In "revenge" against China, the EU's new policy to attract industries requires technology transfer.

A month after the European Commission formally presented the Industrial Accelerator Act (IAA), which aims to reverse the process of deindustrialization in the bloc, the main target for attracting foreign investment – China , the European Union 's largest trading partner – has already made it clear that it does not accept the main conditions stipulated by the law for establishing cutting-edge industries in the region.

Before the new law was announced, the Chinese government encouraged the establishment of Chinese-owned factories in Europe in order to diversify supply chains and avoid EU tariffs and other market barriers.

With the new law, the tone changed. China reacted with indignation to what is considered the most controversial point of the bloc's new industrial policy, which appears to have been created to prevent the European Union from becoming an assembly line for Chinese products.

This refers to the clause that allows member states of the bloc to veto any foreign direct investment (FDI) exceeding €100 million in strategic sectors if the investor is from a country with more than 40% of global production capacity.

These sectors include batteries, electric vehicles, solar panels, and the extraction and processing of critical raw materials—areas in which China dominates the global market.

To obtain approval, investment projects must fill at least half of their jobs with EU workers and meet at least three of five other conditions. One of these is that the investment must be made through a joint venture. Another is that the foreign partner must not hold more than 49% of the company—which should deter interest from several Chinese companies.

Other conditions include the controversial licensing of intellectual property rights, the investment of 1% of revenue in research and development in the EU, and the publication of a strategy to obtain 30% of inputs from the bloc.

In practice, the EU's new industrial policy replicates the same impositions made by the Chinese government in the 1980s on American and European manufacturers who wanted to set up factories in China. In exchange for access to the world's largest consumer market, the Chinese regime forced foreign industries to share technology, train Chinese workers, and buy local components.

Irritated by the demands, China's Ministry of Commerce accused the EU of "building walls and barriers and practicing protectionism." In the Chinese government's view, the International Agreements Law will further increase uncertainty for Chinese companies in the EU, and it vowed to take measures to protect its "legitimate rights."

Not even the main concession stipulated by the new legislation satisfied China: access to EU public funding for companies that meet its requirements. European analysts assert that, without this financial support, the relatively high labor costs in Europe, compared to China, make many industrial investments unfeasible.

Investments are on the rise.

Prior to the enactment of the legislation, Chinese foreign direct investment (FDI) in Europe had recovered over the past three years, following a seven-year decline. Much of this investment was concentrated precisely in areas where China possesses cutting-edge technology, essential for Europe to secure its industrial future: clean energy, electric vehicles, and batteries.

According to the Rhodium Group, investment in new factories in Europe reached almost US$12 billion last year, triple the amount recorded in 2022.

The question is whether the Chinese government will allow industries from the Asian country that have been announcing investments in the European bloc to share their intellectual property – a crucial point, given that the total flow of bilateral trade (exports and imports) between China and the EU was €732.2 billion in 2024, the latest available data.

CATL , for example, is building a €4 billion factory for electric vehicle batteries in Spain in partnership with Stellantis. Although the Chinese company has stated it is ready to train local workers and assist European battery manufacturers, EU unions have doubts about its willingness to allow a genuine transfer of technology.

The main objective of the new law is to boost European employment and industrial production. The Made in Europe initiative emerged with an ambitious goal: to raise the share of the manufacturing sector in the EU's GDP to 20% by 2035. This share fell from 17.4% of EU GDP in 2000 to 14.3% in 2025.

The measure comes after the elimination of 200,000 European jobs in energy-intensive industries and the automotive sector since 2024, with a projected loss of 600,000 jobs in car manufacturing alone this decade, as China floods Europe with exports and builds factories that generate few local jobs.

"Faced with unprecedented global uncertainty and unfair competition, European industry can rely on the provisions of this law to boost demand and ensure resilient supply chains in strategic sectors," said Stéphane Séjourné, European Commissioner for Industry, when presenting the Industrial Accelerator Act to the EU's executive body in March.

It is no coincidence that the strategy prioritizes three strategic sectors: clean technologies, automobile manufacturers, and energy-intensive industries such as aluminum, steel, and cement.

The law introduces limits for the "Made in Europe" label, including a requirement of 70% EU content for electric vehicles – with notable exceptions for most battery components –, 25% for aluminum, and 25% for cement.

Delay

The new industrial policy, however, still needs to be discussed and approved by the European Parliament and the EU Council, composed of ministers from the bloc's governments. Judging by the criticism within the bloc, the package is likely to undergo changes, which should delay its entry into force.

A group of Nordic and Baltic countries warned that the new rules could harm investment and limit EU countries' access to foreign technologies. Europe, for example, is at least a decade behind China in renewable energy manufacturing, particularly in battery energy storage, where China dominates with over 80% of global battery production.

“The transition to local manufacturing is far more complex than simply implementing a policy,” warned Sarah Montgomery, CEO and co-founder of Infyos, an AI-powered supply chain due diligence and risk management platform.

Milan Nedeljković, the future CEO of German automaker BMW, described the legislation as "useless." "Its focus on 'made in Europe' has neglected the supply chains of European companies in other regions," he stated. "This will lead to less innovation, lower growth, and ultimately, reduced prosperity in Europe."

An analysis by the Industrial Policy Lab (IP Lab) at the Kiel Institute for the World Economy in Germany concludes that the Made in Europe initiative is ambitious but has fundamental weaknesses. "What's missing is a consistently future-oriented perspective," says Finn Ole Semrau, one of the study's authors.

According to him, the target of 20% of GDP for the manufacturing sector is particularly critical. "Other sectors, such as high value-added services, could equally create new jobs and boost competitiveness," said Semrau.

Amid so much uncertainty, there is a glimmer of hope for Brazil and the Mercosur countries. The European Commission has proposed extending the EU's origin status to products from trading partners with free trade agreements that apply reciprocity, particularly in public procurement contracts.

Access to this benefit, however, depends on the formal signing of the agreement between the European Union and Mercosur, as well as the entry into force of the Industrial Accelerator Law, which has no set date.