The EU–China Business Association organized a webinar focused on “European Business in China: Position Paper 2025/2026” on 24 October 2025.
Ms. Gwenn Sonck, Executive Director, EU-China Business Association, introduced the topic of the webinar and the speaker. The Position Paper highlights the main challenges faced by European companies operating in China, examines broader trends in China's economy, and offers constructive recommendations to the Chinese government. As China prepares for its 15th Five Year Plan (2026-2030), the paper reviews the results of the current plan and also points to future priorities.
Mr. Adam Dunnett, Secretary General, European Union Chamber of Commerce in China, gave a presentation on the “EU Business in China: Position Paper 2025/2026”. The European Union Chamber of Commerce in China is a non-profit membership-based organization with nine offices in China and 1,800 members. The Position Paper is the result of six months of hard work done by over 50 working groups, covering everything from legal to agriculture to cybersecurity to renewable energy, trying to be a voice of all industry across all of China. We ask our members every year, “Has business become more difficult?”, Mr. Dunnett said. The business confidence survey from this year basically had record highs and record lows in a number of really important areas. A record high number of companies said business became more difficult, and it is a very difficult business environment for Chinese companies as well. It is really hard to get demand to meet supply, because there is such a heavy focus on manufacturing in China. Manufacturing output has to be met by the necessary demand. With all this overcapacity in so many sectors, EBIT margins for a lot of our members are worn out. Our members used to have higher margins in China than elsewhere, and now it is the other way around. They have higher margins outside. Of course, China is an extremely important market, so even with lower margins here, I always remind people that with the size of the market and the innovative capacity it is still a very important overall market for growth. The result of all this is that our companies' outlook for profitability and revenue growth are at all time lows. We've done this survey for 20 years, and only 12% have a future optimistic outlook for profitability, and only 20% have a positive outlook for revenue growth. These are half of the rates that they were 10 years ago. However, the majority of European companies is still profitable in China, as 68% of our members still claim to be profitable, but they're not growing that profitability like they used to, and perhaps not even at the same levels.
Our number one challenge is the Chinese economy itself. So when we say that we provide these recommendations to the Chinese government for the 15th Five Year Plan, it really is in our interest as well, because if the Chinese economy does well, our members will do well. Companies looking forward in terms of future investment plans obviously are going to be more subdued. Member companies are not leaving, but they are holding out for better times, and they are restructuring themselves. With lower prices and overcapacity, China actually makes itself very attractive. China now has a trillion dollar surplus with the world in trade, and Chinese exports to the EU are just ballooning because they are able to sell their products at a very low price, often even below cost and below margin, because of this focus on manufacturing. European companies in China are thinking they're taking advantage of it. When it comes to supply chains, companies are prioritizing resilience over economic efficiency. In order to safeguard the market in China, what a lot of companies are doing is they're taking advantage of the lower prices, they're on-shoring their supply chains to China – 26% are on-shoring – while only half are off-shoring as a part of that economic development and to ensure that they can serve markets elsewhere. By and large, they're trying to hold on to their market. The real exchange rate has also benefitted Chinese exporters, as it has fallen about 15% this year, despite economic theory normally suggesting otherwise. So China is really relying on its export model to maintain growth and to make up for other areas such as real estate in the past, which fueled the economy.
We're trying to aim our recommendations in the Position Paper at things China can consider as a part of its 15th Five Year Plan at a central level, at industrial levels, at provincial and municipal levels. So one way of doing that is looking carefully at what's happened in the past. In the communique, there are not too many big surprises, because China is actually pretty open and transparent about its policy directions. In the past, the Chinese leaders talked about reform and opening up, and then it moved into comprehensive reform. In the last five to 10 years, it was all about balancing economic development and security. This concept of dual circulation has been around for a few years as well, internally, we develop and build resilience for the Chinese economy, making it less reliant on the outside, but at the same time, relying on external markets for exports and for growth as well. In the past five years, on the one hand, these industrial policies and this focus on self-reliance has hugely benefited Chinese industry in the sense that technological advances are just unreal. Nobody expected this, but they've been largely successful in most areas where they've set out to seek technological advances or move past that technology frontier. China's share of global manufacturing is larger than the share of Germany, the U.S., Japan, and South Korea combined. Of course, this huge investment in advances has come with certain consequences as well. That's always a risk with industrial policies. There's been a significant resource misallocation. You've got over 100 e-vehicle companies in China with only three of them really being profitable. You've got overcapacity in wind and solar and a number of other industries and ultimately with the scarce resources that governments have, with an aging population, with the educational needs, and with the needs of the consumer.
A trillion dollar trade surplus is a world record and the trade deficit the EU has with China is a big source of contention. China only has about 18% of the global economy, but twice of that is actually the share that China has in global exports. So it's exporting twice as much as one would normally expect for a developed economy. That number has continued to grow over the last five years from 32% in 2019 to 36% in 2024 and 37% as of last month. We think measures need to be taken to take the foot off the gas pedal on exports, just so China can maintain strong continued global relations and a working bilateral relationship.
We've got five recommendations. The first is to fix the root causes of involution, but according to Premier Li Qiang involution is not the right word, it should be irrational competition. If you overload on certain investments, there are only a limited number of e-vehicles people are going to buy in a given year. So this move from manufacturing to services that we and many other think-tanks and global organizations are recommending is simply because that has worked well for Western societies and governments. It is a natural path of development that would lead in many areas to better livelihoods for people as well, whether it's education or healthcare services, tourism and the like. We're trying to promote a rebalancing of sort. It's one thing to grow at 5%, but if you're growing at 5% as a company or even 10% or 15%, but you're not profitable, that's just not sustainable. I think companies prioritize profit over revenue. Chinese statistics show that 22% of Chinese mid-sized companies now are loss-making. There hasn't been enough focus on the private sector and on trying to find and letting the market play a more dominant role. What are some of the other ways to restructure? Net exports and investments are a too strong. Consumption could grow, but consumer confidence is at an all-time low. If companies are not making money, if salaries and bonuses are being cut, people are going to get nervous. One of the ways to boost consumption is for people to have social safety nets and reassurances if they're going to be unemployed or if they have to retire early or if they're pushed out, but is it going to be enough to really turn the tide?
The second recommendation is about the role of the private sector. Most of bank financing in China goes to central state-owned enterprises. The private sector is basically the last one to get loans in China, and SMEs are at the bottom of the list. The state sector will continue to play a dominant role, but one of the consequences of that is pushing out the private sector. Many of our companies have given up on setting up wholly-owned foreign enterprises. They would rather just partner with a state-owned enterprise because of their assurance and social safety net. But looking at how to continue to build sustainable growth, the private sector is going to be more likely at generating factor productivity and innovation. When it comes to productivity, SOEs have continually lagged behind the private sector.
The third recommendation is about the trade imbalance. Mr. Dunnett said he is really saddened and frustrated to see that EU-China relations are not as strong as they could and should be. This year was the 50th anniversary of EU-China relations, and I didn't feel it, as everybody had got something to complain about. There are not many areas in which we are working together successfully. I just hope that we can create better awareness of how this trade deficit is really impacting countries around the world. Even though we bring it up, the number one focus of China is its own economy. We need to realize that China has no intention to reduce the trade deficit. A comment from Ursula von der Leyen points out how the EU accounts for 14.5% of China's total exports, but China only represents 8% of our exports. We're not looking to have balanced trade, but it's certainly worth a discussion on what's reasonable and what can be done to create something that we see is still win-win. The China International Import Expo for all of its efforts to try and attract more imports into China failed to do so.
Our last recommendation energy: clean air. The one area that we share common goals is obviously carbon neutrality, China's 2030 peak emissions, China's goal of 2060 carbon neutrality, which are very ambitious goals. China is a great potential partner for us in this area. DG Energy in Europe sees the clear advantage of importing more renewable energy and solar panels from China. Many European companies want to work with China's green transition. Many European companies still struggle to get access to renewable energy, and it's part of their corporate goals. If China wants to attract more investment, it must ensure that foreign-invested companies can get access to green energy. Industries opened up in China, but the service industry here is still really restricted. This would be an area we could cooperate. European banks here would like to have access to the reduced interest rates that the central bank offers to Chinese companies for green financing. Another area is the circular economy, recycling and repackaging. We've got an entire desk here working on trying to create new regulations so that recycled waste in the plastic industry can be used in the food packaging industry. With regards to China's very ambitious carbon neutrality goals, what we'd like to see is more clarity and industrial guidance at the sectoral level, because our companies are willing to make more investments in these areas if they are convinced that there'll be a return on those investments, and they'll be recognized accordingly.
China is now focused on coordinated development and security. China's self-reliance goals and national security focus have resulted in a number of companies losing out on business opportunities on security grounds. In the telecom industry, a number of European companies actually have left China and a lot of them have seen their market share decrease significantly. EU industry used to have 30% of the ICT market share. It's now down to 3%. And we've seen this in other sectors as well, perhaps for different reasons. We'd like to see more digital cooperation, perhaps in the areas of AI. There are improvements, but we've got to work hard together to find areas that we can cooperate, not just for digital, but also pharma, medical devices, banking and finance.
A Q&A session concluded the webinar. Q.: Do you still see new European companies entering the Chinese market? Mr. Dunnett: I don't see many new companies coming in. Some SMEs do. But we've grown a lot, we've got 1,800 members after starting with just 400 20 years ago. But the investment stock level and flow level are still very low for the size of China's economy. We still invest much more in the U.S. and in other member states. So there's huge potential for growth. We are trying to create awareness about opportunities for companies here through the EU SME Center. We've got reports on market opportunities. So I strongly recommend to visit the EU SME Center website to help companies see opportunities. The EU-China Business Association is also an official associated partner of the EU SME Center in Beijing. Also contact the IPR Help Desk for SMEs for their advice, which is free of charge.
Q.: Does the Chamber have any fast track mechanism on rare earth exports? Mr.Dunnett: I wish we did. We did meet with MOFCOM and are in touch with them almost every day, but we have a lot of members that are still waiting for approvals to come through. It is supposed to be 45 days. Some of our members have finally got them. But many are still waiting, and we don't know why. We don't know what the issue is. We haven't had a clear response to that. So the EU is working very closely on the issue. There are a number of companies calling me two or three times a week asking for help. Some European companies have dumped their Chinese supply chain partner and are sourcing from elsewhere. Some companies tell me that they are losing millions of euros. That wasn't the intention of the Chinese government or these companies, but that is the reality.
