Pivoting in plain sight: China’s stealthier geo-economics

When Chinese President Xi tabled his proposal for a “dual circulation” policy in 2020, many saw this economic strategy as export-led isolationism. The policy bore fruit: by 2025 China had a $1.2tn trade surplus and included visible, loan‑fuelled megaprojects such as the Belt and Road Initiative. However, Beijing’s approach is now subtly changing. It is moving towards a more diffuse, company‑centred strategy that quietly embeds Chinese firms and value chains across sectors in other countries. That can create new long‑term leverage for China that the EU is currently ill‑equipped to handle.

Old model meets resistance

Up until now, China has focused on acquiring stakes in foreign companies and handing out easy loans, with very few obvious conditions attached, to gain footholds overseas. The plan was successful but it began to cause concern, especially in Europe. For example, when the Chinese company Midea bought the German robotics firm Kuka in 2016, it raised alarms in Berlin and subsequent German governments tightened the rules for foreign investment. The expansion of Chinese loan programmes also attracted attention. One high-profile example was Sri Lanka, which was forced to lease a key seaport to Beijing because it could not service its debts. These kinds of cases fuelled fears that China was using “debt‑trap diplomacy”—offering attractive loans that later leave countries so indebted they have to give up strategic assets or political leverage. As a result, many countries scaled back or reconsidered Chinese loans and commitments.

A new strategy

The pushback seems to have prompted China to pivot.  Chinese firms are ramping up trade and investment in Southeast Asia and Latin America—exporting goods, securing minerals and building footholds—while Chinese officials encourage free trade agreements (FTAs). In October 2025, ASEAN and China updated their free trade agreement, expanding it by nine new areas of cooperation, and emphasising sector and supply chain integration rather than trade alone. The Chinese government is also seeking to upgrade its FTA with Switzerland and accelerate negotiations with other countries. Beijing has also extended its zero-tariff regime to all African countries, rather than just the least developed ones, to boost investment and trade.

The government is ramping up support for Chinese firms expanding abroad

The government is also ramping up support for Chinese firms expanding abroad. In January, it launched a new framework, targeting specifically “chain-master enterprises” that build overseas production and supply chains. China’s car parts producer Shanghai Unison Aluminium Products fits squarely within this framework. It recently opened a factory in Bulgaria and is building a second; its main aim is to supply and connect other China-owned car and parts makers across Europe—in Serbia, Hungary, Sweden and beyond. Chinese and Bulgarian businesses already plan to expand cooperation with firms within Bulgaria’s auto parts production ecosystem, and are backed in this endeavour by the local Chinese embassy and Chinese-Bulgarian business associations.

This strategy dovetails with “micro-level integration”—company-to-company partnerships in product development and marketing—which is especially evident in Bulgaria. Chinese partners are helping Bulgarian firms from agriculture (maize, cherries, raspberries, rose oil extraction) to high-tech (software, a dedicated technology park). They are also helping Bulgarian firms with placement and marketing. The primary focus of Chinese organisations is to build company-to-company connections and list Bulgarian products on China’s large e-commerce platforms. Chinese provincial governments are also assisting micro-integration between commercial entities from both sides.

For many Chinese firms, there is little option but to go hard into foreign markets in order to shore up their position at home. China’s car market, for example, is now crowded and slowing, which is squeezing car makers’ growth and margins at home. Chinese electric vehicle maker BYD aims to sell 1.5–1.6 million vehicles abroad in 2026; foreign earnings and volumes will help BYD survive intense price competition at home. Beijing is also considering a national mergers-and-acquisitions fund to streamline crowded sectors and help build stronger, more outward‑facing firms. This is in addition to three state venture capital funds recently set up to support high-tech startups.

That said, there is no sign that Beijing plans to abandon its previous policies. Despite claims to the contrary, spending on the Belt and Road Initiative is increasing: in 2024, both committed funding and the number of projects increased markedly, with activity shifting towards green energy, metals and the mining sector rather than a handful of big infrastructure projects. As a tool of foreign economic leverage, the Belt and Road Initiative is alive and well. 

High-profile acquisitions will also still be important. Just last month, Chinese firm Anta Sports became the largest shareholder in Germany’s Puma last month, and state-owned Zijin Mining bought Toronto-listed Allied Gold mining firm for about $4bn.

The resilience of Chinese firms

Chinese firms are proving resilient in the face of pushback. Montenegro is a telling example. The Montenegrin government had taken a $943m loan from China in 2014 for the first section of the Bar-Boljare motorway, but by 2021, the debt burden brought Montenegro to the verge of bankruptcy. EU institutions stepped in and helped the Balkan country reach a support agreement with four Western banks, but despite this incident, Chinese companies were recently awarded two new motorway projects in Montenegro worth $1bn—the second section of the Bar-Boljare highway and the Tivat-Jar corridor. About a third of these projects are funded by the EU and the European Bank for Reconstruction and Development. Five Chinese firms even made the final bidding round. 

Under the radar

China’s evolving foreign economic strategy—firm-driven, diversified, and micro-integrated—poses stealthier risks to EU industries than the old, loan-heavy, megaproject tactics, which at least made the dangers obvious.

Most of the new Chinese policies are implemented at the micro level and take advantage of market opportunities in Western countries. They play out across many countries and sectors, from energy to cars and car parts, advanced manufacturing and IT. They evade existing EU tools like FDI screening—which targets large takeovers, rather than incremental stakes or greenfield plants.

Past Chinese industrial policies have already hurt EU sectors such as batteries, electric vehicles and solar panels. The latest shift could accelerate deindustrialisation in the bloc and cause economic upheaval. The EU-US spats and tariffs are creating openings to trade with other countries, and China is in pole position to step in and expand its presence in Europe.