BDI warns of 'China shock 2.0' as Chinese overcapacity floods EU market

The warning

Tanja Gönner, chief executive of the Federation of German Industries (BDI), told the Deutsche Presse-Agentur on 2 August 2026 that German industry is facing a "China shock 2.0." She said the impact is not limited to individual sectors but hits industry broadly. Gönner pointed to dependencies on critical raw materials, a significantly undervalued Chinese currency, and state-induced overcapacities. Because of a weak domestic market in China and market shielding particularly in the United States, those overcapacities are flooding the EU internal market unchecked. She added that China also aims to become the world market leader in key technologies.

We are experiencing a China shock 2.0. It hits not just individual sectors, but massively industry in breadth: through dependencies on critical raw materials, a significantly undervalued currency, state-induced overcapacities that, due to a weak domestic market in China and market shielding especially in the US, flood the EU internal market unchecked.

Europe's options

Gönner stressed that Europe is not without recourse. She noted that around 60 percent of world trade is still conducted under World Trade Organization rules, and many partners want rules-based trade. The EU's recent conclusion of trade agreements that had been stuck for years sends an important signal, she said.

But Europe has options. About 60 percent of world trade is still conducted under WTO rules, many partners want rules-based trade. That the EU is now concluding trade agreements that were stuck for years is an important signal.

Mercosur deal as a signal

One such agreement is the EU-Mercosur trade deal, which provisionally entered into force in early May 2026. The pact between the European Union and Brazil, Argentina, Paraguay, and Uruguay aims to boost trade by gradually reducing barriers and tariffs. Gönner pointed to the Mercosur deal as an example of Europe strengthening its trade alliances.

No complete decoupling

While calling for more assertiveness, Gönner cautioned against a complete decoupling from China. Europe should uphold the rules-based order wherever possible while also considering how to defend itself. She argued that Europe must react faster and that this requires new forms of cooperation between politics and business.

We should try to uphold the rules-based order in many places and at the same time consider how we can defend ourselves. Europe must react faster and for that it needs new forms of cooperation between politics and business.

Historical context

The term "China shock 2.0" draws a parallel with the first China shock that followed China's WTO accession in 2001, when cheap products from the People's Republic entered world markets on a large scale. For German industry, China's economic rise initially turned into a major boom because Chinese customers bought German cars and machinery. Today, German automakers are facing increasing difficulties in the Chinese market. The BDI had already called for a reorientation of German China policy in a position paper in early 2019, arguing that the market economy must be made more resilient. The German government's 2023 China strategy described China as a partner, competitor, and systemic rival.