Europe’s Self-Inflicted Trap
How the EU Is Subsidizing China’s Takeover
Nikita Khrushchev was “paddling like a dog” in the water. Across from him, Mao Zedong floated with ease. The Chinese leader had chosen his private swimming pool for their meeting, turning a diplomatic discussion into a test of control.
In 1958, Khrushchev arrived in Beijing to assert Soviet leadership in the Communist world and discuss military aid. But here, in Mao’s private pool, the power dynamics shifted. Mao glided effortlessly. Khrushchev—barely able to swim and wearing what Henry Kissinger later described as “water wings”—struggled to stay afloat.
For decades, the Soviet Union saw China as a junior partner, reliant on Moscow for weapons, technology, and industry. Stalin himself helped bring the Chinese Communist Party to power. But as Khrushchev gasped for balance, he realized Mao had no intention of staying in the shadow.
Defeat Didn’t End at the Pool’s Edge
The results of the incident were felt almost immediately. Humiliated and frustrated, Khrushchev ordered the withdrawal of Soviet advisers from China. Soviet engineers, military specialists, and industrial planners abruptly packed up and left. The USSR stopped key projects in nuclear development, infrastructure, and heavy industry.
But the Soviet withdrawal didn’t stop China’s rise. By the time Khrushchev recalled his advisers, China had already learned enough to stand on its own. Years of Soviet aid had laid the groundwork for an independent superpower. China no longer needed Soviet protection. It had joined the ranks of the world’s nuclear powers when it detonated its first nuclear bomb a few years later in 1964.
The meeting in Mao’s pool, would shape the Cold War. Had the USSR and China remained allies, the Communist world might have presented a unified front against the West. Their split would soon turn into open hostility. A division that Washington would later exploit. The Soviet Union was on its way down, China continued its relentless ascent.
History doesn’t repeat, but it rhymes in dangerous ways. Just as the Soviet Union bankrolled China’s rise, believing it could keep Beijing as a loyal partner, Europe is now making the same mistake.
The Illusion of Strength
Brussels presents itself as a defender of European industry. In recent months, it has imposed tariffs on Chinese electric vehicles, mobile access equipment, and certain chemicals, citing unfair subsidies and market distortions. These measures are meant to signal strength, proof that the EU is taking action to level the playing field.
European politicians also frequently invoke “strategic autonomy.” It’s the idea that the bloc must control its own supply chains and reduce reliance on foreign powers. Just days ago, the European Commission unveiled its Clean Industrial Deal, a sweeping plan designed to strengthen the EU’s manufacturing base. The proposal promises “European preference criteria” in “strategic sectors,” signaling an effort to keep industrial policy focused on European companies.
But these measures obscure a deeper, more systematic failure. Because Brussels is powering a rival that can easily outmaneuver it. Instead of securing Europe’s future, it’s laying the foundation for Chinese economic control.
Let’s uncover the EU’s mistake and what it should do instead.
Taxpayers Fund China’s Entry
While Brussels touts “strategic autonomy,” few outside policy circles realize just how much it subsidizes Chinese state-backed firms inside Europe.
One striking example is the planned €2 billion battery plant in Portugal, owned by Chinese state-backed CALB. Despite being a direct extension of Beijing’s industrial ecosystem, the project is eligible for up to €350 million in EU subsidies under the European incentive scheme for reindustrialization. The factory’s location near the Port of Sines is no coincidence. China has also expressed interest in acquiring a stake in the port, which would further entrench its strategic foothold in Europe’s supply chains.
Portugal isn’t alone. Hungary is receiving €240 million from the EU’s REPowerEU fund to support a BYD electric vehicle factory—another Chinese state-backed enterprise. Hungary is also where Chinese battery giant CATL is benefiting from €800 million in tax incentives and infrastructure support, more than 10% of its €7.3 billion investment.
Instead of shutting China out, Europe is bankrolling its competitor, inviting it deeper into its economy, and handing it access to public funding originally meant to strengthen European firms.
And while Brussels claims the new Clean Industrial Deal will prioritize European industry, this won’t stop Chinese firms from benefiting.
A European Passport for Chinese Products
“Where the product is produced will be relevant,” an EU official told Euractiv, referring to the Act. That’s the loophole. The policy doesn’t require companies to be European, only that production happens inside the EU.
The Clean Industrial Deal will mobilize over €100 billion to support EU-based clean manufacturing. Without clear restrictions, Chinese firms can tap into this cash.
In other words, instead of securing strategic autonomy, the EU is about to pour billions into embedding Chinese dominance deeper into Europe’s economy.
On the surface, these deals seem like a win. New factories, new jobs, new investments. Politicians justify them the same way every time: “Better have these factories here than in China!”
But the real question EU politicians should be asking themselves is this: Why are Chinese firms eager to build factories in Europe?
On paper, Europe isn’t a great place for manufacturing. Energy prices are among the highest in the world. Regulations are strict, labor laws are rigid, and the market is fragmented by bureaucracy. It should be far cheaper and easier for China to expand production elsewhere. Yet Chinese firms keep setting up shop inside the EU.
The reason is simple: it gives Beijing leverage.
By shifting production to Europe, Chinese companies sidestep tariffs and embed themselves in critical industries. Goods made inside the EU no longer face trade restrictions, making it easier for China to dominate key sectors like batteries and clean tech. Even better, Europe itself is paying for this expansion.
In other words, Brussels claims to be protecting its industry, yet it is using taxpayer money to fund Chinese state-backed firms, helping them tighten their grip on Europe’s economy. Instead of reducing dependency, the EU is making itself an easier target for Beijing’s influence.
Factories Are Economic Weapons
If China owns and controls factories inside the EU, it’s not hard to imagine how this could become a tool for coercion. If Brussels takes a stance Beijing dislikes—whether on trade, Taiwan, or security—China could threaten mass layoffs, factory closures, and economic retaliation.
China has already used economic blackmail against other nations:
• Australia: When Australia called for an independent investigation into COVID-19’s origins, Beijing restricted coal and wine imports.
• Lithuania: After Lithuania strengthened ties with Taiwan, China cut off trade and pressured European firms to isolate Lithuanian suppliers.
• Japan: Following a diplomatic dispute over the Senkaku Islands, China cut off rare earth exports, significantly impacting Japanese industries that relied on these critical materials.
Behind closed doors, EU officials surely realize they’re tightening Europe’s dependence on China. But the policies keep coming. After all, why worry about the long-term consequences when there are ribbon-cutting ceremonies to attend today?
A Gift to Europe’s Biggest Rival
Brussels insists it is reviving European industry, but in reality, its policies are entrenching foreign dominance in critical supply chains. Instead of fostering a competitive industrial base, the EU is subsidizing the expansion of Chinese firms, embedding them deeper into Europe’s economy.
If this trend continues, Europe won’t be an industrial power—it will be a subsidized extension of China’s manufacturing ecosystem. Factories may rise, but ownership, supply chains, and decision-making will remain tied to Beijing. That’s not reindustrialization. That’s state-funded dependence.
Washington is already taking notice. The U.S. has imposed AI chip restrictions on EU countries tied to China’s Belt & Road Initiative, signaling that patience is running thin. If Europe continues subsidizing Chinese expansion within its borders, expect new U.S. trade restrictions aimed directly at European firms complicit in China’s supply chains.
Europe is repeating the USSR’s mistake: bankrolling the rise of a competitor that will outmaneuver it. And like Khrushchev in Mao’s swimming pool, Brussels will one day realize that it has lost control.
But it doesn’t have to end this way.
Instead of handing out subsidies to Chinese firms, the EU should do everything in its power to stop its own industry from fleeing. That means abandoning the fantasy that Net Zero subsidies will create a European industrial revival. Instead, it needs to focus on policies that make Europe a globally competitive place to manufacture.
Because if Brussels doesn’t stop sacrificing its own economy on the altar of Net Zero, Europe won’t just lose its factories—it will lose its future.
Know someone who still believes €100 billion will buy Europe “strategic autonomy”? Send them this article!
Nice piece. Loved reading it!
Great article. I enjoyed reading it. It seems to me that poor decision quality by the EU goes back to the rather disappointing quality of the current decision makers. If I compare the current EU "leadership" with, for example, the German politicians of the 1970s and 80s across the political spectrum (from left-wing to right-wing), these were serious people of substance who thought things through. The current EU "leaders" seem more focused on quick social media hits vs. thinking things through (2nd or 3rd order effects), as you did in your article.