What Does Europe’s Manufacturing Push Mean for Chinese Companies?
European Union Unveils Industrial Accelerator Act
-
September 22, 2026
-
Europe’s industrial base is under mounting pressure from high energy costs, declining industrial competitiveness and the substantial capital and operational costs associated with decarbonization and industrial transformation.1 To address these challenges, the European Commission formally proposed the Industrial Accelerator Act (“IAA”) in March 2026, a framework designed to strengthen the European Union’s (“EU”) industrial resilience, global competitiveness, economic security and strategic autonomy.2
The legislation reflects the continuation and institutionalization of the EU’s recent efforts to enhance competitiveness and promote reindustrialization. As the green transition converges with geoeconomic competition, the EU is turning to proactive industrial policy tools to rebuild domestic manufacturing capacity and reinforce critical supply chains.
For Chinese companies, the EU is not only a major trading partner but also an important investment destination, particularly in sectors in which Chinese companies have developed strong global competitiveness, including solar photovoltaics (“PV”), batteries and electric vehicles. The IAA also introduces low-carbon and/or Union-origin requirements affecting energy-intensive sectors such as steel, aluminum and cement. If adopted in its current form, the IAA could therefore significantly reshape Chinese companies’ market access strategies, localization and sourcing decisions as well as cost structures in Europe.
Key Mechanisms Under the IAA
Based on the preliminary analysis of FTI Consulting’s European trade experts, the IAA contains several provisions with major policy implications:
- Public support and procurement benefits would favor “Union origin” or “European-made” products, although products from countries with which the EU has concluded a free trade agreement or customs union, and products from countries that are parties to the World Trade Organization Agreement on Government Procurement, may in certain circumstances qualify for equivalent treatment.
- Requirements vary by sector, with low-carbon criteria for industries such as steel and aluminum and stricter Union-origin thresholds for electric vehicles and powertrains.
- Major investments in strategic sectors may face additional ownership, joint venture, technology transfer, research and development (“R&D”), employment and sourcing conditions.
- Industrial Manufacturing Accelerating Areas may increase the speed of permitting, but without EU-level funding, the benefits may favor better-resourced Member States.
- The IAA would expand localization requirements for critical energy technologies and create a greenhouse gas classification system for low-carbon products.
Many important technical details in the current proposal, including the criteria for determining low-carbon products and the scope of “trusted partners,” have been left to subsequent delegated acts. In addition, a proposed three-year review mechanism indicates that localization and low-carbon requirements could be tightened over time. Significant negotiations are also expected among the European Parliament, the Council of the EU and individual Member States, meaning that the final legislation could differ materially from the European Commission’s current proposal.
China’s Response and Policy Signals for China-EU Relations
In response to the IAA, China’s Ministry of Commerce has stated explicitly that the measures constitute serious investment barriers and institutional discrimination.3 China has said it will closely assess the implications for Chinese companies and pledged to safeguard their legitimate rights and interests, stressing that protectionism will not enhance competitiveness and that openness and cooperation are the appropriate path toward green transition and industrial development.4
During China’s annual political gathering “Two Sessions” in March 2026, Foreign Minister Wang Yi noted signs of improvement in China-EU relations and emphasized that the foundation for bilateral economic and trade cooperation remains strong.5 He underscored that China-EU economic and trade relations are fundamentally complementary and mutually beneficial, while opposing protectionist approaches based on “building walls and barriers” and arguing that openness and cooperation remain the right direction.6
This broader context suggests that, with structural frictions increasing, China-EU economic relations are gradually moving from a predominantly market-driven model toward one progressively shaped by both market forces and policy and regulatory considerations. Opportunities for cooperation remain, but the pathways through which such cooperation can be realized are changing.
Simultaneously, China is advancing its 15th Five-Year Plan, which is expected to continue emphasizing high-standard opening-up, institutional opening-up and policies to attract and stabilize foreign investment, while further improving market access and the business environment for foreign companies.7 Against this backdrop, differences and interactions between Chinese and European industrial policy will increasingly influence cross-border investment and supply chain decisions by companies on both sides.
Current European policy discussions also suggest that the objective is not simply to embrace outright protectionism. Rather, the EU frames its approach by stating that being “open should not mean being naïve,” that is, maintaining market openness while reducing external dependencies and strengthening industrial resilience.8 At its core, this approach embeds stronger industrial policy and security considerations within an otherwise open economic framework — a policy orientation that is likely to continue shaping China-EU economic and trade relations.
Potential Implications for Chinese Companies
Viewed as a whole, the IAA is more than an industrial policy instrument. It could systematically reshape the way Chinese companies compete in the European market:
- Market access is likely to become more tiered around origin and low-carbon criteria. By incorporating such criteria into public procurement and public support schemes, the EU is seeking to channel demand toward local supply chains or toward suppliers that meet its origin and decarbonization standards. As a result, export-led business models based primarily on cost and scale advantages could become less effective, particularly in sectors such as solar PV, batteries, energy storage, wind power and automotive components.
- Companies may be pushed toward deeper localization or M&A strategies. A business model based solely on manufacturing in China and exporting to Europe may become progressively more difficult to sustain. Companies will need to assess options such as establishing production facilities in Europe, acquiring European businesses to secure “EU-made” status or positioning parts of their supply chains in neighboring markets or so-called “trusted partner” countries. The definition of a “trusted partner,” however, is likely to be highly policy and politically sensitive.
- Regulatory uncertainty and the institutional cost of foreign investment are likely to increase significantly. Where China is deemed a third country with a high concentration of global manufacturing capacity in a particular sector, major Chinese investments in Europe could become subject to technology transfer obligations, ownership restrictions and localization requirements. This could affect corporate control arrangements and increase the risk of unintended technology transfer. At the same time, some subsectors have not yet been brought within the strictest foreign investment requirements under the current proposal, and others remain free from uniform localization thresholds. This indicates that, even as the EU tightens industrial policy, it continues to preserve a degree of policy flexibility and transitional space.
Compliance capability is also becoming a new source of competitive differentiation. EU regulation continues to tighten in areas such as carbon footprint accounting, supply chain traceability, data protection and cybersecurity. Competition is therefore shifting from one centered primarily on “price advantage” toward one in which the ability to navigate complex regulatory frameworks is ever more important. Companies that fail to make systematic investments in compliance may find themselves excluded from policy-supported segments of the market.
However, the landscape also presents opportunities, and competitive implications will vary across companies. Chinese companies that have already established manufacturing, R&D and local supply chains in Europe may enjoy a degree of first-mover advantage and potentially greater room to operate under the emerging policy framework.
Europe has already demonstrated heightened scrutiny of critical industries and foreign investment in recent years. Examples include the restructuring of UK steel assets involving Chinese investment and the dispute surrounding control of Nexperia’s operations in the Netherlands.9,10 Both matters illustrate Europe’s growing sensitivity to questions of control over strategic industrial assets. In this context, the IAA should be seen less as an isolated initiative than as a continuation of a broader shift in European industrial policy.
Policy and Commercial Response Strategies
The IAA is still being negotiated and is not expected to be implemented before mid- to late 2027. However, against a backdrop of growing uncertainty worldwide, companies should begin adopting a more systematic approach to managing emerging policies now. Doing so will be key to positioning themselves as lasting participants in Europe’s industrial value chain.
In the short term, priority should be given to strengthening compliance preparedness and policy intelligence. Companies should conduct a comprehensive review of the regulatory requirements that their European projects may trigger, including localization ratios, R&D and employment commitments, local sourcing requirements and intellectual property arrangements. They should also establish a robust evidentiary record to demonstrate compliance in future regulatory reviews and procurement processes.
Public procurement deserves particular attention. Companies will need to adapt to the EU’s gradual shift away from evaluation primarily based on the lowest price toward criteria reflecting broader policy objectives, including innovation, resilience and local value creation. This will require earlier adjustments to bidding strategies and local operating footprints.
Over the medium term, companies should carefully assess localization and M&A strategies. Acquiring or partnering with European companies to secure “EU-made” status may become a more viable route to market. At the same time, transaction structures will need to balance commercial returns against potential restrictions on ownership, control and corporate governance.
Over the longer term, companies will need to shift their strategic focus from simply entering the market to becoming part of the industrial ecosystem. This will require deeper participation in Europe’s local industrial base, including through joint R&D, development of local supply chains and investment in talent.
In this process, FTI Consulting’s experts can provide integrated support in areas including policy interpretation, compliance assessment, transaction structuring and government engagement, helping companies mitigate risks and capture opportunities in a more uncertain environment.
Conclusion: Challenges and Opportunities as the Rules Are Rewritten
The IAA represents an institutional attempt by the EU to reconcile its reindustrialization agenda with the green transition. It is not merely an industrial support instrument; it will also reshape the rules governing market access.
For Chinese companies, this means higher barriers to entry and a more complex regulatory landscape. However, it does not mean opportunities have disappeared. By building localization capabilities early, strengthening compliance systems and deepening industrial cooperation, companies may still be able to achieve sustainable long-term growth under the emerging regulatory framework. The ability of China and Europe to preserve long-term cooperation amid competition and coordinate within an increasingly rules-based system will help determine the ultimate direction of this new phase of industrial policy.
Footnotes:
1: Proposal for a Regulation of the European Parliament and of the Council establishing a framework of measures for the acceleration of industrial capacity and decarbonization in strategic sectors and amending Regulations (“EU”) 2018/1724, (“EU”) 2024/1735 and (“EU”) 2024/3110, (COM(2026) 100 final, (4 Mar. 2026).
2: “Industrial Accelerator Act: strengthening Europe’s clean industrial base,” European Commission (19 Mar. 2026).
3: “MOFCOM Spokesperson’s Remarks on the EU’s Proposed Industrial Accelerator Act,” Ministry of Commerce, People’s Republic of China (29 Apr. 2026).
4: Ibid.
5: Zhang, Yunbi, “Wang urges Europe to shape correct perception of China,” China Daily (8 Mar. 2026).
6: Ibid.
7: Guo, Junpei, “How China’s 15th five-year plan signals a new phase of strategic adaptation,” World Economic Forum (30 Oct. 2025).
8: “Strengthening the single market in a new geoeconomic context,” European Council (19 Aug. 2026).
9: Department for Business and Trade, Press Release, “Government brings British Steel into public ownership to protect UK steelmaking,” GOV.UK (16 July 2026).
10: “Update on invoking Goods Availability Act (Wbg), 6th of November 2025,” Government of the Netherlands (6 Nov. 2025).
Related Insights
Published
September 22, 2026
Key Contacts
Managing Director
Managing Director
Senior Director