Europe's Leverage Over China Is Slipping Away

Europe has long operated under the assumption that China's rise would automatically lead to liberalization, and when this did not materialize, it settled for adapting and managing risks. This approach is no longer tenable. While China is undoubtedly a major power, it faces mounting structural pressures including an aging society, shrinking workforce, property crisis, weak consumption, high debt, and slowing growth. These vulnerabilities are reinforcing domestic political control and fostering a more assertive foreign policy. China's weak domestic demand is pushing excess production capacity abroad. Heavily subsidized Chinese firms are engaging in aggressive price wars, threatening the competitiveness of non-Chinese manufacturers globally. As Beijing expands its industrial dominance, it creates dependencies on Chinese technology and innovation, which is not merely a trade issue but one of power. A Europe dependent on China in key sectors becomes vulnerable to political pressure. However, this situation also presents Europe with room for maneuver. China needs Europe more than is often assumed. Access to the European Single Market remains crucial for Beijing, especially as the U.S. market becomes more restrictive. Europe is one of the few places where Chinese firms can still sell higher-value goods at attractive profit margins. European research, technological excellence, and industrial know-how are also valuable, though this leverage is limited and shrinking, and Europe must not let it slip away unused. Therefore, Europe needs a new China policy. Full decoupling is neither desirable nor achievable; economics and security are inextricably linked. Instead of hoping for systemic change, Europe should pursue a strategy based on interests and leverage. First, Europe must build on its strengths. Not all dependencies on China can be eliminated, and risk reduction alone is insufficient. Europe needs to protect and expand its technological advantages, especially in areas where China still relies on European capabilities. Second, diversification should become the default. Reshoring and 'Buy European' drives alone are not enough. The EU needs to diversify supply chains and export markets, which requires closer cooperation with partners across the Global South. Europe must create conditions that guarantee investors reliable demand in the European market, even when they do not produce in China and thus incur higher costs. Third, the EU needs credible escalation tools. To be taken seriously, Brussels must be credible when it threatens to use the Anti-Coercion Instrument. Fourth, Europe should pursue a genuinely leverage-based diplomacy. Dialogue remains important but should be tied to concrete demands. Europe should use market access, investment, and technological cooperation as bargaining power to seek concessions from Beijing, such as curbs on export surges undermining European industry, reduced exports of dual-use goods to Russia, and tougher localization conditions for Chinese investments in Europe. This course of action will not be cost-free, and China will retaliate. However, the notion that doing nothing is the cheaper path is a dangerous illusion. The cost of inaction, likely the erosion of Europe's industrial base, could further weaken confidence in the ability of European democracies to defend their interests. This is not about breaking with Beijing. European leaders should rethink their assumptions and establish a new diplomacy with China, aiming for concrete progress in priority areas backed by a credible willingness to use unilateral means to defend Europe's core interests. Such a pragmatic approach could ultimately establish a new relationship with Beijing.