The once-stable relationship between European businesses and China is showing cracks. After decades of investment, technology exchange, and market development, many firms now find themselves at an uncomfortable crossroads: the Chinese market is becoming harder to navigate just as it becomes harder to leave.
According to the latest survey by the European Chamber of Commerce in China, nearly three-quarters of European firms report a deteriorating business climate. Opaque regulations, falling consumer demand, and geopolitical uncertainty are cited as key obstacles. For the fourth consecutive year, business sentiment has worsened, and just 38 percent of respondents plan to expand in the country — the lowest level since the survey’s inception.
For companies from Europe, this poses a strategic dilemma. On one hand, political and economic risks in China have become more pronounced. Sectors once considered stable — automotive, pharmaceuticals, and advanced manufacturing — are now rife with complications, including exclusion from public tenders and pressure to localize operations. Volkswagen’s sale of its Xinjiang factory under political pressure is just one of several recent high-profile examples.
On the other hand, China’s industrial base remains central to global supply chains. European firms, even those scaling back investment, are often increasing their purchases of Chinese components. With prices in China falling and the yuan weakening against the euro, these imports have become too cost-effective to ignore.
In some sectors, this reliance is deepening. European manufacturers who once sourced high-end parts from the U.S. have shifted procurement to domestic Chinese firms, partly to avoid becoming collateral damage in the growing U.S.-China tariff war. This is not just opportunism — it is survival strategy. With the Trump administration threatening further penalties on transshipped goods and trade-surplus countries, businesses are rapidly re-engineering their logistics to avoid tariff exposure, including rerouting final assembly through Taiwan and Southeast Asia.
Ironically, one of the few areas of relief for European businesses in China is labor cost. The bursting of China’s housing bubble in 2021 has cooled wage inflation, but at the cost of domestic demand. The result is a deflationary environment that weighs heavily on both local sales and global confidence.
While Brussels eyes trade defense mechanisms and diversifies diplomatic ties in Asia, European businesses remain tethered to China’s factories. That tension — between political realism and economic dependence — is unlikely to resolve soon.