SUBSIDIES ARE NOTHING SPECIAL
The Europe-based Xinhua journalists Zhang Xinwen and Zhang Zhaoqing challenge the narrative that Europe’s declining economic competitiveness is due to unfair Chinese state subsidies and assert that Europe is scapegoating China to delay overdue domestic reforms. The article was also listed on the China Trade Remedies Information portal on the website of China’s MOFCOM, underlining the acknowledgment of this argument by the ministry (Xinhua, 7 September).
Home-made problems rather than unfair competition: Zhang and Zhang argue that blaming China’s economic system fails to explain why Europe also falls behind the US in certain important emerging technologies despite sharing similar market-based economic models. They point out that problems are attributable to EU’s own decisions.
The European Commission itself acknowledges that the main obstacles facing innovative European companies include insufficient investment, a shortage of skilled technical talent, and market fragmentation. As Europe questions whether competition with China is “fair” while failing to complete its internal market, improve its financing environment, or lower expansion costs for enterprises, the reality becomes clear: many obstacles dragging down European businesses originate internally. Europe faces a challenge of institutional capability rather than one of fair competition.
Europe’s model difficult to sustain: The authors point out that Europe’s decline in productivity started already before the arrival of Chinese high-tech products like electric vehicles. They highlight that European automakers chose “to return value to shareholders through dividends and stock buybacks, while underinvesting in vertical integration, battery capacity, and production automation”. Furthermore, decisions like the cancelling of nuclear power generated high energy costs, demonstrating that “European policy choices over many years jointly shaped today’s energy costs”.
Since the end of World War II, Europe has established a social model featuring high welfare, strong labor protection, and strict regulation. While this model possesses value and deep social roots, sustaining it requires continuous productivity growth. Once productivity stagnates over the long term, the balance among welfare, wages, investment, and public finance becomes increasingly difficult to maintain. Europe’s productivity “engine” was slowing down long before the first Chinese electric vehicle entered the European market.
China’s subsidies? Nothing to see here: Taking aim at Western accusations against China’s state subsidies, Zhang and Zhang point out that Western countries use industrial policy tools themselves. For instance, they raise the EU’s Common Agricultural Policy and the Industrial Accelerator Act EU as examples of European subsidies . The authors argue that labeling all “effective industrial organization capacites” as unfair misses the core reality of international trade and note that “industrial policy has long been a widely used tool among major global economies.” Instead of criticizing the use of subsidies they suggest a different way to evaluate them:
Whether these policies are transparent, non-discriminatory, and consistent with WTO rules should be the focus of discussion. China’s position is that WTO members generally pursue fair, inclusive, and transparent subsidies, and major countries should lead by example in ensuring subsidy compliance. Subsidies themselves are not the problem, but they should be used reasonably under WTO principles such as openness, fairness, and compliance.
China is not acting unfair, but Europe is failing: In essence, they describe China’s model as a “more complete industrial ecosystem” and only because China was able to establish it, the country shouldn’t be called out as conducting unfair trade.
Once this is acknowledged, the question boomerangs back to Europe itself: Why is it that Europe, with its strong industrial foundation, mature scientific research system, and vast unified market, has failed to translate these advantages more effectively into new industrial competitiveness?
Shifting responsibility will not help the EU: The authors conclude by describing the phrase “China Shock 2.0” is a political narrative designed to evade internal responsibility. Raising Germany’s notorious Deutsche Bahn as an example for problems such as aging infrastructure and underinvestment, they argue that protective measures cannot replace fundamental domestic upgrades, stating that “shifting responsibility will not fix the railways, nor can it restore European competitiveness”.
The so-called “China Shock 2.0” holds strong political appeal because it offers a simple external explanation for complex internal dilemmas. Europe’s internal issues can be repackaged into a narrative about “Chinese competition,” creating the illusion that restricting Chinese goods will automatically restore European competitiveness. However, what Europe faces today is less a “China Shock 2.0” and more a “European Competitiveness Crisis 1.0.”
China does not blame others for structural problems: Related to this perceived scapegoating — Hu Chunchun of Shanghai International Studies University wrote a short piece about the current discussion about reforms in Germany (The Paper, 3 September).
As a Chinese scholar of German studies, I regret to find that a considerable amount of content in the “Economic Recovery and Employment Plan”—such as the discussion on raw materials in the “Germany Fund” (Deutschlandfonds) section, and issues like anti-dumping, anti-subsidy, geoeconomic imbalances, and non-EU foreign investments in strategic sectors and critical infrastructure in the “External Economic Relations and Trade Protection” (Außenwirtschaft und Handelsschutz) section—effectively frames China as Germany’s adversary and the very reason why reform must be undertaken. This point was also confirmed by the remarks made on July 2 by Vice Chancellor, Federal Minister of Finance, and SPD Chairman Lars Klingbeil when announcing the reform package.
This may be the most fundamental difference between Germany’s current reforms and China’s: in its process of institutional-level reform, China did not blame its own structural problems on external forces. Meanwhile, as the country most likely to understand the importance of Germany’s “reform,” China could play a fully positive and encouraging role in Germany’s structural transformation.
MANAGED COMPETITION
Ding Chun, a professor and EU expert at Fudan University, wrote with a postdoctoral student from the Fudan Institute of Belt and Road & Global Governance, Wu Jiwei, about EU-China trade competition, pointing out that the China Shock 2.0 narrative “may oversimplify the complex challenges facing European industry, making it difficult to accurately diagnose the problems and to find sustainable solutions.” (China Focus, 9 September) Instead, they suggest that “judging the fundamentals of China-EU economic and trade relations should be based on long-term structural trends rather than short-term fluctuations.”
Competition is a concomitant phenomenon of industrial restructuring, while complementarity and mutual benefit are the economic cornerstone of sustained cooperation between the two sides. As long as both sides can avoid generalizing competition in specific areas into overall confrontation, and properly handle specific differences such as trade imbalances and industrial competition within the rules framework through dialogue and consultation, bilateral economic and trade relations will still possess strong resilience.
EU narrative on China ignores its own problems: Ding and Wu challenge the EU narrative that attributes European competitive struggles entirely to Chinese expansion. In their view, this ignores internal structural deficits. And, although the EU has legitimate concerns regarding its competitiveness, they caution about the overuse of protectionist instruments.
The European side’s concerns regarding its industrial competitiveness deserve serious consideration. Europe has its own reform agenda in areas such as energy transition, innovation capacity, capital market depth, and the perfection of the single market, and the Chinese side welcomes positive progress by Europe in these areas. At the same time, if trade defense instruments are used prudently within the framework of WTO rules, they can help maintain fair competition; however, excessive use may also bring additional economic costs, requiring a balance to be sought between openness and protection.
Competition needs to be managed: Competition between Europe and China is an unavoidable trend in the EU-China trade relationship. But, Ding and Wu believe that this competition does not need to be regarded as something bad.
China and Europe need not avoid competition; the key lies in constraining competition with rules and transcending competition with cooperation, jointly shaping a balanced and win-win future through managing differences and expanding consensus.
ON DE-RISKING AND STABLE HIGH-LEVEL MEETINGS
Ding Chun also participated in a discussion on EU-China covered in the CCP newspaper People’s Daily, where he tried to frame the Europe’s de-risking policies (7 September)
China-EU economic and trade relations have gradually shifted from a vertical division of labor model, previously characterized mainly by complementarity, to horizontal competition in areas such as new energy and high-end manufacturing. In the face of China’s rapid industrial upgrading, Europe has developed a sense of crisis and even an overreactive response. At the same time, as anti-globalization sentiment rises and unilateralism and protectionism become more pronounced, Europe has strengthened its “de-risking” approach toward China, with the EU continuously increasing supply chain reviews, investment barriers, trade remedies, and industrial protection policies targeting China. Internal bargaining within the EU has intensified, with the European Commission, some member states, and interest groups amplifying China-EU economic and trade differences, increasingly politicizing normal economic and trade issues such as trade imbalances, market access, and industrial competition, which have frequently become flashpoints in China-EU frictions.
High-level meetings will provide stability: In order to alleviate the current tensions, Ding Chun highlights the role of exchanges, in particular “stable China-EU leaders’ meeting mechanism”, which could provide a “source of certainty in international relations”.
It helps to clarify the basic positioning of the China-EU partnership from a strategic height, effectively hedge against external confrontational narratives, and ensure that bilateral relations do not drift off course or lose control. A healthy and stable China-EU relationship does not mean the absence of differences, but rather the ability to maintain communication amid differences, maintain cooperation amid competition, and build more shared interests within a changing international environment.
While this seems to be in line with what Ding’s colleague Yang Yuan of the Institute of European Studies at CASS at a recent high-level seminar described as “China’s work on Europe in the new era is led by head-of-state diplomacy”, however, one should keep in mind that China reportedly canceled several high-level meetings and dialogues with the European Commission before the summer, and Xi Jinping’s last visit to Brussels was in 2014 (by comparison his last state visit to Russia was in 2025).
GERMAN STATE ELECTION EXEMPLIFIES TREND OF POLARIZATION IN EUROPE
Jiang Feng, researcher at the Shanghai International Studies University and President of the Shanghai Association for Regional and Country Studies, commented on the state election in Saxony-Anhalt last Sunday and the dramatic win of the Alternative für Deutschland (AfD), which he personally witnessed in the state’s capital of Magdeburg (Global Times, 8 September). He thinks that the victory of the AfD has become a “sample for observing the trend of political polarization and realignment in Europe.”
System of a Down: Jiang believes that the election is a manifestation of “systemic failure” within Germany’s post-war mainstream governance model.
From a broader European perspective, the Saxony-Anhalt election is an important part of the wave of party polarization, the decline of mainstream parties, and the rise of right-wing forces across Europe. It is not an isolated phenomenon, but rather a microcosm of structural changes in European politics. Weak economic growth, cultural conflicts over immigration, and declining institutional trust are jointly fueling the rise of right-wing forces in many countries, challenging the liberal internationalist order established in postwar Europe. As a core country of the EU, Germany’s capacity to adapt its political system and its future direction will have a profound impact on the process of European integration and the evolution of the international order.
EXPLAINING LEFT-RIGHT DIVISIONS IN EUROPEAN POLITICS
On a similar note, Yang Yunzhen, researcher at Center for German Studies at Tongji University, wrote for the CASS newspaper China Social Sciences Today about the shrinking political center in European politics, which finds its expression in the emergence of radical forces on both sides (4 September). According to her, this left-right shift “is not simply a fluctuation in votes, but the result of the combined effects of the fading dividends of globalization, the lagging effects of economic crises, and the rise of identity politics.”
Distinctiveness of political parties and sluggishness: She points out that, centrist parties on the left and right gradually lost their distinct political identities through (economic) policy convergence, an over-reliance on “state financial subsidies”, and the “myth of ‘consensus politics’” — which created “governance deadlocks and the systemic failure of accountability mechanisms, with opposition parties’ balancing functions shrinking”. Moreover:
Facing deep-seated issues such as identity politics and immigration governance, traditional left and right parties exhibited obvious strategic sluggishness, ignoring the public’s defense of a “sense of home” under cultural impacts. This misalignment shifted the political focus from a “struggle over distribution” to a more intense “struggle over civilizational survival.”
Disconnect between political representatives and the people: Yang identifies a stark disconnect between traditional representative parties and the general populace as the main driver of Europe’s political crisis.
The “left-right shift” of European political parties is, in essence, a severe disconnect between traditional representative parties and grass-roots society, creating a dangerous vacuum of political representation among the lower and middle social classes. When mainstream parties indulge in technocratic micro-fixing and drift toward policy convergence within the myth of “consensus politics,” populist forces seize the opportunity to reconstruct the political color, pointing their spears directly at globalization and the existing system. Its cautionary significance lies in the fact that any political logic detached from societal foundations and oblivious to the core concerns of the people will ultimately trigger institutional backlash.
Cross Purposes translates and contextualizes Chinese experts’ views on EU-China relations. Opinions other than those referred to are my own and do not reflect those of any other individual or institution. Content is edited with the help of AI. Mistakes are my own.