The Second China Shock Hits Europe Right in the Heart

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Publication Date: 14.11.2025

Overview

  • Author: Mark Dittli
  • Source: themarket.ch
  • Date: 14.11.2025
  • Estimated Reading Time: 8 minutes

Article Summary

What is it about?

China is transforming from an importer to a dominant exporter in strategic industries and flooding world markets with overcapacity. While the first China shock after 2001 primarily hit the USA, the current second shock targets the industrial heart of Europe - with Germany as the epicenter.

Key Facts:

  • 40% Export Increase: China's exports have risen by around 40% since 2019, while imports stagnate
  • 5 Million Vehicles: China has risen from net importer to the world's largest car exporter within five years (over 5 million net exports)
  • €130,000 vs. €28,000: Example of cable processing machine - Swiss supplier €130,000, Chinese competition under €28,000
  • 30 Million Jobs: Around 30 million jobs in the EU depend on industry
  • 20% GDP Share: German industry employs 5.5 million people and contributes almost 20% to GDP
  • Since 2015, China has pushed for autarky in ten key technologies with "Made in China 2025"
  • 2020/21 Turning Point: Credit redirection from real estate to industrial sector worth several hundred billion dollars

Affected Groups:

  • German automotive industry and its supplier networks
  • Swiss companies in mechanical engineering, electrical engineering, and specialty chemicals
  • European industrial workers (30 million jobs under pressure)
  • Investors in traditional industrial sectors
  • Managers of exporters to China

Opportunities & Risks:

Risks:

  • Structural margin decline in "strategic" industries
  • Job losses similar to the US Rust Belt 20 years ago
  • Loss of technological leadership through "good enough" competition
  • Dependence on weakening Chinese domestic market

Opportunities:

  • Promotion of European innovation and efficiency
  • Liberalization of the EU internal market
  • Diversification of supply chains

Recommendations:

  • Close monitoring of the next Chinese five-year plan (March 2026)
  • No self-weakening through excessive regulation
  • Implementation of the Draghi and Letta reports on EU internal market liberalization
  • Strategic reorientation instead of clinging to the status quo

Looking Ahead

Short-term (1 year):

  • Publication of Chinese five-year plan 2026-2030 with additional "strategic" sectors
  • Intensification of pressure on German automotive industry and Swiss machinery manufacturers
  • Possible EU protective measures against Chinese overcapacities

Medium-term (5 years):

  • Further deindustrialization of Europe in traditional areas of strength
  • Chinese dominance in AI, robotics, and biotechnology
  • Structural unemployment in European industrial regions

Long-term (10-20 years):

  • Fundamental power shift in the global industrial landscape
  • Possible populist reactions in Europe similar to Trump 2016
  • Reorganization of the world economy into blocs with limited free trade

Fact Check

The figures and developments mentioned in the article are supported by official statistics and recognized studies. The analysis relies on solid sources such as the ECB, the Council on Foreign Relations, and the Centre for European Reform. The dramatic changes in China's export structure are verifiable through trade data.

Additional Sources

  1. "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade" - David Autor, David Dorn, Gordon Hanson (2016)
  2. ECB Study on China's Trade Imbalances - European Central Bank
  3. "Made in China 2025" Strategy Paper - Chinese Government Cabinet

Source List

  • Original Source: The Second China Shock Hits Europe Right in the Heart, The Market, Link
  • Additional Sources:
    1. The China Shock Studies, Autor/Dorn/Hanson, various years
    2. Centre for European Reform, China-Europe trade studies
    3. Mercator Institute for China Studies (Merics), Berlin
  • Facts checked: on 14.11.2025

Brief Summary

China is executing a strategic transformation from the "world's workshop" to a dominant industrial exporter in high-technology sectors. What devastated the American Rust Belt 20 years ago now hits Europe's industrial heartland with full force. The "good enough" strategy of Chinese companies - combined with state credit flooding - makes even German precision machines and Swiss specialty products obsolete. Europe faces an existential challenge that requires swift and decisive action.

Three Key Questions

  1. What risks to economic freedom arise when Europe loses its industrial base to an authoritarian system and thus enters into strategic dependencies?

  2. Where is more responsibility demanded from EU policy to strengthen the competitiveness of European companies instead of weakening them through over-regulation?

  3. How can innovation and openness be promoted to counter the Chinese "brute force" strategy with a European response based on efficiency rather than subsidies?

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