Industrial Competition, Financial Connections and the Choices Facing European Businesses
For a European business, the useful geopolitical question is not simply whether China is rising or retreating. It is how changes in demand, production and policy alter the customers, suppliers and financial relationships on which the business depends.
The argument developed here is that commercial opportunity and geopolitical exposure increasingly need to be assessed together. A business can preserve a valuable Chinese relationship while reducing a particular dependency. It can use Hong Kong for a genuine function without assuming that the city insulates it from every mainland or international risk.
“Economic reset” is an editorial description of that adjustment—not the name of one official programme or a claim that the transition is complete. Where this article discusses European trade figures and common regulatory instruments, it refers to the European Union; the United Kingdom, Switzerland and other European jurisdictions require separate assessments.
TOP LEGAL — THREE QUESTIONS, NOT ONE VERDICT
What is changing in the market? Which rules affect the actual transaction? What operational change would improve the business? Do not let a geopolitical headline answer all three.
1. The evidence: distinguish economic conditions from policy intentions
The following developments provide a dated starting point. A government objective, an institutional assessment and a legal requirement do not carry the same meaning.
| Development | What the source identifies | How to read it |
|---|---|---|
| China’s consumption plan, July 2026 | A 2026–2030 programme to strengthen consumption, including household-income and service-sector measures. [2] | A policy direction, not proof that household demand has already recovered. |
| ECB Economic Bulletin, September 2026 | Continued weakness in Chinese domestic demand alongside resilient exports. [3] | An assessment of uneven conditions, not a verdict on every Chinese business. |
| Hong Kong’s 2026 Policy Address | Priorities for offshore renminbi business, capital markets and international financial connections. [7] | Strategic priorities; availability and implementation must be checked separately. |
| China–Europe automotive dialogue, 22 September 2026 | Reuters reported Chinese support for automotive investment in Europe and continued dialogue. [12] | Evidence that rivalry and investment engagement can coexist—not unrestricted market access. |
For decision-making, ask what has actually changed since the business approved its original plan. A forecast revision may justify a sales sensitivity test; an enacted restriction may require a legal review before performance. A political speech alone does not establish either a new licence requirement or a new exemption.
2. China can face economic strain and become a stronger competitor
The IMF’s February 2026 assessment described an economy supported by exports and policy stimulus but held back by weak private domestic demand, property-sector adjustment and debt-related risks. It recommended a stronger transition towards consumption-led growth. That is a more useful starting point than assuming either imminent collapse or uninterrupted expansion. [1]
The more recent ECB September assessment also identified household and property-related weakness while exports remained resilient. It noted that imports were rising too, supported by demand connected with advanced technology. Weak domestic demand does not mean China stops importing; the composition of demand matters. [3]
China’s own July consumption plan addresses employment, incomes, social protection and services. It indicates an intention to strengthen domestic demand; it should not be presented as a completed rebalancing or a guarantee of new orders for foreign suppliers. [2]
The commercial implication is to separate two questions. Is the potential Chinese customer financially and commercially attractive? And is a Chinese competitor becoming more capable in the market where your business sells? The answers can move in opposite directions.
A European exporter should therefore test its product’s relevance, pricing and customer concentration rather than copy a national growth rate into a revenue forecast. A purchaser should examine the supplier’s ability to maintain quality, delivery and after-sales support—not infer financial health from an attractive quotation.
3. The industrial change reaches beyond low-cost manufacturing
ECB research published in September describes China’s expansion in technology-intensive manufacturing, industrial self-reliance and price competitiveness. It finds increasing overlap with European exports, particularly machinery and transport equipment, with manufacturing-intensive economies such as Germany more exposed. Its analysis also recognises potential benefits from lower-cost imports, investment and technology connections. [4]
This matters because the commercial relationship need not follow a simple division in which Europe supplies sophisticated machinery and China supplies inexpensive finished goods. The same Chinese business may be a customer, supplier, competitor or prospective investor in different parts of a European group’s activities.
Our assessment: treating those roles separately is more useful than assigning the entire relationship a single “opportunity” or “threat” label. Identify where the European business earns its margin: design, manufacturing precision, installation, distribution, customer trust or continuing service. Then test which part is vulnerable and which remains distinctive.
A sensible response might involve investment in product development, better service or a different partnership—not necessarily moving production. Conversely, a lower input price is not a sufficient benefit if it creates an unacceptable dependence on a component that cannot be replaced within the business’s delivery commitments.
4. Hong Kong: connected to China, but not legally interchangeable with it
Hong Kong is part of the People’s Republic of China. Its Basic Law also preserves the common-law framework, subject to its provisions and lawful amendment, and permits English as an official language. Separate provisions establish an independent taxation system, a separate customs territory and freedom of capital movement. Those distinctions remain relevant to commercial structuring. [5][6]
They should not be mistaken for a guarantee that every transaction is permissible, every income receipt is untaxed or every banking application will be accepted. The constitutional framework is the starting point; assess the entity, counterparties, income and activities under the applicable rules.
Hong Kong’s 2026 Policy Address presents deeper mainland links and international connectivity as complementary objectives. Offshore renminbi lending, bond markets, wealth management and market-access arrangements are among its priorities. This describes the government’s strategy, not a promise that a small trading company can access every financial programme. [7]
The proposition to test is a changing role, rather than a simple loss of relevance. Would a Hong Kong presence coordinate actual suppliers, treasury, regional contracts or management? What staff, authority and services would support that function? What would be different without the entity?
A business with a genuine regional role should assess it on those functions. A company that exists only to issue an extra invoice deserves a different cost-and-purpose review. Neither assessment should begin with a promise that location alone creates tax savings or political protection.
The existing Hong Kong business guide addresses formation, taxation and banking. This article adds the strategic context rather than replacing that jurisdiction-specific review.
5. Hong Kong’s political environment is part of the business assessment
Commercial utility does not eliminate questions about legal confidence and political exposure. In its annual report on Hong Kong for 2025, issued in September 2026, the European Commission and High Representative expressed concerns about autonomy, rights and the effects of national-security legislation. This is the EU institutions’ assessment, not a finding that every ordinary commercial contract has become unenforceable. [8]
The Hong Kong Government rejected the report on 23 September. It argued that the security framework protects stability, rights and the conditions for economic development, and defended judicial independence. These are the authorities’ stated positions; they should be attributed rather than adopted as an assurance about a particular case. [9]
For a board, the practical response is not to ignore the disagreement or turn it into a simplistic country score. Ask local counsel how the proposed activities, due diligence, information handling, employment and dispute arrangements interact with current law. Distinguish a routine sales office from a business handling sensitive research or regulated information.
Also distinguish financial-market activity from the viability of your own operation. Even where capital-market activity is strong, that does not demonstrate demand for a particular retail product or justify a particular office cost.
Our conclusion is conditional: Hong Kong may remain commercially useful while requiring a more explicit assessment of political and regulatory assumptions. Preserving a useful relationship and preparing alternatives are not mutually exclusive decisions.
6. Europe’s interests differ across companies and sectors
The European Commission reports that EU goods imports from China were approximately €560 billion in 2025, compared with exports of approximately €200 billion. These are goods figures, not the whole relationship: services, investment and commercial activity through subsidiaries are separate considerations. A bilateral goods balance is not, by itself, a company-level profitability measure. [10]
Consider four business positions. An importer may benefit from competitive inputs. A manufacturer may face stronger competition. An exporter may depend on Chinese customers. A business seeking investment may value a Chinese partner’s capital or technology. One group can occupy all four positions.
The ECB’s research reinforces the need for differentiation: exposure varies with specialisation and supply-chain links. It also identifies areas of continuing European competitiveness, including gains in higher-value-added exports to the United States. Its goods-trade analysis should not be turned into a forecast that all European industries will follow one path. [4]
The policy choice is consequently not cost-free. Restricting an import can protect a producer while raising costs for another business using that input. Encouraging inward investment can create a partnership opportunity while requiring careful decisions about governance and control. Those are trade-offs to analyse, not reasons to assume that either unrestricted engagement or disengagement always wins.
For an individual company, replace “our China exposure” with a map of revenue, sourcing, financing, technology and decision-making dependencies. That makes the policy discussion commercially usable.
7. Europe needs competitiveness as well as economic security
The Commission’s stated approach is to reduce critical dependencies rather than sever economic ties with China. Its trade-policy position emphasises reciprocity, market access and concerns about industrial support and export controls, while retaining dialogue. That is an institutional policy position; the legal effect on a business depends on the particular measures in force. [10]
Beijing also argues for continued engagement. Reuters reported on 22 September that China’s commerce minister supported Chinese automotive investment in Europe, welcomed European investment in China and opposed protectionism. These are stated positions, not assurances of reciprocal access. [12]
The Commission’s September 2026 address also placed Europe’s own energy costs, market fragmentation, investment and competitiveness on the agenda. These priorities should not be reported as reforms already completed. They underline that Europe’s response involves domestic choices as well as decisions about China. [11]
ECB research adds a concrete internal issue: fragmented company-law regimes and financing markets can make it harder for European firms to grow across borders. Its discussion of the proposed EU company-law framework concerns a reform proposal, not a new legal form that this article assumes is already available. [13]
Our assessment: trade protection cannot substitute for a viable operating model, and diversification cannot substitute for productivity. A European firm still needs a product customers choose, finance it can obtain and a cost structure it can sustain.
Nor should Europe’s commercial position be reduced to choosing a midpoint between Washington and Beijing. The useful test is whether a policy or business decision improves the ability to act independently while preserving beneficial exchange. That may mean investing in European capabilities, maintaining selected Chinese partnerships and broadening other relationships simultaneously.
8. The United States still affects the transaction—even through Hong Kong
A European company should not assume that a transaction falls outside relevant U.S. controls simply because neither contracting entity is American. For items subject to the U.S. Export Administration Regulations, BIS guidance treats Hong Kong transactions as destined for China unless expressly specified otherwise. This is not a statement that every transaction with Hong Kong is prohibited. [14]
EU controls require their own assessment. The Commission’s dual-use guidance addresses goods, software and technology with civilian and military applications, with requirements depending on scope and circumstances. A general geopolitical article cannot determine the licensing position of a particular industrial product or technical transfer. [16]
Origin is another separate question. EU non-preferential rules determine origin for customs and commercial-policy purposes. An invoice issued by a Hong Kong company does not, by itself, turn mainland-manufactured goods into Hong Kong-origin goods. The actual product and production history must support the treatment claimed. [15]
Ask advisers to distinguish which rules attach to the goods or technology, which attach to the parties and which apply to the destination or end use. Bank acceptance does not settle all those questions, and commercial routing should never be designed to conceal the actual parties or destination.
The same discipline applies to diplomatic announcements. A negotiation, pause or political agreement should prompt a check of its implementing measures and effective dates—not an assumption that all earlier restrictions have disappeared. Keep the evidence for the transaction’s actual date.
9. A practical example: an Italian business with mainland suppliers and a Hong Kong company
This scenario is hypothetical. It is not a client case, a forecast or a recommendation to establish a particular structure.
An Italian industrial business buys components from mainland manufacturers, uses a Hong Kong company to coordinate purchasing and pays suppliers before collecting from European customers. Two approved suppliers account for 70% of component purchases. The business wants to expand without creating a disruption it cannot absorb.
The first review should establish what the Hong Kong team actually does: negotiates, inspects, signs contracts, provides funding or merely handles invoices. Compare those functions with the legal documents, working arrangements and management responsibilities. Do not reorganise first and investigate purpose afterwards.
Then test concentration beyond the immediate supplier. Suppose both approved manufacturers rely on the same upstream producer for an essential part. The two names on the purchasing list would not provide two independent sources of that input. A useful contingency test would identify the shared dependency and the time required to qualify an alternative.
Examine cash separately from margin. If suppliers require earlier payment while customers extend their terms, profitability alone does not reveal the funding gap. A different invoice currency can also change the mismatch between receipts and commitments. Request a payment and currency assessment based on the actual contracts, not a prediction of exchange rates.
Finally, identify which production information supports customs treatment, which permissions need specialist review and who maintains the relevant records. Keep the Hong Kong company where its function is justified; change specific arrangements where the evidence supports doing so. The exercise should not predetermine either retention or closure.
10. Three scenarios to test—not three predictions
The following scenarios are editorial planning tools. No probabilities are assigned, and they are not forecasts of government decisions or investment returns.
| Planning scenario | What the company assumes for the exercise | Response to test |
|---|---|---|
| Managed competition | Trade continues, but competitive pressure and selected regulatory friction persist. | Retain useful relationships; improve cost, documentation and supplier resilience. |
| Sharper fragmentation | Specified goods, counterparties or payment arrangements become more restricted or slower. | Test approved alternatives, liquidity, contract remedies and the time needed to change operations. |
| Selective cooperation | Defined areas of trade or investment become easier without a general removal of controls. | Examine the specific opportunity while preserving product, counterparty and legal checks. |
For the hypothetical Italian company, run the same sales assumptions through each scenario. Change the relevant cost, delivery, payment and compliance assumptions explicitly. This avoids the misleading comparison of a pessimistic China plan with an unrealistically optimistic alternative-country plan.
Assign a trigger for reviewing the decision. A material licensing change, loss of an essential supplier or a customer concentration limit is more actionable than a general instruction to “watch geopolitics”. Record who monitors the trigger and who can approve a response.
The objective is not to predict the next headline. It is to reduce the cost of being wrong about it.
11. What a focused business review should produce
Start with a manageable set of decisions rather than an open-ended geopolitical report. The following is a suggested management checklist, not a universal legal filing requirement.
| Review area | Practical output |
|---|---|
| Commercial exposure | A map of customers, competitors and suppliers, including significant upstream dependencies. |
| Hong Kong’s function | A written explanation of the entity’s actual role, people, authority and recurring cost. |
| Goods, technology and information | Responsibility for classification, origin evidence and any required specialist regulatory assessment. |
| Money and counterparties | Clear ownership records, payment authority, expected cash flows and documented funding needs. |
| Contracts and contingency | Defined performance obligations, change procedures, dispute planning and realistic alternatives. |
| Decision ownership | Named reviewers, dated assumptions and triggers for reconsidering the arrangement. |
Do not treat a change of company jurisdiction as a shortcut around unresolved operational questions. Ask which identified problem the change would solve and compare it with a narrower response.
The related guides on cross-border contracts, overseas business partners and foreign-company costs can support that preparation. A structural review should connect the documents, budget and real activity rather than treat them as separate projects.
Frequently asked questions
Does weaker Chinese domestic demand mean foreign businesses should leave?
Not automatically. A national assessment does not determine the prospects of a particular customer or product. The IMF identifies both structural pressures and economic resilience; use that context to test the actual business rather than infer one response for every firm. [1]
Is Hong Kong now legally the same as mainland China?
Is reducing risk the same as ending all Chinese relationships?
No. The Commission expressly distinguishes reducing critical dependencies from decoupling. For a business, the practical exercise is to identify unacceptable concentrations and assess proportionate alternatives, not assume that every existing relationship must end. [10]
Does using renminbi remove geopolitical or banking risk?
Conclusion: preserve useful connections, challenge untested assumptions
China’s adjustment, Hong Kong’s evolving role and Europe’s strategic choices should not be reduced to one verdict about winners and losers. The commercially useful question is how they alter an identifiable relationship, obligation or dependency.
The approach advocated here is selective engagement supported by evidence: keep relationships that perform a genuine function, examine concentrations that could stop the operation and document what would justify changing course.
For Europe, that means considering industrial competitiveness alongside security. For a business owner, it means connecting strategy to contracts, people, payments and contingency—not collecting companies in different countries and calling the result diversification.
A sound structure should be explainable under today’s rules and adaptable when the facts change. That is a more defensible objective than a promise of permanent geopolitical protection.
Discuss your China–Hong Kong–Europe business arrangement
Studio Legale Internazionale Bertaggia assists with international ownership structures, governance and corporate coordination. Avv. Daniele Bertaggia leads the legal assessment, supported by Gustavo Scriffignano on international corporate and banking matters. [17]
For an initial review, outline the entities, countries, suppliers, customers and payment flows involved, and identify the decision you need to make. The engagement can then define the documents and appropriately qualified local, customs, tax or regulatory professionals required. A review need not lead to forming another company.
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Editorial notice: General geopolitical, commercial and regulatory analysis, not individual legal, tax, investment or export-control advice. Institutional views are attributed; policy intentions are distinguished from implemented rules. Scenarios and business examples are hypothetical. Applicability depends on the actual entities, transactions, goods, activities and jurisdictions. No business return, tax saving, bank acceptance or immunity from regulatory change is guaranteed.
Sources and further reference
Sources checked on 29 September 2026. Institutional assessments and policy statements retain their stated dates and scope.
[1] International Monetary Fund: 2025 Article IV consultation with China, released 18 February 2026.
[2] State Council of China: China to boost consumption in the 15th Five-Year Plan period, 14 July 2026.
[3] European Central Bank: Economic Bulletin, Issue 6/2026 — external environment.
[4] European Central Bank: Which countries are most vulnerable to the industrial rise of China? Mapping Europe’s uneven exposure.
[5] Hong Kong Basic Law: Chapter I, particularly Articles 1, 8 and 9.
[6] Hong Kong Basic Law: Chapter V, particularly Articles 108, 112 and 116.
[7] Hong Kong SAR Government: 2026 Policy Address, Chapter III — International Financial Centre.
[8] European Commission and High Representative: Hong Kong Special Administrative Region: Annual Report for 2025, JOIN(2026) 22 final.
[9] Hong Kong SAR Government: Response to the European Commission annual report, 23 September 2026.
[10] European Commission, DG Trade and Economic Security: EU trade relations with China.
[11] European Commission / European External Action Service: 2026 State of the Union address, 16 September 2026.
[12] Reuters: China supports investment by its automakers in Europe, commerce minister says, 22 September 2026.
[13] European Central Bank: Scaling up European firms: the case for an EU company law regime.
[14] U.S. Bureau of Industry and Security: Hong Kong export controls.
[15] European Commission, DG TAXUD: Non-preferential rules of origin.
[16] European Commission, DG Trade and Economic Security: Exporting dual-use items.
[17] Bertaggia International Law Firm: International company formation: services and professional responsibilities.
[18] Bertaggia International Law Firm: Our Team: Gustavo Scriffignano.