Despite China providing about 30% of global economic growth annually over the past five years, serving as a pillar of global supply chains and reducing the cost of clean energy technologies, a discussion about 'China Shock 2.0' has resurfaced in Europe. Some argue that China's rapid progress in electric vehicles (EVs), lithium batteries, and solar photovoltaic systems (PVs)—the so-called 'New Three'—is driven by excess capacity and state support, which threatens Europe's industrial future.
The problem is demand, not China
However, the article's authors believe this accusation misdiagnoses the problem. The biggest challenge for Europe is not China's competitiveness, but rather weakening domestic demand, slowing innovation, and structural limitations in the economies of some European countries. While protectionism may have political appeal, it is incapable of restoring competitiveness.
As noted by Tu Xincuan, Dean of the WTO Research Institute at the University of International Business and Economics, the supposed shock is merely a consequence of normal market competition. Data refutes the political rhetoric: according to Bloomberg, European car factories operate at an average capacity utilization rate of only 55%, and only Stellantis has about 3.5 million units of idle production capacity.
Market and Competitiveness Analysis
European economic commentator Martin Sandbo, writing for the Financial Times, stated that Europe faces a 'phantom Chinese threat,' emphasizing that the real issue lies in weak domestic demand, not in the surplus of Chinese products. He also noted that although imports of Chinese cars have increased, the overall volume of imports into the EU has remained relatively stable because Chinese brands have mainly replaced imports from other markets, while Europe's domestic automotive market continues to shrink. For example, compared to 2019, Germany sold approximately 750,000 fewer cars in 2025, and sales in the EU fell by about 1.5 million units.
Jian Junbo, Deputy Director of the Fudan University Center for European Studies, observed that in a market economy, excess capacity only affects uncompetitive products. Furthermore, China's competitiveness did not appear suddenly: between 2012 and 2025, China's R&D spending almost quadrupled, reaching 3.93 trillion yuan (about $565 billion), and the country entered the top 10 of the global Innovation Index in 2025. Over 6,000 companies in artificial intelligence operate in China, and the country has maintained the world's largest R&D workforce for 13 consecutive years, which is the basis of competitiveness, not unlimited subsidies.
Risks of Protectionism and China's Opportunities
Trade barriers can temporarily protect less competitive industries, but they also increase costs and undermine long-term competitiveness. According to Allianz Trade, about 77% of additional customs costs ultimately fall on importers and consumers through reduced profits or higher prices. The EU's decision to abolish tariff benefits for low-value parcels has already drawn warnings from consumer groups in Germany that hidden customs and administrative fees could significantly increase the price of everyday goods.
Concerns are growing even within Europe. Stefan Scholl, technology editor for Handelsblatt, argues that punitive tariffs on Chinese EVs protect outdated production capacity, not future industries. He believes that fair competition would prompt European companies to accelerate innovation while ensuring access to affordable green technologies necessary to achieve the continent's climate goals.
While politicians debate new barriers, global business follows market realities. From January to May, China created over 25,000 new enterprises with foreign investment, a 5.3% increase compared to the previous year. Nearly 4,000 foreign companies expanded their operations in China, shifting their strategy from 'buying in China' to 'innovating in China.' Ralf Brandstetter, Head of China Relations at Volkswagen Group, reported that the experience gained in China helped reduce the company's vehicle development cycle in Europe from 48 months to 30–36 months, strengthening Volkswagen's global competitiveness.
From Shock to Opportunity
China's development is increasingly transforming from 'China Shock 2.0' to 'China Opportunity 2.0.' Striving for high-standard openness, China is making advanced technologies more accessible and allowing more countries to participate in the dividends of innovation and development. According to the British energy think tank Ember, China's investments have contributed to lowering global costs for solar, wind energy, battery storage, and electric vehicles. Open-source AI models from China have exceeded 10 billion cumulative downloads worldwide, and major scientific facilities, from quantum research to the Tiangong space station, are becoming increasingly open to international cooperation. Indian analyst S. L. Kantan aptly described this trend not as 'China Shock 2.0,' but as 'China Gift 2.0.'
Whether China's development is viewed as a 'shock' or an 'opportunity' ultimately reflects two competing views on globalization: one sees another country's success as a threat that must be contained, while the other recognizes that openness, innovation, and cooperation create common prosperity. While global growth remains fragile, the greater threat to the world economy is not China's development, but the growing retreat from openness and the rise of protectionism.