencies on China in strategic sectors raise national security concerns. However, the report emphasises that the challenge lies in identifying and defining these different spheres of engagement, which often overlap. Effective policy requires a more nuanced assessment of risks and opportunities than any single label can provide.

How does China’s economic model affect Europe and the global economy?

China’s economic model has contributed significantly to global growth, lower consumer prices and the expansion of international value chains. At the same time, extensive state support has led to persistent industrial overcapacity, which generates significant spillover effects for trading partners. Large-scale exports of subsidised goods can place downward pressure on global prices and intensify competition for producers in Europe and elsewhere. China’s dominant position in several critical supply chains also creates dependencies that can have economic and security implications. These effects are increasingly shaping debates on industrial policy, economic security, resilience and Europe’s global competitiveness.

How can Europe stay open to China while also strengthening its resilience, competitiveness and economic security?

The report argues that openness and resilience should not be viewed as mutually exclusive. Europe should continue to engage with China where cooperation is beneficial and security concerns are limited, while reducing vulnerabilities in strategically important sectors. This requires a balanced approach that combines trade, industrial and innovation policies with economic security instruments. Most importantly, Europe should strengthen its technological capabilities, improve its ability to scale innovation, diversify critical supply chains and monitor emerging dependencies. The objective should not be broad decoupling but the targeted and proportionate management of economic risks.

What is the most important lesson European policymakers should take from this report?

The central lesson is that China’s economic behaviour should be understood as a structural feature of its political economy rather than as a temporary market distortion. Persistent overcapacity, extensive state intervention and the strategic use of economic interdependencies are closely linked to the incentives and priorities of the Chinese party-state.

As a result, European policy should move beyond short-term or ad hoc uses of defensive instruments and adopt a more strategic, long-term perspective. Effective responses require a clear understanding of the underlying drivers of China’s economic model, combined with policies that strengthen Europe’s competitiveness, resilience and innovation capacity.