BRUSSELS — European Commission President Ursula von der Leyen declared that the "second China shock" is already affecting the European Union, citing a record trade deficit and risks of deindustrialization. In response to these economic pressures, the commission announced new measures including the creation of a Critical Raw Materials Corporation and proposed procurement rules to counter Chinese exports. Ursula von der Leyen said: "We will use all the tools at our disposal to rebalance our relationship. Words are good. But deeds are better."

Von der Leyen outlined the scale of the imbalance in an official statement. Our trade deficit with China is now 1 billion euros [US$1.5 billion] a day. It has reached a tipping point, she said.

The European Commission President described the impact on local economies across the continent. "Some say the second China shock is looming, but it's already here. It shows in our communities and in factories across our Union. It leads to deindustrialization in the industrial heartlands of Europe. This is unsustainable," von der Leyen said.

Eurostat reported that EU imports from China rose 6.4% to 559.4 billion euros in 2025. At the same time, EU exports to China fell 6.5% to 199.6 billion euros in 2025. These diverging trends have contributed to the record deficit.

To address dependency issues, the European Commission announced a new European Corporation on Critical Raw Materials. This entity will help the bloc stockpile materials needed for electric vehicles, semiconductors, batteries and defense technology. The EU is more than 80% dependent on China for many critical raw materials and 90% dependent for some rare earths.

The commission also moved to restrict foreign access to public contracts. On September 9, the European Commission proposed a Public Procurement Act that would let public authorities reject bids outright for major contracts when less than 50% of the value originates in Europe. The proposed procurement rules would apply to the EU's €2.5 trillion annual procurement market covering national authorities, schools and hospitals.

Implementation of the new procurement framework is not immediate. The proposed procurement rules still need approval from the European Parliament and member states. Legislative processes will determine the final scope and timing of any restrictions on foreign bidders in public tenders.

Chinese officials have rejected the characterization of their trade practices as harmful. Ministry of Commerce spokesperson He Yadong addressed the rhetoric in an official statement. "China's position and attitude are consistent and clear. We do not engage in microphone diplomacy, nor do we get into a war of words," He Yadong said.

In late July, Chinese Vice Minister of Commerce Yan Dong argued at a media briefing that the situation should be called "China Opportunity 2.0" because China's manufacturing base anchors global supply chains. Yan Dong cited International Renewable Energy Agency (IRENA) data stating China's green industry has helped cut global wind and solar costs by 60% to 80% over the past decade.

Yan Dong provided further details on the scale of Chinese industrial output. He stated that China's textile machinery exports topped $30 billion from 2012 to 2024. He also noted that China's open-source AI models have been downloaded more than 10 billion times, indicating broad technological reach.

The Chinese vice minister projected continued growth in sustainable sectors. Yan Dong stated that China's green industry is set to exceed 20 trillion yuan (US$2.98 trillion) by 2030. These figures were presented to counter narratives that frame Chinese exports solely as a threat to Western industries.

Member states have also pushed for stronger defensive measures. In late May, a France-led group of five countries – Italy, Spain, the Netherlands and Lithuania – urged Brussels to use anti-dumping and anti-subsidy tools more broadly against Chinese imports. The France-led group cited market distortions in the steel, automotive and clean-technology sectors.

Diplomatic engagements continue alongside policy proposals. EU Trade Commissioner Maroš Šefčovič held a call with Chinese Commerce Minister Wang Wentao to discuss market access on both sides and Chinese export controls on rare earths. Šefčovič will travel to Beijing on October 8-9 to co-chair the second session of the EU-China Trade and Investment Council.

Broader geopolitical developments may influence the trade dynamic. US President Donald Trump and Chinese President Xi Jinping will meet in Washington on September 24. Tariffs imposed by the Trump administration have narrowed Beijing's access to the United States market, potentially redirecting export flows.

EU member states will discuss the matter at the European Council summit on October 15-16. Leaders will review the proposed measures and coordinate positions ahead of further negotiations with Beijing. The outcome of these discussions will shape the next phase of EU-China economic relations.

The term "China shock" originally described the wave of cheap toys, textiles and basic electronics that flooded European markets after China joined the World Trade Organization in 2001. "China Shock 2.0" describes a newer wave of exports including electric vehicles, chemicals, machinery and power-generation equipment. This evolution marks a shift from low-value consumer goods to high-tech industrial products.

Why It Matters

The declaration of a "second China shock" signals a potential turning point in EU-China economic relations, moving from engagement to active defense of industrial capacity. The record trade deficit of 359.8 billion euros and high dependency on Chinese rare earths create strategic vulnerabilities for the European Union. The proposed Public Procurement Act and Critical Raw Materials Corporation represent concrete steps to reduce this reliance and protect domestic industries from what Brussels views as unsustainable competition.

The divergence in perspectives shows the complexity of decoupling or de-risking strategies. While European leaders cite deindustrialization risks, Chinese officials frame their manufacturing dominance as a global opportunity that lowers costs for green technology. The upcoming meetings between EU and Chinese officials, along with the US-China presidential summit, will test whether diplomatic channels can manage these competing economic narratives without escalating into broader trade conflicts.

Timeline

In April 2025, Eurostat said that the EU's full-year 2025 trade deficit with China had widened to a record 359.8 billion euros. During the same month, Eurostat reported that EU exports to China fell 6.5% to 199.6 billion euros in 2025, while EU imports from China rose 6.4% to 559.4 billion euros in 2025.

US President Donald Trump and Chinese President Xi Jinping will meet in Washington on September 24, 2025. Maroš Šefčovič will travel to Beijing on October 8-9, 2025, to co-chair the second session of the EU-China Trade and Investment Council.

What's New

This report includes additional context regarding the institutional roles involved in these developments. The European Commission is the executive branch of the European Union, responsible for proposing legislation and implementing decisions. Eurostat is the statistics agency of the European Union, providing the data that underpins the commission's assessment of the trade deficit.