The EU and China have “reached an understanding” that will see a halving of Chinese hybrid car exports to Europe, according to officials who have just wrapped up talks in Beijing aimed at calming an escalation in trade tensions between the two sides.

The core of this dispute is China’s massive trade surplus with the EU, reaching €360 billion ($405 billion) in 2025, more than double 2020 figures. Of particular concern to Brussels is the huge number of hybrid and electric vehicles China has been exporting to European markets. Agreeing to cut the number of cars in half may appear a positive, but from the perspective of European car makers, it could mean that their potential customers may still be enticed away by these more affordable but still high-tech cars—often heavily backed by subsidies. 

China’s trade surplus is not only a problem for the EU, but much of the world is feeling the effects of the huge imbalance as China sells much more than it buys in pretty much all markets. The point of being a member of the WTO was presumably to be part of an interdependent and globally connected world, in which trade it viewed as a win-win for all involved. The question is whether China’s export tsunami is sustainable.

Chinese EVs are continuing to gain to ground in Europe as gas prices hit a record high of €2.30 a litre ($9.91 a US gallon). Battery car registrations rose 62.7% in August compared to the same period last year, with Chinese EVs taking 92% of the new volume. Chinese cars now account for around one in ten of all cars on European roads, despite moves from Brussels to curb the expansion.

The EU is getting tough on Chinese car imports. The bloc has imposed tariffs ranging from 17-35% on Chinese EVs, which is on top of the 10% flat rate for all car imports. Nevertheless, analysts have noted that Chinese manufacturers have largely absorbed those costs, as there has been no significant price increase on the cars since the tariffs were introduced. There is now talk within Europe of also imposing minimum-price agreements, alongside a push towards localization of production, as well as “Made in EU” local-content rules. 

The latter proposal has also caused Brussels to ask the UK to raise its own tariffs on Chinese cars. The UK is seeking preferential treatment under the proposed “Made in EU” rules, but Europe is concerned that may result in the UK becoming a back door for Chinese vehicles to enter the market. Localization may not necessarily be of benefit to Europe’s largest car companies either. Chinese producers have made agreements to set up facilities in Spain, Poland, Hungary and Austria—but for Europe’s car giants in Germany and France, this has the same negative impact on its economy. 

Several Chinese smartphone makers, including Oppo, Vivo and Honor Device, are now integrating agentic AI into the operating systems of their new models in a bid to boost falling sales. The AI agents are able to autonomously carry out tasks across various apps installed on the devices at the request of the user.

Since the OpenClaw craze swept China earlier this year, the country is fast becoming the leading force in agentic AI uptake. AI agents are being integrated into a vast array of apps and devices allowing users to use natural text prompts to carry out all kinds of tasks, such as booking travel arrangements, managing finances and organizing files. 

Giving so much autonomy to AI however, comes with obvious risks. There are numerous cases that have been disclosed by American AI companies such as Anthropic and OpenAI of AI agents going rogue. As a result, regulation of the AI industry is a topic that has garnered much attention in the West these past few weeks. Regulation based upon transparency is a very positive thing when dealing with advanced AI models, regulation in the absence of transparency, however, is concerning.  We have not heard any reports relating to similar problems with Chinese AI—maybe this means there is no problems with them.

The Chinese government has issued an unofficial “window guidance” policy effectively freezing the approval of new energy-storage battery factories, according to inside sources cited by the South China Morning Post. The move—which has been in place since May—comes in response to concerns over vicious price competition and overcapacity, the industry insiders are reported as saying.

This comes in stark contrast to public statements China’s Ministry of Commerce rebutting a recent G20 communique addressing global concerns surrounding “economic imbalances” and excess capacity. The spokesperson, Huang Ling, said that China’s growth in exports reflects global demand and that periodical fluctuations in demand are normal. In July of this year, China’s Vice Commerce Minister, Yan Dong, went further and presented a paper titled “China’s position on the so-called overcapacity issue”, firmly denying the viewpoint that insufficient domestic demand was causing China to dump products overseas.

Despite the strong rebuttals, it is well known that China’s domestic economy is not in good shape, and the trade surplus has been consistently increasing over the past few years. This “window guidance”—a term used to describe guidance or policies delivered from the government to industry without any official announcement or publication—strongly suggests that there is a concern from policymakers regarding overcapacity, and that they are seeking to put a cap on it, at least in terms of energy-storage batteries. 

Canadian sportswear brand Lululemon has reported that its revenue fell 5% year-on-year basis to $2.42 billion, and net income declined 11.3% to $329 million. The company’s top management attributed the losses in a large part to the backlash received after a social media campaign with yoga practitioners on the Great Wall featured a ceremonial drum social media users claimed was Japanese.

Lululemon had previously cited China as its largest growth market, and the sharp reversal following the apparent faux pas highlights the fragility of the Chinese market for foreign brands. It is hard to imagine that in many other countries around the world, a marketing campaign could have such an impact.

Despite the sensitivities, and increasingly blurred boundaries of what is or is not acceptable, China is still too big a market for brands around the world to ignore. Many of the world’s biggest brands have been accused of “hurting the feelings of the Chinese people” at one point or another—it seems to be part and parcel of doing business in China.