China officially hit its 5% GDP target for 2025, but the victory feels Pyrrhic. The economy is currently running on a single, overheated engine: exports.

Data released this week shows a stark divergence: a record-breaking trade surplus of $1.2 trillion saved the headline growth figure, while domestic engines sputtered. The property sector contracted by 17.2%, and retail sales growth slowed to a crawl of 0.9% in December.

This structural imbalance is creating a dangerous feedback loop. To keep factories humming and employment stable, China is exporting its overcapacity to the world. We see this in the solar sector, where top manufacturers face a combined $5.5 billion loss despite record sales volumes—a classic case of "profitless growth" driven by price wars.

Strategic Implication: This dynamic makes trade conflict inevitable, not accidental. With domestic demand unable to absorb this production, China must export. The EU’s new mandatory telecom ban and looming investigations into EVs and wind turbines are the natural antibodies to this flood of supply. Expect 2026 to be defined by a clash between Beijing’s industrial policy and Western market defense mechanisms.

— Alberto Sperindio

The Story: The European Commission unveiled the "Digital Networks Act" this week, moving to compel EU member states to strip Chinese suppliers like Huawei and ZTE from telecommunications networks and critical energy infrastructure (including solar inverters) within three years. Previously, the EU’s "5G Toolbox" was a voluntary recommendation, leading to uneven adoption across the bloc.

Why it matters: This is a watershed moment for EU-China relations. By targeting not just 5G but potentially solar and legacy networks, Brussels is aligning more closely with US security policy. For European executives, this signals imminent compliance costs and potential retaliatory barriers from Beijing, which has already labeled the move "naked protectionism".

The Story: New data reveals China signed a record $213.5 billion in Belt and Road deals in 2025, a massive 75% year-on-year jump. The focus has shifted from general infrastructure to strategic "megaprojects" in energy (gas and renewables) and mining. Africa saw a 283% increase in engagement, while Central Asian mining deals (particularly in Kazakhstan) surged as Beijing moves to secure critical minerals for its tech sector.

Why it matters: China is effectively "Trump-proofing" its supply chains. By locking in energy and mineral resources in the Global South, Beijing is building resilience against Western trade restrictions while deepening its influence in non-aligned markets.

The Story: Newly re-elected Communist Party Chief To Lam has set an audacious target of 10% annual GDP growth for 2026–2030, significantly above World Bank projections of 6.5%. Simultaneously, Vietnam began construction on its first domestic semiconductor plant, led by state-owned Viettel, to reduce reliance on foreign chips.

Why it matters: Vietnam is aggressively positioning itself not just as a low-cost manufacturing alternative to China ("China Plus One"), but as a high-tech sovereign player. However, the gap between the 10% target and economic reality suggests heavy state intervention and infrastructure spending are imminent, offering opportunities for European construction and tech partners.

This divergence illustrates the involution (intense internal competition) gripping China’s industrial base. Record output is no longer generating wealth; it is destroying capital to maintain market share.

Virkkunen’s framing of security over cost draws a clear line in the sand, indicating that the era of buying cheap Chinese tech infrastructure for short-term savings is politically over in Europe.