On 17th September 2025, the European Chamber released its European Business in China Position Paper 2025/2026, offering a comprehensive assessment of the challenges and opportunities facing European companies operating in China.
The Position Paper offers five overarching key recommendations to Chinese policymakers for the development of China’s 15th Five-year Plan (15FYP), which is set to guide the country’s economic and social policies from 2026 to 2030.
The European Chamber’s individual industry and horizontal position papers provide more granular detail, putting forward more than 1,100 constructive recommendations for optimising China’s business environment.
Review of the 14th Five-year Plan
China’s 14th Five-year Plan prioritised self-reliance and tech leadership. Two flagship policies framed the agenda: ‘coordinate development and security’ is aimed at balancing growth with national-security risks, while ‘dual circulation’ promotes reducing dependencies on third markets in critical areas while expanding domestic innovation, advanced manufacturing and consumption.
Key events during the 2020–2025 period covered by the 14FYP—including the COVID-19 pandemic, the collapse of China’s real estate market, Russia’s invasion of Ukraine that set the tone of EU-China relations, and the United States (US)-China trade war—only worked to cement China’s focus on becoming more self-reliant and finding new sources for growth – labelled as ‘new productive forces’. The fourth plenary session of the Chinese Communist Party’s (CPC) Central Committee held in October 2025—where the Party leadership deliberated on the 15FYP—confirmed policy continuity.
While a consistent approach can improve predictability, the final version of the 15FYP—which is expected to be published after the upcoming Two Sessions in March 2026—would still benefit from a thorough reflection on both the positives and the not-so-positives that China’s current policy trajectory has brought along.
‘Internal circulation’: Industrial policies, self-reliance and domestic consumption
Policies introduced under the umbrella of ‘internal circulation’ have largely contributed to the upgrading of China’s manufacturing base, with the country’s share of global manufacturing now exceeding that of Germany, the US, Japan and South Korea combined. Similarly, expanded funding for basic research has accelerated technological innovation.
However, heavy government subsidies favouring producers have misallocated capital, leaving consumption lagging behind soaring capacity. This imbalance has contributed significantly to the emergence of what the Chinese Government has referred to as ‘neijuan’ or ‘involution’: firms pouring in ever increasing resources for diminishing returns.
Meanwhile, the country’s emphasis on self-reliance and developing indigenous technologies has seen the playing field sometimes being strongly tilted in favour of domestic players. Many foreign-invested enterprises (FIEs)—particularly those in strategic industries—have lost market share, or even been squeezed out of the market altogether, as a result. This has been a contributing factor to China’s overall decrease in foreign direct investment (FDI), with investors suspending expansion or redirecting capital to markets deemed fairer.
‘External circulation’: a catalyst for trade imbalances
China has also made strides in cementing its pivotal role in global supply chains while decreasing its dependencies on external markets.
However, China’s rising export dominance and the subsequent trade imbalances that have developed have sounded the alarm bell for many third-market governments. While the EU and the US account for nearly two-thirds of China’s trade surplus, in 2024, it was developing countries that filed the majority of complaints against China at the World Trade Organization, with many having already taken steps to protect their key industries from the impact of Chinese imports.
What European businesses hope to see in the 15FYP
1. Implement reforms that address underlying structural issues
According to the European Chamber’s annual Business Confidence Survey (BCS), over the past three years China’s economic slowdown has been the top concern for European companies operating in the country, while optimism about near-term future growth and profitability sank to record low levels. Chinese companies do not seem to fare any better, with the share of loss-making industrial firms in 2024 surging to the highest level since 2001.
Underpinning business concerns are a host of structural issues impeding China’s economic development. While consumption in China is actually growing, a core issue is that manufacturing output has grown faster. ‘Involution’, expanding inventories, pressure on profit margins, decreasing asset utilisation and pressure to export are all natural consequences of this mismatch.
A key factor dampening consumer confidence was that the cost burden on households—which had already been substantial due to an inadequate social safety net—was made worse by the collapse of China’s real estate market. With real estate investments losing value and producing diminishing returns, household saving surged to record high levels.
In the meantime, local governments, trapped in a prisoner’s dilemma, keep subsidising hometown champions to safeguard local jobs and taxes, saturating sectors and deepening cut-throat competition no one dares exit.
2. Allow market forces to play the decisive role in resource allocation
When it comes to allocating capital, China’s state-owned enterprises (SOEs) have a clear advantage, despite their weaker efficiency at using capital compared to their private peers. The disproportionately large support for SOEs has not only disadvantaged private firms, but also resulted in lower overall productivity while deepening ‘involution’ in strategic sectors.
Some broader issues have already been acknowledged by China’s leadership. For example, Chinese President Xi Jinping has criticised local governments for focussing their efforts on the same emerging industries and called for managing disorderly competition at low prices as well as promoting the orderly withdrawal of backward production capacity. These two efforts in tandem could go a long way towards market consolidation in saturated segments.
3. Take action to create equitable trade relationships
While China is growing its global market share and continues to rely heavily on exports for growth, its imports are not growing at the same pace, resulting in increasing trade imbalances.
Concerns over the distortive impact of China’s trade surplus with the EU have only intensified following the US’ levying of tariffs on Chinese imports, with the EU side fearing that a potential reshuffling of trade flows could put further pressure on the EU Single Market. This has hardened sentiment within the European Commission towards China, fuelling the perception that trade with China is becoming a one-way street, ultimately harming European jobs and companies.
Addressing partners’ economic security concerns and sharing trade gains more evenly could go a long way towards easing existing tensions.
4. Continue to green the economy and ensure environmental sustainability
China intends to peak carbon emissions before 2030, making the 15FYP pivotal in terms of setting a clear direction for reaching this milestone.
The country has already made rapid progress in its green energy transition, both in terms of renewable energy investments and capacity expansion, and it is also a global leader in manufacturing green technologies.
The challenge ahead is ensuring stable supply of renewable energy. The Chamber’s BCS 2025 found that limited access to renewable energy was a top-three barrier to European companies decarbonising their China operations, leading many to delay or abandon related goals in the country.
As European companies are compelled by various factors outside of China’s own sustainability drive to pursue carbon neutrality—including global corporate targets, EU sustainability regulations and pressure from customers—they are well-placed to drive China’s green transition in multiple areas.
5. Advance China’s digital transition in an inclusive way
China has also been making great strides in advancing its digitalisation agenda, however, the opportunities open to FIEs in this area are limited. For example, although European firms were instrumental in the early stages of mobile network development in China, throttled by excessive localisation requirements in procurement tenders, their market share dropped from around 30 per cent in the deployment of fourth generation (4G) network technology, to low single digits with the rollout of China’s fifth generation (5G) network technology in 2023. Opportunities in other information and communication technology segments—including software development or digital solutions—are also drying up for FIEs, with autonomous and controllable guidelines compelling Chinese and foreign companies alike to avoid the use of foreign technologies.
While industrial policy support for indigenous industries is understandable within reasonable and proportionate limits, commercial markets must be free from undue localisation mandates.
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