As Europe struggles to define its role in these turbulent times, one competitor in particular seems especially well-equipped to navigate today’s geoeconomic landscape: China. This makes it worthwhile to explore certain elements of China’s playbook through a European lens.
Key takeaways:
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After years of declining outward investment, rising global tariffs are likely to push Brussels to consider selectively welcoming investments in strategic sectors to help close technological gaps, but only under strict, clearly defined conditions that protect European interests.
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The Draghi report and China’s “Made in China 2025” strategy share more common ground than is often acknowledged, a quiet convergence on the idea that markets alone cannot be trusted to allocate investment in capital-intensive, strategically vital sectors.
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The EU must develop a more assertive geoeconomic posture while staying true to its core values and its commitment to a rules-based international system.
The European Union has built much of its economic success on the twin pillars of open markets and rules-based multilateralism. In many respects, it represents one of the most ambitious and successful expressions of the international liberal order. However, the world is moving on, and Europe risks falling behind.
In today’s system, economic integration (the underlying logic of the European project) is being reconceptualized not as a source of efficiency and well-being, but as a source of vulnerability. The great powers weaponize trade and economic leverage. The pursuit of economic efficiency has given way to the pursuit of economic security. And as Europe struggles to find its place among rivals with more muscular statecraft, one competitor appears well-equipped to navigate the turbulence: China. Its state-capitalist model has challenged Western dominance and delivered a serious blow to the liberal system on which the EU built its prosperity.
The question, then, is not whether Europe should follow or copy China. It is about whether, in specific, well-defined domains, Brussels might learn from the Beijing approach while remaining anchored in its values, norms, and institutional constraints. This is not an argument for protectionism, but a recognition that a structural problem exists. For decades, Europe operated on the assumption that economic openness would, over time, produce convergence; that trading partners would gradually internalize liberal norms as their stake in the global system grew. That assumption has been empirically falsified. China’s rise and gradual liberalization produced a sophisticated hybrid: market mechanisms where useful, state direction where strategic; with markets ultimately subordinate to state objectives.
Conditional openness
The EU has taken steps to adapt to this evolving landscape. Its Foreign Direct Investment screening framework, introduced in 2020, was largely a response to growing anxiety about Chinese foreign direct investment in Europe. But while this instrument plays a crucial role as a filter against harmful investment, it does not address a more forward-looking need of extracting strategic value from inbound capital.
For decades, China explicitly conditioned market access for foreign capital on technology transfer, joint ventures, and localization requirements. The results were imperfect, often distorted, and widely criticized by European and Western firms on the receiving end. They were also, from Beijing’s perspective, strategically effective, a means of closing the technological gap with the West. Today, in sectors such as batteries, EVs, and AI, it is Europe that needs to catch up.
The EU cannot, and should not, replicate the coercive or opaque Chinese approach. But it can draw a legitimate institutional lesson: openness need not be unconditional. As Shahin Vallée has argued in the Financial Times, the EU could, in sectors where it faces documented technological deficits, use quotas to channel Chinese companies into producing on European soil, promote joint ventures to build local capacity, and facilitate technology transfers under EU regulatory standards.
The instrument through which conditionality is applied matters enormously. A China-style forced technology transfer sits on shaky ground under WTO rules and EU law, and replicating the mechanism would undermine European credibility as a rules-based actor, which is supposed to be the distinguishing feature of any distinctively “European approach.” The more legally defensible route, and one consistent with the European approach, is to anchor conditionality in investment incentives rather than investment approval.
Access to EU battery subsidies, Important Projects of Common European Interests (IPCEI) funding, fast-tracked permitting, and public procurement markets are powerful carrots. Making them contingent on local R&D commitments, supply chain integration with European component suppliers, and structured knowledge-sharing arrangements achieves the strategic objective without legal exposure. Chinese firms seeking the full benefits of operating in the European market— access that is becoming increasingly precious as barriers to Chinese goods rise across the Western world—would be pushed to invest on European terms.
The critical caveat, however, is that this framework must be EU-wide. Without harmonization, starting from the member-state investment-screening regimes, countries will compete to attract Chinese capital on the most permissive terms, handing Beijing exactly the arbitrage opportunities it needs to divide and exploit. Hungary’s enthusiastic courtship of Chinese EV manufacturers vividly illustrates the risk. In 2024, it accounted for 31% of all Chinese FDI in Europe. Investment flows to wherever screening is weakest and governments most receptive, undermining the strategic logic of conditionality entirely. This is not an argument against member-state sovereignty in industrial policy. It is an argument for the kind of collective European economic governance that the single market was always supposed to provide.
Parallel industrial logics
One of the most influential advocates in the EU for a change of pace is Mario Draghi, whose long report on European competitiveness, released in 2024, has become something of a beacon for repositioning the EU in the global economy. Some may have noticed that the report presents an intellectually provocative convergence of industrial logic with “Made in China 2025”, the plan that has guided Beijing’s industrial ambitions for the past decade.
The sectoral overlap is the most immediate indicator. “Made in China 2025” designated ten priority domains, including semiconductors, robotics, aerospace, new-energy vehicles, and biopharmaceuticals, in which China needs to “energetically promote breakthrough development”. Draghi’s list of priority sectors is quite similar, also including semiconductors, artificial intelligence, space, clean technology, and pharmaceuticals, among others. A comparable convergence is also visible in the US, particularly under the Biden administration, with initiatives such as the CHIPS Act and the Inflation Reduction Act. The near-identical mapping reflects a shared geoeconomic reading: there are sectors where economic competitiveness and strategic security converge; where the returns to first-mover advantage are durable enough, and the security stakes high enough, to place them beyond the reach of purely market-led allocation.
The structural parallels extend further. “Made in China 2025” dedicated Manufacturing Innovation Centers, geographically concentrated nodes designed to overcome shared technological bottlenecks, represent a deliberate engineering of agglomeration effects that markets tend to underprovide. Draghi’s endorsement of “Net-Zero Acceleration Valleys” and consolidated life-science hubs reflects analytically the same instrument. Both rest on the same empirical premise: that in deep-tech sectors, the social returns to concentrating talent, infrastructure, and capital substantially exceed those from decentralized allocation. In the EU, the spreading of resources thinly across member states is, on this account, actively undermining competitiveness.
Both frameworks also share a logic regarding the relationship between the state, demand, and supply chains. On the demand side, “Made in China 2025” leverages large national projects to align manufacturers and their upstream suppliers, using public procurement as a gravitational force that gives industry the scale and certainty it needs to invest. Draghi mirrors this approach, proposing that the EU acts as an “anchor customer” across defense, space, and clean technology, thereby pooling procurement across member states to generate the kind of demand signal that private capital alone cannot provide. On the supply side, both frameworks reject the assumption that global value chains are reliably open and prioritize domestic control over the most strategic technologies and resources. The focus of “Made in China 2025” on components, materials, techniques, and technology reflects a deliberate effort to eliminate the gaps that leave manufacturers exposed to foreign input dependencies. Draghi reaches an analogous conclusion, advocating vertical integration from raw-material extraction through to end-of-life recycling.
The European path
Where the two frameworks diverge is not in strategic ambition but in the institutional theory of change. “Made in China 2025” operated through a hierarchical party-state with the authority to direct capital, procurement, and talent toward predetermined objectives. That model is structurally incompatible with a polity of 27 sovereign member states. The European answer, following the path outlined in Draghi’s report—strategic alignment achieved through European Investment Bank risk-sharing, regulatory harmonization, and single-market deepening, rather than top-down command—is a valid attempt to achieve equivalent coherence through institutional design rather than hierarchy. Whether that bet is well-founded remains the central open question.
One of the hidden intellectual contributions from the Draghi report may be its implicit acknowledgment that Europe’s experiment in market-led convergence at the technology frontier has, measured against China’s state-directed alternative, produced results discouraging enough to warrant a revision of prior assumptions. Europe need not become China to compete with it. But it can no longer afford to pretend that the rules of the game have not changed.
