Quo vadis: EU-China trade relations – from de-risking to technical fixes

The author of the following analysis is Dr. Weinian Hu, non-resident Senior Fellow at the Center for China and Globalization (CCG). Her research interests include EU-China trade relations and multilateral EU-Asia relations, with a focus on international trade law, patent law, and intellectual property rights protection.

Quo vadis: EU-China trade relations – from de-risking to technical fixes

Beyond rhetoric of all kinds, the EU-China bilateral trade tensions boil down to the technical details of the specific issues, including which financial contributions constitute countervailable subsidies and how sanitary and phytosanitary (SPS) rules may be applied. This is evident when reading the Conclusion of the second meeting of the EU-China Trade and Investment Consultations (TIC) (8-9 October 2026), which mostly acknowledges the status quo of the trade tensions between the two sides. Neither has shifted its positions on sticking points such as subsidies and export controls.

In the meantime, the EU proceeds with its de-risking agenda. More de-risking instruments will be introduced, including a ‘Diversify EU’ instrument and a deterrence pact. EU businesses have varied opinions on de-risking. The EU’s allies also bear high compliance costs and are unhappy.

Given the above, one cannot help but ask: Is the de-risking policy misguided? Is it merely a useless precaution – to borrow Rossini’s subtitle for The Barber of Seville? After all, by nature risks are possibilities, and they are boundless. Shouldn’t the Commission try to mitigate rather than remove them?

Following the introduction, this paper will highlight that the latest EU-China trade consultation failed to tackle the technical details, and that tensions remain. It will then point out that, due to a series of dilemmas, the EU’s success in de-risking is doubtful. Before concluding, it will argue for the EU to adopt a systemic approach to address the structural trade issues with China, beginning with technical fixes.

Introduction

The de-risking China policy was announced by Commission President von der Leyen in March 2023. The effects of the policy are mixed, at best. There are a few major drawbacks.

TIC: no fix for technical irritants

Although limited in scope, the latest TIC negotiations did promise a couple of immediate measures that should facilitate some EU exports to China, such as medical devices.

Nevertheless, the Conclusion appears underwhelming overall, not least because the technical stand-offs in bilateral trade are unresolved. They encompass country-wide (vs. regional) SPS risk assessment, price undertakings, the Foreign Subsidies Regulation (FSR), and export controls.

The Commission’s pledges for engagement in price undertakings for China’s BEV imports and in technical dialogue on FSR simply reiterate its obligation in accordance with the respective governing regulation (ASTDI and FSR).

In view of the technical complications and objective criteria of price-undertaking evaluation, the Commission’s commitment to examine future offers will not lead to automatic approval.

On the FSR, the major concerns voiced by China’s MOFCOM on the extensive scope of foreign financial contributions (Art.3, FSR) and the reversal of the burden of proof (Art.5, FSR) are precisely the two key provisions that make the FSR ‘fit for purpose and fulfills its objectives’ to address market distortions caused by foreign subsidies. Technical dialogue on the FSR is unlikely to yield results.

On the other hand, China has confirmed its export controls over the rare earths and permanent magnets to the EU. The Commission’s request for a general licence for EU businesses was not granted.

The dilemmas of de-risking

Following the COVID-19 pandemic and Russia’s invasion of Ukraine, it is understandable that the EU adopted the European Economic Security Strategy (June 2023) and sought to address risks in a number of areas. In the process, however, the EU has manoeuvred itself into a cul-de-sac, seeking to identify, rein in and eliminate all risks (including leakage) posed by China. That is possible only in an ideal world where risks can be enumerated. The EU faces further dilemmas in its de-risking efforts:

1) Trade vs. economic security?

Trade irritants require technical remedies. However, premised on economic security – an exception under the international trade norms (Article XXI, GATT) – the de-risking policy has weakened the EU’s own ability to seek redress before the WTO when confronted with similar tactics from China.

In 2014, China was required by the WTO to remove its export restrictions on certain rare earths, following a complaint lodged by the EU, Japan and the US. This time, no complaints are in sight against China over the similar measure. Any complainant would struggle to distinguish China’s measures from those employed by the EU and others. Arguably, unlike a decade ago, China now has a prima facie case for imposing rare earths export restrictions.

2) Global partnerships vs. EU regulatory standards

While forging partnerships around the globe, which is a component of de-risking, the Commission sometimes undermines its own regulatory standards for the sake of de-risking.

The EU-India FTA is a case in point. Concluded in January 2026, the agreement is missing a government procurement chapter. This falls short of FTA standards generally – above all, the Commission’s. The Commission also failed to insist on India’s ratifying the two remaining ILO core conventions on freedom of association and collective bargaining. This is contrary to its practice.

3) Regulatory power vs. central planning?

For sure, the Commission has the power to propose legislation. However, in pursuing de-risking, it has often assumed the role of a central planner by setting quantified goals. Because the Commission has no delivery agencies of its own, implementation will always be uncertain – and it risks losing credibility as a result.

One example is the solar industry. In the above-mentioned ‘de-risking’ speech, solar was highlighted as one of the clean tech industries in which the Commission aimed for the EU to produce ‘at least 40%’ for the green transition. By early 2025, the last two EU manufacturers stopped production. Similarly, whether the Critical Raw Materials Act (2024) will meet its domestic capacity benchmarks by 2030 along the strategic raw material supply chain is far from guaranteed.

By the same logic, ‘de-risking’ amounts to restructuring supply chains. It can only be delivered by the relevant EU industries, which are not under the Commission’s command and do not necessarily share the Commission’s priorities. Some now stress companies should remain responsible for commercial risk management; others argue diversification must be market-driven. If so, why is the Commission acting as a central planner?

Quo vadis?

There is no denying that the playing field between the EU and China is uneven. For one thing, the scope of ‘countervailable subsidies’ is narrower in China than in the EU, as the FSR illustrates. This may have contributed to overcapacity in certain sectors. It is also true that some of China’s WTO accession commitments remain unfulfilled, for example on subsidy transparency. Such structural trade irritants require a systemic approach, with technical fixes. ‘De-risking’ offers few solutions.

Driven by bilateral ideological and foreign policy divides (e.g. on Russia), de-risking amounts to an attempt by the EU to project its geopolitical standing through trade. But the irony is that, even amidst geopolitics, technical fixes are unavoidable if the EU wants to tackle trade irritants with China. The EU would be better off starting in earnest now.