China's model is flawed, top MEP warns trade pressure could test Beijing's stability

German liberal MEP Engin Eroglu, who chairs the European Parliament's delegation for relations with China, has warned that China's economic model is flawed and that EU trade restrictions could threaten the country's stability. In an interview with Euronews, he noted that China's domestic consumption is stagnating and its reliance on the EU market of 450 million consumers is critical.

Tensions between Brussels and Beijing have escalated in recent weeks. The EU set an October deadline last month for discussions on reducing the trade imbalance, after the bloc's deficit with China reached a record €1 billion in 2026. The European Commission, negotiating on behalf of the 27 member states, could impose measures to restrict access to the European market before a breakthrough is reached.

Eroglu emphasized that even a slight restriction on market access would affect Chinese companies, especially given stagnant domestic consumption. He referred to China's display of technological prowess, such as a robot dance during the Lunar New Year gala, saying, "China's model is flawed despite dancing robots and great fanfare." According to him, if Chinese companies were to lay off workers due to EU restrictions, "this could lead to political problems for the Chinese government."

The European Commission stated on Tuesday that it intends to implement "unilateral" trade defence measures to protect the EU market from the surge of Chinese imports before the October deadline. These measures could include tariffs and quotas on Chinese imports threatening specific European industrial sectors. After the US began closing its market to Chinese imports through tariffs in 2025, China redirected its industrial overcapacity to the EU, putting pressure on sectors including steel, cars, and chemicals.

According to Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, state-backed "zombie" companies accounted for over 12% of all registered firms in China in 2026, more than double their share in 2018. A report by the Organisation for Economic Co-operation and Development (OECD) in early June also stated that Chinese companies receive between three and eight times more subsidies than companies in OECD member countries.

Eroglu argued that this model is unsustainable, undermining Beijing's claim to global dominance. "There is already high youth unemployment. China's current self-confidence may not reflect the actual situation. This means that by controlling access to our market, we hold leverage over China," he said. The European Commission could also impose new anti-dumping duties on Chinese products, as it has done in several cases in recent years. The EU's trade enforcement authority opened an investigation last Thursday into the agricultural sector, targeting China's Peking duck.

"I hope we can avoid a trade conflict, but the rapid decline of European industries makes it difficult not to react," Eroglu said.