The European Central Bank has published staff research on how China’s industrial rise is affecting euro area trade, production and prices, concluding that cheaper Chinese imports create a split effect for Europe. Imports from China can support EU output when they are used as intermediate inputs that lower production costs, but rising imports of final goods intensify competitive pressure and can displace domestic production. The paper also finds that stronger Chinese competitiveness is disinflationary for the EU and can raise EU GDP in the short run through cheaper imports and higher household purchasing power. Compared with the first China shock in the 2000s, recent import growth from China has been concentrated more in advanced manufacturing sectors such as electronics and automotive and more in intermediate goods, while euro area exports to China have declined since 2021. Using EU country-sector data for 2000-22, the research estimates that an average annual increase in imports of Chinese intermediate goods was associated with a 0.6 percentage point rise in industrial production growth, while an average annual increase in imports of final goods was associated with about a 1 percentage point drag. Model simulations show larger disinflationary effects when Chinese competitiveness rises in advanced manufacturing because lower costs feed through supply chains, and they suggest similar EU effects whether China’s stronger position reflects productivity gains or production subsidies. The paper adds that these short-run GDP gains sit alongside weaker Chinese import demand, market share losses for EU exporters and longer-run risks from production displacement, structural exposure and strategic vulnerabilities.
European Central Bank 2026-05-12
European Central Bank staff research finds Chinese intermediate imports add 0.6 points to EU industrial production growth while final goods subtract about 1 point
The European Central Bank has published staff research on how China’s industrial rise is affecting euro area trade, production and prices, finding that cheaper Chinese imports support EU output when used as intermediate inputs but weigh on domestic production when they are final goods. Using 2000-22 data, the paper links higher imports of Chinese intermediates to stronger industrial production growth and higher imports of final goods to weaker growth, and finds that stronger Chinese competitiveness is disinflationary and can raise EU GDP in the short run through cheaper imports and higher household purchasing power, while warning that these gains coincide with weaker Chinese import demand, market share losses for EU exporters and longer-run risks from production displacement and strategic vulnerabilities.