EU-China economic ties face imbalances, global uncertainty
Banque de France Governor François Villeroy de Galhau discussed the evolving economic relationship between Europe and China, highlighting growing imbalances and global uncertainty. He emphasized the need for coordinated action to preserve global economic and financial stability.
Deepening ties, rising challenges
The EU and China represent one third of global GDP and trade, with bilateral trade exceeding USD 860 billion annually.
China is the EU's leading supplier and fourth-largest customer, while the EU is China's second-largest trading partner.
This integration, particularly in automotive and pharmaceuticals, has brought mutual benefits but faces challenges from supply chain vulnerabilities exposed by Covid and geopolitical shocks.
Euro area inflation, projected at 2.6% in 2026, is sensitive to energy prices, though China appears less exposed due to its energy mix.
Both regions invest in energy transition, with the Network for Greening the Financial System (NGFS) playing a key role in green finance, providing climate scenarios for stress-testing by the ECB and Chinese authorities.
Despite these efforts, the benefits of the EU-China relationship are increasingly unevenly distributed, marked by a dramatically growing EU trade deficit in goods.
Global imbalances resurface
Global macroeconomic imbalances are widening, with the US current account deficit at 3.6% of GDP, China's surplus at 3.8%, and the euro area's surplus around 1.7% in 2025.
These reflect unbalanced growth dynamics: the US deficit from high fiscal deficits, China's surplus from weak household consumption and excess industrial supply, and Europe's from high savings with insufficient investment.
Such imbalances fuel trade tensions and financial instability.
The French G7 presidency prioritizes coordinated adjustment.
It advocates for deficit economies to strengthen savings and fiscal sustainability, and surplus economies to reinforce domestic growth, aiming to reduce imbalances and support global stability without protectionism.
Coordination: A difficult path
The speech clearly outlines the unsustainable nature of current global imbalances, yet the proposed solutions rely heavily on coordinated action which has historically proven difficult.
While individual country adjustments are necessary, the call for simultaneous action underscores the fragility of a system where unilateral moves could trigger instability.
This highlights a persistent challenge in global economic governance, where shared responsibility often clashes with national interests.