Europe-China ties face uncertainty, growing imbalances
Banque de France Governor François Villeroy de Galhau discussed the evolving economic relationship between Europe and China, highlighting growing global imbalances. Speaking in Beijing, he called for coordinated action to preserve stability.
Deepening ties, rising vulnerabilities
The economic relationship between the EU and China has deepened significantly, with trade flows quadrupling since the early 2000s to exceed USD 860 billion annually.
China is now the EU's leading goods supplier and fourth-largest customer, while the EU is China's second-largest trading partner.
This integration extends to financial, industrial, and technological ties, supported by 13,000 European companies in China and over 3,000 Chinese companies in Europe.
However, recent shocks like the Covid crisis and Middle East tensions have exposed vulnerabilities in highly integrated supply chains and highlighted the interconnectedness of economies, particularly through energy prices.
This underscores the need for greater resilience and balance in the relationship.
Energy shocks and uneven benefits
Euro area inflation is projected to rise to 2.6 percent in 2026, with adverse scenarios reaching 4.4 percent, largely due to energy price shocks.
While China appears less exposed thanks to its energy mix, a prolonged global slowdown would ultimately affect its economy.
The Network for Greening the Financial System (NGFS), co-founded by the Banque de France and the People's Bank of China, plays a leading role in supporting the energy transition and identifying climate risks.
Despite mutually beneficial dynamics, the benefits of the EU-China relationship are increasingly unevenly distributed, with the EU's trade deficit in goods dramatically increasing over the past two decades, requiring rebalancing efforts.
A shared responsibility for balance
Global macroeconomic imbalances are widening again, with the US current account deficit at 3.6 percent of GDP, China's surplus at 3.8 percent, and the euro area's at 1.7 percent in 2025.
These reflect unsustainable domestic growth models, fueling trade tensions, fragmentation, and financial instability.
Reducing these imbalances is a shared G7 priority, requiring deficit economies to strengthen savings and surplus economies to reinforce domestic growth.
Europe and China both have the capacity and responsibility to act as anchors of stability through continued dialogue and cooperation for a more balanced international economic order.