Policy Direction Set: The Central Economic Work Conference (CEWC) held on December 10–11 set the tone for 2026, prioritizing "quality development" (高质量发展) and explicitly calling to "stop the decline" in investment. Beijing signaled it will maintain a "necessary fiscal deficit", likely exceeding the conventional 3% cap, but will avoid large-scale stimulus.

EU Trade Defense Escalates: Brussels is accelerating its use of economic security tools, launching FSR probes against Chinese e-commerce giant Temu (raided in Dublin) and security firm Nuctech, signaling a firm approach to foreign state subsidies.

Export Dependence Exposed: China’s record $1.08 trillion trade surplus for the first 11 months of 2025 highlights the widening gap between resilient exports and persistent domestic weakness, which is fuelling trade tensions with the EU.

Story: The CEWC, chaired by President Xi Jinping, concluded by confirming priorities for 2026, marking the start of the 15th Five-Year Plan. Leaders affirmed the core economic strategy of accelerating the construction of a new development pattern and promoting "high-quality growth." Policies will focus on expanding domestic demand (specifically targeting cultural tourism and the energy transition to stimulate retail) and supporting high-tech innovation. Beijing will implement "more proactive macroeconomic policies" with a likely higher fiscal deficit but avoids massive, wide-scale stimulus.

Why it matters for China–EU economic or political relations: This signals persistent external trade reliance. By eschewing large-scale consumer stimulus, Beijing confirms its growth strategy will continue to lean heavily on manufacturing exports and technological upgrading. This path directly contributes to the widening trade imbalance and heightens the risk of EU anti-subsidy actions, as Europe fears China will use its high-tech output (like EVs and batteries) to "export its overcapacity" into the European single market.

Story: The European Commission is moving from identifying risks to actively reducing them. This week, EU regulators raided Temu’s Dublin headquarters near St Stephen's Green under the Foreign Subsidies Regulation (FSR), amid concerns about state-backed subsidies distorting the EU single market. Separately, an in-depth FSR investigation was announced into security firm Nuctech. Additionally, the EU is moving to implement a three-euro flat fee on small, low-value parcels, part of a broader plan to abolish the €150 customs duty exemption entirely by late 2026, targeting platforms like Temu and Shein.

Why it matters for China–EU economic or political relations: This marks a decisive shift toward confrontational de-risking. The use of unannounced FSR raids against a massive e-commerce player like Temu signals the EU is moving beyond rhetoric into active economic security enforcement. The simultaneous investigations into logistics (Temu) and sensitive technology (Nuctech) confirm Brussels' intention to protect both its retail and critical infrastructure sectors from perceived state-backed advantages, escalating political friction with Beijing.

Story: For the first time since the late 1980s, China’s total investment across new factories, infrastructure, and housing is expected to fall this year (Fixed-asset investment dropped 1.7% year-to-date through October). At the CEWC, leaders explicitly pledged to "promote the stabilization and recovery of investment" to halt this decline. The weakness stems from the property crisis, local government debt, and anti-neijuan industrial policies.

Why it matters for China–EU economic or political relations: This decline reinforces export dependency and overcapacity. Since investment accounts for a significant share of China’s GDP, the domestic slowdown forces policy-makers to rely even more heavily on exports to meet growth targets. This creates global disinflationary pressure and floods international markets with Chinese goods—the core dynamic driving the "unbearable" trade imbalance cited by French President Macron and fueling the EU's escalating trade defense measures.

Story: Following high-level talks, analysts predict the India-EU free-trade agreement (FTA) is nearing the finish line and could be concluded within months, driven by mutual goals to secure supply chains and reduce volatility. The main remaining hurdle is the EU’s Carbon Border Adjustment Mechanism (CBAM), which India views as a "disguised tariff barrier." However, recent leaks suggest a breakthrough is imminent, with Brussels potentially offering a longer transition period or technical assistance to Indian MSMEs to ease CBAM compliance.

Why it matters for China–EU economic or political relations: The anticipated FTA success accelerates strategic decoupling from China. A successful and comprehensive deal with India provides the EU with a massive alternative manufacturing and procurement hub, significantly aiding the bloc's stated "de-risking" policy. By deepening ties with a major democracy in the Indo-Pacific, the EU simultaneously reduces its economic leverage over China and secures diversified, resilient supply chains.

CEWC Policy Execution: Look for follow-up announcements from the NDRC (National Development and Reform Commission) and the PBOC (People's Bank of China) detailing the mechanisms for increasing central government budgetary investment and implementing new consumer/business support packages, as directed by the CEWC.

The "Chinese Nvidia" Steps Up: Watch for the MUSA Developer Conference (Dec 19) where Moore Threads, a major AI chipmaker, is set to unveil its next-generation architecture for GPUs and a new product portfolio. With a reported $1.1bn valuation, the market is watching this event for signs of how Beijing plans to circumvent H200 restrictions and accelerate indigenous chip development.

Legislative Calendar: The NPCSC is scheduled to meet for its next regular session in late December. We should monitor the final review and passage of bills that closed public comment in November, particularly drafts related to the Ecological and Environmental Code and Cultivated Land Protection and Quality Improvement Law.