Rentier capitalism and the hollowing of Europe's industrial core

Editor's note: Warwick Powell is an adjunct professor at Queensland University of Technology. This article reflects the author's opinion not necessarily those of CGTN's.

For the past several years, a widely repeated but simplistic narrative has gripped the corridors of power in Brussels, Paris, and Berlin. The story goes that Europe's automotive and industrial sectors are under siege from a so-called "China Shock," driven by heavily subsidized, state-backed Chinese electric vehicles and clean-tech exports. The response is a defensive wall of tariffs, regulation and protectionism.

This narrative is misplaced. Europe is not facing an external shock; it is experiencing a self-inflicted industrial slowdown. What is framed as unfair competition is the outcome of decades of de-industrialization by financial design.  European industrial capital has been steadily subordinated to short-term shareholder returns, stock buybacks and dividend payouts. Now that Chinese private firms have out-innovated and out-scaled Western legacy brands, European policymakers are turning to protection.

Protectionism will restore competitiveness. It risks turning Europe into an industrial museum. Conversely, coercing Chinese companies into technology transfer is unrealistic. Europe lacks leverage. The more viable path is to attract capital and investment through stable frameworks such as a revitalized Comprehensive Agreement on Investment (CAI).

The two eras: From student to competitor

To understand the shift, one must trace Europe-China industrial relations since 1984, when Volkswagen formed Shanghai Volkswagen. At the time,  China was poor, industrially weak, and without a private auto market.

For three decades, the relationship was broadly asymmetric. European firms extracted significant value through joint ventures while assuming permanent dominance in design, engineering, and intellectual property. China remained the assembly base.

Around 2015, this shifted. China pivoted toward New Energy Vehicles (NEVs) under the Made in China 2025 strategy, building integrated ecosystems in batteries, EVs, and clean-tech supply chains.

Today, Chinese private firms generate around 65% of export value, while foreign firms' share has fallen to about 22%. The industrial balance has fundamentally shifted. Chinese automakers such as BYD, Chery, and SAIC are now exporting EVs and plug-in hybrids into Europe, combining scale, battery leadership, and manufacturing integration.

The revenge of the rentier

The deeper transformation is internal to Europe.

Over the past two decades, European industrial firms have increasingly prioritized financial returns—share buybacks, dividends, and capital optimization—over reinvestment in productive capacity.

This rentier model has weakened industrial ecosystems. Engineering talent has flowed into finance and consulting. Investment in manufacturing scale, automation, and next-generation technologies has lagged global peers.

Energy liberalization and fragmented infrastructure investment have further increased structural costs, leaving European industry with higher input prices.

Tariffs and defensive trade measures may stabilize margins, but do not rebuild industrial capacity. They risk locking Europe into a high-cost, low-innovation equilibrium.

Europe’s industrial base remains deeply integrated into global trade, including exports of machinery, chemicals, and high-value equipment to China. This limits the effectiveness of coercive trade strategies.

Similarly, attempts to force technology transfer misunderstand global capital mobility. Firms will simply redirect investment to more open markets if conditions tighten.

The path forward: industrial attraction

A more viable strategy is to rebuild Europe's attractiveness as a destination for industrial investment.

The dormant Comprehensive Agreement on Investment (CAI) offers a potential framework for predictable, rules-based engagement.

Already, Chinese EV and clean-tech firms are establishing production in Hungary, Spain, and Poland—not as policy-driven relocation, but as market-driven localization.

The key challenge is scaling this beyond assembly into deeper supply chain integration, where European industry can plug into global manufacturing ecosystems. Europe's industrial future depends less on protection than on productive reinvestment and openness to global industrial flows.

The choice is structural: either continue managing decline through defensive policy, or rebuild industrial capacity through integration into a reconfigured global manufacturing system.

In an era defined by electrification, automation, and supply chain fragmentation, industrial strength is no longer inherited—it must be continuously rebuilt.

(Cover via VCG)