EU Faces €360 Billion China Gap

The European Commission said on 29 May that EU-China trade and investment relations are "not sustainable", its bluntest language yet towards Beijing. The warning followed a year in which the EU's trade deficit with China rose 18% to €359.8 billion (Eurostat, Courthouse News). Exports to China fell, imports rose, and the Commission says 29 million European jobs are exposed to Chinese industrial overcapacity (Le Monde).

The statement was political pressure, not law. No binding measures were adopted. For Malta, the gap between words and instruments matters: Chinese supply chains sit behind rooftop solar panels, low-cost online parcels, pharmacy inputs and the clean-tech equipment the EU wants households and businesses to use.

The dependency got deeper

A Friedrich-Naumann Foundation study published the same week put hard numbers on the failure of "de-risking". Germany's reliance on Chinese imports increased in every critical category between 2023 and 2025: lithium batteries from 49.7% to 66.5%, antibiotics from 65.3% to 72.9%, and solar panels from 89% to 92.6% (n-tv). Rare earth import volumes tripled.

The same pattern runs across the continent. Italian imports from China rose 91% between 2019 and 2025, the sharpest increase among major EU economies (Corriere della Sera). Across the EU, 98% of solar panel imports come from China, while roughly 70% of battery and clean-tech supply chains pass through Chinese producers (Bruegel, EU JRC). Europe is trying to reduce its exposure to a supplier it keeps needing more.

France pushes, Germany hedges

France, Italy, Spain, the Netherlands and Lithuania sent a joint paper on 25 May calling for faster trade defences (Corriere della Sera). EU Trade Commissioner Stéphane Séjourné then set out a three-part plan: cap any one country's share of a supply chain at 60%, replace slow product-by-product investigations with sector-wide safeguards, and tighten controls on foreign subsidies (Le Monde).

Germany did not sign. Berlin accepts the need for trade defence, but wants targeted, WTO-compliant tools rather than broad supply-chain caps that could invite Chinese retaliation (Handelsblatt). Economy Minister Katherina Reiche went to Beijing the same week with a 40-person business delegation seeking "reciprocity" and dependable access to rare earths. She came back without agreements (Deutschlandfunk).

Germany's caution follows its exposure. Bilateral trade with China reached €250 billion in 2025, even as German car exports to China have halved since 2022 (Euronews, Krone). The contradictions go beyond Berlin. Italy signed the tougher paper while welcoming Chinese carmaker Dongfeng to co-manage a Stellantis factory in Cassino (Il Fatto Quotidiano). Hungary, which absorbed 44% of Chinese FDI entering the EU, faces a direct clash between its factory strategy and supply-chain caps that could weaken the BYD and CATL plants it is building (Portfolio).

Rhetoric is ahead of enforcement

Séjourné's three pillars are still not legislative text. A proposed "anti-overcapacity instrument", which would allow the EU to block imports priced below production cost before they overwhelm the market, remains under consultation, with a formal proposal expected no earlier than Q3 2026 (Atlantic Council). An updated FDI screening regulation, meaning government review of foreign acquisitions in sensitive sectors, reached political agreement in December 2025 but will not apply until late 2027 (Consilium).

One concrete change is close. From 1 July, the €150 duty-free threshold on parcels disappears (European Commission). At present, millions of small shipments from Chinese e-commerce platforms such as Temu and Shein enter the EU tax-free, undercutting local retailers. Applying tariffs to every parcel strikes at the margin on which that model depends, including for the Maltese shops competing with a phone screen and next-week delivery.

China is already acting. Beijing has imposed 42.7% tariffs on EU dairy (Euronews), delayed Airbus certifications, restricted rare earth exports, and sanctioned seven European defence companies (Radio Free Europe).

The European Council meets on 18 June to set the line. The problem is simple enough to state and difficult to solve: Europe needs Chinese solar panels, batteries and rare earths to meet its own climate targets. Protecting domestic industry can slow decarbonisation; leaving imports unchecked can hollow out the industrial base needed for long-term self-sufficiency (CER). Three years after "de-risking" became EU doctrine, the dependency has grown. On 18 June, leaders have to decide which cost they are prepared to carry.