China is not only an economic competitor and strategic challenger to European interests, it is also indispensable to the global clean-energy transition. Managing that contradiction — rather than denying it — should now be the central objective of EU policy.
Europe’s relationship with China is entering a more confrontational phase. China’s support for Russia following the invasion of Ukraine, its human rights record, growing restrictions on market access and willingness to weaponise trade dependencies have contributed to a profound reassessment in European capitals.
Meanwhile, Europe is confronting the disruptive effects of a new “China trade shock”. Chinese overcapacity in electric vehicles, batteries, solar panels and other clean technologies is placing growing pressure on European industry just as the continent tries to preserve its industrial base while accelerating decarbonisation.
An equally important reality is now coming into focus: China is simultaneously a strategic challenger to European interests, its largest clean-tech competitor and an indispensable actor in the global energy transition. China dominates large parts of the world’s clean-tech manufacturing ecosystem and critical mineral processing capacity. It remains deeply embedded in supply chains essential for Europe’s green transition, industrial competitiveness, and increasingly its defence sector. As such, full-scale decoupling is neither realistic nor desirable in the medium term.
The challenge for Europe is therefore not whether to engage China, but how to engage selectively while reducing excessive dependencies and strengthening resilience. This requires moving beyond the false binary between naïve engagement and outright economic confrontation, shifting instead towards a strategy of selective cooperation grounded in strategic de-risking, industrial resilience and economic security.
Climate cooperation offers one of the few areas where such a balanced approach remains possible. Europe and China have environmental, economic and geopolitical reasons to support faster global decarbonisation.
Targeted technical cooperation
Europe has accumulated considerable expertise in carbon markets and regulatory design, while China has moved faster in deploying electrification technologies and scaling manufacturing capacity. Both face major challenges in expanding and modernising electricity grids capable of integrating growing shares of renewable energy. Here, practical cooperation can lower transition costs and strengthen climate security without requiring broader strategic alignment. Initiatives such as the Open Coalition on Compliance Carbon Markets involving the EU, China and Brazil demonstrate that limited and pragmatic engagement remains possible.
Coordinated climate finance and decarbonisation investment
Without dramatically higher levels of clean-energy investment across Africa, Latin America and Southeast Asia, global climate goals will remain unattainable. Most emerging economies lack fiscal space and affordable capital to finance large-scale energy transitions. Europe and China could use multilateral development banks, blended-finance instruments, and coordinated efforts to reduce capital costs to mobilise more public and private investment into viable clean-energy projects.
Multilateral commitment and leadership
EU and other Paris-aligned countries’ diplomatic outreach to China should make clear that global climate leadership is not only about supplying clean technologies; it requires credible domestic emissions cuts, reliable access to critical minerals and a commitment to engage in the clean transition openly and cooperatively. This matters even more as the United States withdraws support for international climate action.
However, any sustainable framework for EU-China climate cooperation must confront hard political economy realities shaping the relationship. China accounts for roughly 70 percent of global clean-tech manufacturing capacity while consuming far less domestically. Its recently adopted Five-Year Plan appears set to reinforce rather than rebalance a heavily state-supported economic model built around subsidised overcapacity and export-led growth, and at a time when many trading partners are already struggling to absorb Chinese overcapacity.
For Europe, the challenge is not just one of unfair competition, but of preserving industrial resilience and long-term strategic autonomy in sectors central to the clean transition. The EU has responded with anti-subsidy investigations, countervailing duties, tighter scrutiny of Chinese investment in strategic industries, and support for domestic clean-tech manufacturing through public procurement and subsidy rules favouring local production in the proposed Industrial Accelerator Act (IAA). Additional safeguard measures are also reportedly under consideration.
But escalating confrontation is not inevitable. Europe needs a more realistic approach based on managed interdependence rather than abrupt decoupling.
The objective should not be to exclude Chinese firms categorically or retreat into protectionism, but to ensure that economic engagement strengthens Europe’s industrial base instead of deepening strategic dependency. That means distinguishing between investments that generate real local value — through technology transfer, skilled employment, innovation and resilient supply chains — and low-value “screwdriver” assembly operations that merely provide market access without strengthening European industrial capabilities.
This distinction creates potential space for negotiation towards a mutually beneficial bargain. Brussels could use ongoing industrial and investment discussions, such as on the IAA or the prospect of further restrictive measures as leverage to seek commitments from Beijing. These include export reliability for critical minerals and strategic clean-tech inputs, greater transparency regarding subsidies and more reciprocal market conditions. In return, Europe could take a more cooperative approach to Chinese investment where it demonstrably contributes to European industrial resilience, technological upgrading and supply-chain security.
Unmanaged fragmentation would come at enormous economic and geopolitical cost for Europe and China and for the global clean-energy transition itself.
Europe’s challenge is not to choose between openness and protection, but to reduce vulnerabilities while preserving cooperation where it remains clearly in Europe’s strategic interest. In an increasingly fractured world, climate security, industrial resilience and economic security can no longer be separated. Europe’s China strategy must now reflect that reality.
Marc Vanheukelen is a Senior Associate at E3G. He is a former EU Ambassador to the WTO and former EU climate ambassador.
