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The EU’s New Economic Security Tools and China’s Countermeasure Calculus

The central issue in China-EU economic relations is no longer only trade imbalance, but the growing political anxiety in Europe over the speed of China’s industrial upgrading.  

European companies in China may have reached an inflection point, with business confidence showing signs of improvement for the first time in five years. The latest survey published by the European Union Chamber of Commerce in China (European Chamber) revealed that 68 percent of the respondents found that “doing business in China had become more difficult” – a high figure, yet notably a 5 percentage point decline year-on-year. Similarly, the proportion of firms reporting increased politicization fell by 5 percentage points to 47 percent. 

Other indicators also trended positively: optimism regarding the two-year profitability outlook rose to 17 percent, while the share of companies missing opportunities due to regulatory or market access barriers dropped by 9 percentage points to 54 percent.

Chinese companies operating in the EU, however, have been increasingly targeted by new EU regulatory proposals in 2026, notably the proposal for a revised Cybersecurity Act (CSA2), the Industrial Accelerator Act (IAA), and the debate on May 29 on a reportedly French-led policy paper supported by Lithuania, Italy, and the Netherlands. The controversial initiative called for a more comprehensive instrument to address what some European leaders see as China’s overcapacity and the EU’s external dependencies in strategic sectors. 

Chinese media have been warning of retaliation. The Global Times, a state-linked outlet known for its tough rhetoric, stated that China’s “goodwill is not limitless,” warning that “any unilateral measures that harm the legitimate interests of Chinese enterprises will inevitably face strong countermeasures from China.” 

Yuyuan Tantian, an unofficial account affiliated with state broadcaster CCTV, echoed these warnings and challenged the EU’s “overcapacity” narrative, arguing that the EU’s measures are protectionist and reflect industrial decline and lobbying by vested interests. It also noted that European products enjoy significant market shares in China, citing French cosmetics, which accounted for 29.6 percent of China’s cosmetics imports in 2025.

The EU’s Three New Toolkit Proposals and China’s Retaliation Signals

The debate on China-EU relations held at the European Commission on May 29 was closely watched. The readout stated that “the current state of the trade and investment relationship is not sustainable,” but communication continues. 

At the time of this writing, no written proposal has been released to address these perceived issues. The discussion is expected to continue at the G-7 meeting and the European Council summit in June, in line with what Politico has reported. 

Ahead of the debate, Yuyuan Tantian warned of possible Chinese retaliation targeting EU cosmetics, wine, meat, and luxury goods. It also pointed to possible anti-discrimination investigations under Article 7 of China’s Foreign Trade Law, as well as probes under China’s recently issued regulations on supply chain security.

The CSA2, proposed by the European Commission in January 2026, is a clear example of the EU’s expanding economic security approach. The proposal seeks to establish a trusted ICT supply-chain security framework to address concerns over “high-risk third-country suppliers.” These risks include not only technical vulnerabilities, but also third-country legal risks, foreign control or influence, strategic dependencies, and supply chain controllability. 

A joint report by the China Chamber of Commerce to the EU and KPMG estimated that the cost of CSA2 could reach 367.8 billion euros between 2026 and 2030, with Germany, France, and Italy to be among the hardest-hit economies. Germany’s losses alone were gauged to reach 117.8 billion euros. 

From the Chinese side, CSA2 is increasingly seen as part of a broader regulatory turn that could directly affect Chinese firms’ access to the European market. A Substack account linked to Xinhua, China’s state news agency, has listed potential European companies that could be affected by Chinese retaliation in this area, including Nokia, Ericsson, and SAP.

The IAA, proposed by the European Commission on March 4, 2026, also received broad support for its main content from European countries such as Germany, France, Italy, the Netherlands, and Poland at a debate held on May 28. The IAA aims to expand EU industrial capacity, accelerate decarbonization, and strengthen supply chains in strategic sectors. Its broader target is to raise manufacturing’s share of EU GDP to 20 percent by 2035. 

From the Chinese perspective, the most controversial element of the prospective legislation is the section on EU origin requirements. Under the current draft, companies from countries without reciprocal public procurement agreements with the EU would be excluded from relevant public procurement, and Chinese firms are widely seen as among the most affected. 

The IAA also proposes an EU-coordinated economic security review for third-country investors from economies accounting for more than 40 percent of........

© The Diplomat