Does the Chinese “industrial steamroller” pose an existential threat to European economies?

As competitive Chinese exports flood global markets, European economies face a critical threat. Yet as Robert H. Wade According to him, Beijing’s industrial strategy is increasingly complicated by China’s domestic challenges.

In mid-May, I spent eight days in Shanghai and Suzhou, China. The population of the Shanghai urban area is 25 million, compared to 10 to 11 million in London. Suzhou has a “small” population of only 7 million people. It is the site of Xi’an Jiaotong-Liverpool University, as well as the operational base of around 6,000 foreign companies, including 200 Italian companies.

Shanghai is also home to a Tesla gigafactory, which opened in exactly 2020. one year to the day from the start of its construction. From this gigafactory, Tesla manufactures about half of its global total of electric vehicles. It relies on more than 400 Chinese suppliers, more than 60 of which are closely integrated into Tesla’s global supply chain.

I was struck during my visit both by China’s extraordinary transformation in material prosperity and by the structural tensions whose manifestations are evident even to the casual visitor. In particular, we see in prosperous, industrialized and technologically advanced Shanghai the concrete results of Beijing and Shanghai’s long-term economic development strategy.

The overarching goal has been to catch up with the United States and, ultimately, overtake it and remake the world order in a way that better reflects its own values, interests, and still-Leninist political system. The content of the strategy has been defined since Xi Jinping became leader in 2012 by Thought of Xi Jinping and implemented under the omnipresent leadership of the Chinese Communist Party.

An existential threat for Europe and the United States?

It remains an open question whether Western governments led by the United States would have worked hard to bring China to the WTO in 2001 (assuming that China’s membership would push it toward liberalism, or even democracy), and worked hard to help it raise its level of economic modernization, had they known that the process of catch-up modernization would be brilliantly successful, while the process of political liberalization would not advance. Perhaps the former was helped by the latter.

It’s also an open question what will happen now, as governments and businesses in Asia, Europe, North America and beyond are left desperate while China’s fiercely competitive high-tech companies launch into a wide range of industries at breakneck speed.

Inasmuch as recent Financial Times report said: “Helped by an undervalued exchange rate, Chinese groups are carving out a place in the most advanced industries on the planet.” But they are not only helped by the undervalued exchange rate: an OECD analysis reveals that Chinese high-tech companies are subsidized between three and nine times more than their counterparts in rich countries. Additionally, exports generate higher profit rates than sales in the brutally competitive domestic market.

The United States and Europe see an existential threat to their own industries and jobs. French President Macron said during a recent visit to Beijing that the rise of high-quality Chinese products represented a “question of life and death” for the manufacturing industry in Europe. Europe’s high energy and labor costs make it a particularly attractive destination for Chinese exports.

Protective measures

The concern in Europe and the United States clashes with Beijing’s hostility towards any protection measures. that of Beijing Ministry of Foreign Affairs said in March that “the so-called issue of ‘China overcapacity’ does not actually exist and should not be used as a pretext for political manipulation.”

When the European Commission unveiled its antidote to deindustrialization, the Industrial Accelerator Actwhich includes measures to encourage Chinese companies to move production to Europe, Beijing denounced the act as “protectionist” and contrary to WTO rules. He unveiled compensatory rules in April 2026 giving officials the power to review company records, interview employees and block executives from leaving China if it is determined they are considering moving supply chains out of the country.

Beijing feels encouraged to oppose European measures because he knows that Washington does not support Brussels. Of course, in criticizing Europe, Beijing ignores that it has used broadly similar policy instruments to build its own industrial base. Moreover, the United States under Trump has brought the American political economy regime closer to the party-state model of the Chinese Communist Party, and Trump’s admiration for President Xi further emboldens Beijing.

As Jéromin Zettelmeyerdirector of the think tank Bruegel, recently said: “We need to stop the Chinese steamroller or slow it down so that our industry does not disappear overnight. But we cannot do it in a way that is inconsistent with a long term where China continues to dominate global manufacturing. We need a combination of softening the blow and adapting to the blow.”

China’s domestic difficulties

Finally, we can wonder how China will manage to overcome its serious internal difficulties. For the visitor, Shanghai appears to be a city better prepared to face the future than most cities in the world. But China’s overall situation looks like a case study of decentralized authoritarianism gone wrong. Provinces and cities are caught in destructive subsidized competition. Their finances are in serious deficit. Even according to official data (which the CCP distrusts), 28 of 31 provinces recorded deficits in the first quarter of 2026.

Shanghai comes second, with revenue covering 90% of expenses in the first quarter of 2026, while Beijing is 8th.^th best with income covering 66% of expenses. Many companies are trapped in “triangular debt,” in which local governments default, state-owned enterprises lag, and large companies crush small businesses, driving profits on domestic sales to very low levels.

The real estate market in most cities is in deep depression. Even in the wealthy city of Shanghai, away from the center, stand hundreds of huge apartment buildings, some unfinished, others completed but empty, stretching for mile after mile. Migrant workers are collectively protesting against contractors’ refusal to pay them. Foreign capital is relocating new investments to India, Vietnam and Mexico. Bloomberg believes capital outflows are getting out of control reached $1.04 trillion in 2025the highest since records began in 2006.

What stands out about China today is the economy’s heavy reliance on manufactured exports, slow growth in domestic demand, businesses caught in a brutal price war, local governments borrowing just to survive, and Xi Jinping’s biggest headache, the withdrawal of foreign capital. In recent months, Beijing has introduced a series of new rules aimed at preventing money, technology, businesses and even corporate executives from leaving the country in response to growing tensions with Europe and the United States.

What also stands out is the stark contrast between social order, prosperity and organizational capacity, on the one hand, and steep demographic decline, restricted public discourse and pervasive reliance on digital technology, on the other. All of this underlay my admiration and enjoyment of Shanghai and Suzhou during my visit.

Note: This article gives the views of the author, and not the position of LSE European Politics or the London School of Economics.

Image credit: ABCDstock provided by Shutterstock.