![\"The](\"https:\/\/commons.wikimedia.org\/wiki\/File:Original_Beijing_Jeep_XJ_Cherokee.jpg\")
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The Beijing Jeep Cherokee, produced by the joint venture between US car maker AMC and Beijing Automobile Works, pictured on 26 March, 2006. \u00a9 Wikimedia Commons <\/p>\n
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Foreign companies were initially only permitted to invest in joint ventures, in which the Chinese partner would hold a 51 percent stake.<\/p>\n
And the foreign partner was required to hand over its latest technological know-how and expertise.\u00a0<\/p>\n
Legislation such as the 1994 Automobile Industry Policy made the transfer of technology explicit: new automotive joint ventures were expected to “establish [research and development] capacity, produce vehicles meeting contemporary international standards and progressively localise components”.<\/p>\n
Quick buck <\/p>\n
In the 1990s, European car manufacturers were out for a quick buck, without considering the consequences of sharing their technology with their Chinese partners.\u00a0<\/p>\n
\u201cIf you look at German companies, they [had] been doing well for a few decades,\u201d says\u00a0Esther Goreichy,<\/a>\u00a0a visiting fellow with the Mercator Institute for China Studies. “So they benefited from this. But it lacked the long-term view. People were not willing to see that it was not harmless for EU companies. And now we see that clearly.”<\/p>\n In 2003, MIT researcher Michael Y. Lee found<\/a>\u00a0that: “China has benefitted significantly from foreign investment and technology transfers. [Starting from the early 1980s] China was able to leapfrog from 1950s-level automotive production systems into 1990s-level advanced technologies, and the gap with world standards continues to narrow.\u201d<\/p>\n China began to build its own, modern car factories, and the Chinese partners of the joint ventures increasingly came up with their own models.\u00a0<\/p>\n Joint-venture figures started to decline sharply, nosediving during the Covid-19 pandemic. This, combined with China\u2019s shift towards domestic electric vehicle manufacturing, saw output fall from \u20ac4.116 billion in 2018 to approximately \u20ac2.67bn in 2025.<\/p>\n Volkswagen\u2019s full-year results\u00a0show that profits dropped from\u00a0\u20ac2.621bn in 2023 to approximately\u00a0\u20ac958 million in 2025.\u00a0<\/p>\n Role reversal <\/p>\n Today China is flooding EU markets with advanced electric vehicles (EVs), which it was able to produce thanks to decades of obtaining, adapting and improving foreign technology \u2013 adding to Brussels’ concerns over an already disproportionate trade deficit at the expense of the EU.\u00a0<\/p>\n Eurostat data<\/a> shows that the EU\u2019s goods deficit with China increased from \u20ac65bn in the first quarter of 2024 to \u20ac98bn in the first quarter of 2026, according to its latest report.<\/p>\n \u201cWe know that the deficit is also growing because China is advantaged by subsidies,\u201d says\u00a0Goreichy,\u00a0quoting an\u00a0OECD report<\/a>\u00a0that found Chinese subsidies are eight times bigger than the ones the EU distributes to its companies.<\/p>\n Stellantis, a merger of the French PSA automotive group and Chrysler, in May\u00a0announced <\/a>its intention to create an EV joint venture with Chinese state-owned car maker Dongfeng, with production in Rennes, northwest France.\u00a0<\/p>\n Other EU-based joint ventures with Chinese companies include Chery (with Spanish Ebro-EV) and Leapmotor (also with Stellantis).<\/p>\n However, there is one major difference between these and the joint ventures created in China: while foreign investors in the latter were required to create entities with Chinese companies and transfer their latest know-how, in Europe the Chinese investors use the joint-venture construction to avoid tariffs or lower logistics costs, and are not bound by a legal obligation to transfer their technology to their European partner. In fact, Chinese law forbids this.<\/p>\n Europe now plays the role China played in 1984, minus the leverage.<\/p>\n On 1 June, China\u2019s State Council issued Order No. 837\u00a0which includes \u201clegislation on outbound investment screening and national security”, explains Alicia Garcia-Herrero, chief economist for Asia Pacific at the French investment bank Natixis in Hong Kong.\u00a0<\/p>\n “Many European governments keep on dreaming that they will receive this technology. But China has already told us that they will not transfer technology,” she said.\u00a0“Because they know that if they do, Europe can catch up with China. And China is not going to allow for that because they know exactly what happened to them.”<\/p>\n ‘Systemic rival’ <\/p>\n The EU, long concerned by the increasing competition from Chinese automotive companies, as well as other technology firms, plus its growing trade deficit with China, has begun to make moves attempting to limit the damage.\u00a0<\/p>\n In 2019, the EU designated China a “systemic rival<\/a>“.\u00a0Then in 2021, it suspended a massive commercial deal \u2013 the China-EU Comprehensive Agreement on Investment \u2013 after a war of words with Beijing over China\u2019s human rights record, resulting in tit-for-tat sanctions<\/a>.\u00a0<\/p>\n EU struggles to come out on top in systemic rivalry with China<\/a><\/p>\n Since then, Brussels has proposed an orchestra of anti-China \u201cinstruments” \u2013 defensive policies aimed at protecting the EU market and making European companies more competitive.\u00a0<\/p>\n These measures include the Industrial Accelerator Act<\/a>, proposed in March 2026, which contains a Made in Europe<\/a>\u00a0policy attaching public procurement and technology transfer conditions to foreign direct investment, plus a revised Cyber Security Act<\/a>, tabled in January 2026.<\/p>\n Two tools announced in June but not yet drafted comprise a solidarity instrument to support companies diversifying critical supplies away from China, and a diversification instrument aimed at reducing the trade deficit, expected to be fleshed out around September.<\/p>\n The two legislative proposals must still pass through the European Parliament and Council, and while the European Commission hopes to see them adopted by the end of 2026, no vote has yet been scheduled.<\/p>\n The EU\u2019s main car producers, France and Germany, seem to be willing to back them.<\/p>\n In July, French President Emmanuel Macron and German Chancellor Friedrich Merz agreed to draw up a “Franco-German roadmap<\/a>” on how to respond to China\u2019s trade practices by September.\u00a0<\/p>\n The push builds on a recent report<\/a> by France\u2019s High Commission for Planning, entitled \u201cThe Chinese steamroller \u2013 quantifying the systemic threat to Europe\u2019s industrial base”, which argues that Beijing\u2019s industrial rise now amounts to a “systemic shock” for Europe\u2019s manufacturing base.<\/p>\n The report says China\u2019s combination of scale, low production costs, heavy over-capacity and rapid technological upgrading is reshaping global manufacturing and eroding Europe\u2019s competitiveness.<\/p>\n