The European Union recently launched the Industrial Accelerator Act (IAA) in an attempt to restart "Made in Europe". Among them, the EU has put forward a series of strict restrictive requirements for foreign enterprise investment.
According to IAA regulations, when foreign companies invest in the four major industries of batteries, electric vehicles, photovoltaics, and key raw materials, they must face restrictions such as forced technology transfer, foreign equity ratio restrictions, local product content, and local employee ratios. At the same time, these restrictions precisely target third-country investors who account for more than 40% of global production capacity in the above-mentioned industries. The bill also clearly puts forward "European Union manufacturing priority" in the field of public procurement.
A spokesman for the Chinese Ministry of Commerce said that these practices constitute serious investment barriers and institutional discrimination, are suspected of violating the principle of most-favored nation treatment, and further increase the uncertainty of Chinese companies investing in the EU. China expresses serious concern about this. "China will pay close attention to the relevant legislative process, carefully assess the impact on China's interests, and will resolutely safeguard the legitimate rights and interests of Chinese enterprises," the spokesperson said.
Professor Zhao Yongsheng, a researcher at the National Institute for Opening-up at the University of International Business and Economics and director of the Sino-French Social Governance Research Center at Zhejiang University of Science and Technology, who has just returned from an academic study in the EU, told China Business News that the IAA essentially falls into the category of trade protectionism. He believes that the underlying logic behind the EU's introduction of such restrictive measures is that the current global trade is showing a "Darwinian competition" situation, that is, the survival of the fittest relies entirely on strength, cost advantages, extremely high cost performance and high-quality services. This impact has been huge for the traditional European market, and has even had a "destructive" impact to some extent.
Based on this, Zhao Yongsheng suggested that in the face of an increasingly complex external environment, if Chinese companies need to explore the European market, they should actively seek in-depth cooperation with local companies based on actual conditions.
Behind protectionist behavior
Judging from historical data, the decline of European manufacturing has long been apparent. According to data from energy consulting firm Wood Mackenzie, between 2000 and 2024, European manufacturing's share of global gross domestic product (GDP) has dropped from 17.4% to 14.3% due to the continued impact of low-cost imported products in core areas such as steel, automobiles and chemicals.
In this context, the European Commission tried to save the situation through the IAA. The bill sets strict "Made in the EU" content and low-carbon standards for products that are purchased through public procurement or receive subsidies. These so-called "strategic industries" cover not only batteries, solar and wind energy, but also hydrogen energy manufacturing and nuclear power plants.
Taking the photovoltaic industry as an example, the bill requires that its inverters and cells (or equivalent components) must be manufactured locally in Europe within three years; in the field of electric vehicles, vehicles through public procurement must be assembled in the EU, and six months after the law takes effect, the localization ratio of parts other than batteries must reach 70%. Publicly procured aluminum must meet the requirement that 25% be made in Europe and be low-carbon. Steel does not have a "Made in Europe" requirement, but it must meet the requirement that 25% be low-carbon products.
Zhao Yongsheng analyzed that the core purpose of the EU's introduction of such policies is to provide a window protection period for local companies. At this stage, they try to seek survival space by erecting tariffs, technology or other non-tariff barriers.
Wood Mackenzie's analysis shows that although the IAA intends to curb the decline of the manufacturing industry, the bill is still not comprehensive and binding enough to achieve the goal of increasing the proportion of manufacturing in GDP to 20% in 2035. The agency believes that the core contradiction of the IAA is that its definition of "Made in the EU" is too broad, covering any country that has a free trade agreement (FTA) with the EU. In addition, the “cost exemption threshold” in the bill may also reduce its effectiveness. The bill stipulates that local content requirements will often shift from "mandatory" to "voluntary" when European-made alternatives are too expensive. For example, in the case of hydrogen energy, the exemption clause states that exceptions are allowed if the cost of EU equipment is 20% higher than alternatives.
Even more risky is the three-year implementation lag of the IAA. James Willoughby, senior analyst at Wood Mackenzie, said that in areas with extremely fast iterations such as photovoltaics and batteries, this time difference may cause Europe to lag behind China by one technology cycle in 2030, creating an embarrassing situation of "using yesterday's production capacity to cope with tomorrow's market."
A spokesman for the Ministry of Commerce said that China believes that the EU is building walls and pursuing protectionism on the pretext of developing EU-related industries and promoting green transformation. This is not only counterproductive, but will also undermine rules, undermine fair competition, and disrupt the stability of the global production and supply chain. "Practice has proven that protectionism cannot improve competitiveness, and open cooperation is the right path to development. China and the EU are each other's important economic and trade partners, and have extensive common interests and positive cooperation results in addressing climate change and promoting green transformation. We call on the EU to take the lead in abiding by WTO rules, return to the track of fair, transparent and non-discriminatory cooperation as soon as possible, and not to go further down the road of rule-breaking and protectionism," the spokesperson said.
Stefan Šipka, head of the "European Sustainable Prosperity" project at the European Policy Center (EPC), also said: "The IAA alone cannot solve the underlying causes of European industrial stagnation, including high energy costs, fragmented financial markets and an aging population."
How to go deep and get real
For Chinese companies deeply involved in the European market, the compliance burden is becoming increasingly heavy. According to the annual flagship report released by the China Chamber of Commerce in the EU, 81% of the companies surveyed believe that the current business environment in the EU is "increasingly uncertain." Affected by the tightening of review mechanisms, 43% of Chinese companies in Europe have suspended or adjusted their investment plans. 63% of the companies surveyed stated that their business has been directly or indirectly affected by the Foreign Subsidies Regulation (FSR).
Faced with this situation, Ye Qingqing, business director of Ebury China, a British cross-border payment company, told reporters that Europe is using various means to strengthen the protection of local industries and manufacturing. However, despite the objective existence of compliance pressure, Chinese companies' investment in Europe has shown a clear "localization" trend. Companies no longer just export products, but choose to take root in Europe and carry out in-depth cooperation with local governments and business institutions.
"From a macro perspective, this is a dynamic balance. Although there are restrictive policies such as FSR, the governments of countries such as Spain and Hungary still very much welcome and encourage Chinese investment because it can create a large number of jobs. The overseas expansion of Chinese companies has brought real opportunities to the local area. At present, the main investment in Europe is still dominated by large companies, while medium-sized companies are mostly concentrated in the logistics and consumer industries. These companies tend to choose countries with relatively friendly policy environments to offset part of the compliance costs." Ye Qingqing observed.
Zhao Yongsheng also holds a similar view. He believes that compared with the United States, the EU still retains a certain space for communication. He suggested that Chinese companies should consider more promoting local technology upgrades and employment through "greenfield investment" in exchange for living space. "If you have technological and capital advantages, you can consider joint ventures or benefit sharing. This is a strategic profit sharing and win-win situation under the overseas strategy." He said.
In addition, in view of the "difficulties in establishing credit" and localized operating obstacles that small and medium-sized enterprises may face in the early stages of going overseas, Ye Qingqing suggested that enterprises make full use of external resources and actively connect with the mature local professional service ecosystem. By cooperating with professional institutions, Chinese companies can receive one-stop support from tax compliance to foreign exchange risk management, thereby effectively lowering entry barriers and achieving a smooth landing in a complex geopolitical environment.
