As Europe and China prepare for upcoming talks aimed at addressing trade imbalances, the European Union Chamber of Commerce in China (EUCCC) has urged Beijing to take more decisive steps to rebalance its economy, particularly by expanding its service sector. The call comes amid growing concerns over China’s persistent trade surpluses with the EU, which have strained relations and prompted threats of further trade restrictions.
In its annual position paper released this week, the EUCCC highlighted structural issues within China’s economy, including persistent supply-demand mismatches that have contributed to what is described as “neijuan,” or economic “involution”—a scenario characterized by excessive competition, sluggish domestic demand, overcapacity, and eroding profit margins. The chamber emphasized that while China’s latest five-year plan acknowledges these challenges, concrete follow-through remains critical.
“The Chamber hopes the latest five-year plan can alleviate third market concerns over China’s increasing exports and the subsequent trade imbalances that have developed,” the report stated. It further argued that transitioning toward a more service-oriented economic model could help curb excess support flowing into manufacturing sectors and better address the needs of China’s aging population. Although the service sector now comprises more than half of China’s gross domestic product, its share remains relatively low compared to other economies, the chamber noted, underscoring the potential for growth in this area.
To support this shift, the EUCCC recommended reforms to talent development policies to encourage more students into service-related fields, along with efforts to open the sector to greater private and foreign participation.
Jens Eskelund, president of the EUCCC, warned ahead of the paper’s publication that little progress has been made in resolving China’s fundamental economic “involution.” Citing August data showing industrial output expanding well beyond domestic absorption capacity, he indicated that trade imbalances are “growing considerably” with no signs of export slowdown.
The EU currently holds the largest trade deficit with China among global economies, with China’s surplus reaching approximately €1 billion (HK$9 billion) daily, according to the chamber. This persistent imbalance has heightened tensions with Western economies, leading to trade curbs and demands for Beijing to take corrective action. The EU has set an October deadline for tangible progress on rebalancing or risks facing further restrictions.
Eskelund cautioned that without a mutually beneficial solution, trade relations risk becoming more unstable. He expects China to vigorously defend its access to global markets, while warning that failure to address EU economic concerns may trigger new tariffs.
Despite ongoing business challenges, European companies maintain a significant presence in China. The chamber’s Business Confidence Survey released in May found a slight improvement in sentiment, with 17 percent of respondents optimistic about profitability over the next two years and 35 percent expecting growth. Many continue to deepen integration into China’s supply chains to stay competitive, with 56 percent increasing onshoring efforts and only 7 percent primarily focusing on offshoring.
“To compete on price and quality in China, companies often need to be part of the Chinese supply chain themselves,” Eskelund said.
The EUCCC’s position paper ultimately calls for a framework that balances economic security interests with enhanced openness, reliability, and predictability for businesses on both sides as they navigate an evolving trade relationship.