EU Industrial Accelerator Act + Critical materials + Platform exports

In this issue of MERICS Europe China 360°, we cover the following topics:

• The EU's Industrial Accelerator Act won't stave off China's unfair trade practices
• Europe is running out of time to cut its dependency on China for critical materials
• Europe-China Diplomatic Tracker: China's diplomatic engagement with Europe has so far remained focused on member states in 2026
• Soapbox-MERICS Data Highlight: Chinese online platform exports to the EU

The EU's Industrial Accelerator Act won't stave off China's unfair trade practices

By Esther Goreichy

The EU is sharpening its industrial policy playbook with a new Industrial Accelerator Act (IAA), presented in March. The aim is to preserve its core industries threatened by unfair competition from China and to facilitate technology transfer in sectors where it lags behind. While the IAA fills important gaps in the EU’s playbook, the current proposal contains loopholes that could undermine its capacity to protect European industries. Likewise, the package does not task the EU with drastically sharpening its trade policy.

As China is increasingly offloading excess goods abroad due to manufacturing overcapacity, the IAA aims to limit access to public funding for Chinese exporters unless they localize production in Europe or with its trading partners. However, the new requirements for foreign companies can be waived in cases where costs would be significantly higher (between 25 and 30 percent) should non-EU or partner countries’ firms be excluded – or if they would cause delays or there were no viable alternatives. Given extensive state subsidies and currency devaluation in China, such thresholds are likely to be met in a number of sectors. For example, Chinese wind turbines are already 30 percent cheaper than in Europe. Without complementary measures to address these distortions, the IAA may even incentivize anticompetitive practices from China.

Despite its more forward-looking approach, the IAA fails to include future sectors

The measures allow the EU to assume a more forceful posture in preserving EU industrial capacity in strategic sectors. Indeed, low-carbon and “Made in EU and partner countries” requirements will be introduced for public procurement and public support schemes for selected strategic sectors. These include steel, cement, aluminum, electric or hybrid vehicles, and net-zero technologies (such as batteries, solar photovoltaics, heat pumps, and wind power systems), with a possible extension to chemicals. But while the IAA is a good start, it may not go far enough to protect EU industries against China’s subsidization of industries that are set to produce the next wave of overcapacity.

China’s 15th Five-Year Plan, for instance, already points to those sectors. The EU is likely to face overcapacity pressure in areas like next-gen IT, new energy sources, robotics, biomedicine, aerospace, etc., which are not included in the IAA (semiconductors, cloud computing, cybersecurity, artificial intelligence are also not included). Although it contains a review clause after three years with a possible extension to additional sectors such as shipbuilding and rail rolling stock, the IAA does not provide clear indications on how such sectors will be selected.

FDI conditions are innovative but expansion to countries outside EU poses risks

The IAA introduces conditions for foreign direct investment (FDI) in sectors where the EU lags behind China. This conditionality, which applies to investors from non-partner countries holding over 40 percent of global manufacturing capacity, clearly targets China. Investments above EUR 100 million will require compliance with at least four of six value-added criteria, such as limits on ownership, joint ventures with EU partners, intellectual property sharing, minimum research and development (R&D) spending in the EU, and commitments to local sourcing and workforce integration. A requirement that at least 50 percent of the workforce be EU-based will apply in all cases.  

Beyond addressing a long-discussed policy gap, the FDI measure offers several advantages. Conditioning access to the EU internal market encourages Chinese firms to engage in technology transfer, while EU-wide rules help prevent competition between member states in attracting foreign investment.

It applies to around 25 to 30 countries outside the EU engaged in bilateral trade agreements or in the WTO Government Procurement Agreement with the EU. It enhances long-term planning security for European producers, allowing them to invest without fear of unfair competition from subsidized Chinese firms. However, the expansion to countries outside the EU also increases the risk of circumvention, as Chinese firms may invest in these countries to gain access to EU public procurement while avoiding the new FDI conditionality measure.