While factories in Europe are extinguishing lights one by one, production lines in the East are roaring all night long.
On May 28, 2026, six countries including Bulgaria, the Czech Republic, Greece, Poland, Romania and Slovakia jointly issued a warning: If the EU carbon emissions trading system cannot be adjusted immediately, Europe will face the risk of “deep deindustrialization” and the loss of strategic autonomy.
This is not alarmist.
The six countries went straight to the core of the problem. The European Commission plans to reduce free emission quotas by up to 50%, and the new emission limits based on the “greenest 10% of factories” are “technically impossible to achieve.”
Many affected industrial facilities still rely on fossil fuels to generate heat due to technical limitations or the lack of economically viable alternatives that can be scaled up at scale.
In other words, the EU is asking companies to complete “physically impossible” tasks, and the consequences are already showing.
Between 2022 and 2025, the closure of production capacity in the European chemical industry surged six-fold, with a total of 37 million tons of closures, accounting for approximately 9% of Europe’s total chemical production capacity.
BASF has closed its German factory, Dow has closed its Dutch installation, and Ineos has closed the last synthetic ethanol plant in the UK. This is an industrial retreat that is taking place.
Europe’s share of global GDP has dropped from 25% in the early 21st century to 15% in 2025. Former European Central Bank President Mario Draghi warned that Europe will face “slow pain” if structural deficiencies cannot be addressed.
But “Europe’s pain” may just be “China’s opportunity.”
The following three industries will become the biggest beneficiaries in this great industrial migration of “Europe retreats and China advances”.
1. Chemical industry: Europe closes factories, China expands production
The chemical industry is the epicenter of this “de-industrialization” storm.
The European chemical industry cannot bear the burden because of three overlapping pressures: First, energy costs are out of control.
After the Russia-Ukraine conflict, natural gas prices in Europe soared. Even if they fall back, European industrial energy costs will still be 2-3 times that of the United States in 2025. In the first half of 2025, EU wholesale electricity prices rose 30% year-on-year to US$90/MWh, which is about 1.5 times that of China.
Second, the shackles of carbon tax are heavy.
Europe has long implemented the world’s most stringent carbon emissions regulations, and compliance costs continue to rise.
Jim Ratcliffe, chairman of INEOS, said bluntly: “High energy prices and carbon taxes have made our production in Europe no longer economical.” Third, capital is fleeing at an accelerated pace.
European chemical capital expenditures will only be about 1.5 billion euros in 2025, a 81% drop from 2022, which means that the shut down production capacity “will most likely not come back in the short term.”
From specific data, Germany has shut down 8.8 million tons of production capacity (accounting for 25%), the Netherlands has closed 7.2 million tons (accounting for 20%), and the United Kingdom has closed 4.5 million tons (accounting for 12%).
Every time a European factory closes, the market space for Chinese companies is expanding.
ChemChina can take advantage of the scale effect and cost advantage.
The unit cost of China’s integrated refining and chemical units is 30% – 40% lower than that in Europe. In 2025, China will add 10 million tons/year ethylene production capacity and 10.2 million tons/year PTA production capacity.
According to CEFIC data, China’s chemical capital expenditure and R&D expenditure will account for 43% and 32% of the global share in 2023 respectively, placing it in an absolute leading position.
The results have shown that among the 86 categories of major chemical products under key monitoring, 60% of the products will have export volumes in 2025 that are above the 80% percentile level in the past six years, and 40% of them will be at the 100% percentile level.
2. New energy vehicles: European production capacity is idle and China is exporting in the opposite direction
If the chemical industry is “Europe retreats and China advances”, then the automobile industry is “Europe invites China and China advances”.
The European automobile industry is facing an unprecedented overcapacity crisis. Stlantis Group’s production capacity in Europe is at least 800,000 units higher than actual sales.
In 2024 alone, the auto parts industry will lose 54,000 jobs, and another 22,000 will be lost in the first half of 2025.
The British “Daily Telegraph” reported that European car manufacturers have begun to sell semi-idle factory capacity space to their Chinese counterparts. Chinese brands such as BYD, Geely, Dongfeng, Chery and Leapmotor can use such cooperation to reposition themselves as “local manufacturers.”
There are many specific cases, such as Stlantis’s factory in Rennes, France, which will establish a joint venture with Dongfeng Motor.
Market data is equally astonishing. In November 2025, Chinese brands’ share of the European electric vehicle market reached a record 12.8%, and the hybrid vehicle field exceeded 13%.
In 2025, the sales of electric vehicles of Chinese brands in Europe will increase by 18.47% year-on-year, and the market share will rise to 16.55%.
The steady-state share of Chinese cars in the European market is expected to be 25% – 35%, and sales of 3.5 million – 5.5 million units are expected.
In 2025, the EU exported 16 billion euros of cars and parts to China, a plunge of 34%; while the EU imported 22 billion euros of cars and parts from China, an increase of 8%, and the trade flow was completely reversed.
What deserves more attention is the upgrade of the model. From “product output” to “capacity output”, the total amount of China’s “greenfield investment” in Europe in 2025 will be close to 9 billion euros, an increase of 51% from 2024. In the automotive-related fields alone, the investment amount will reach 7.6 billion euros, of which more than 90% is concentrated in the electric vehicle industry chain.
3. Mechanical and electrical equipment and industrial robots: from “chasers” to “net exporters”
In addition to the chemical industry and automobiles, electromechanical equipment and industrial robots are also benefiting industries.
Data from the German Machinery and Equipment Manufacturing Federation show that over the past six years, China’s machinery exports to Europe have nearly doubled to about 40 billion euros, and are likely to reach 50 billion euros in 2026.
What is more critical is the qualitative change. China’s capital goods are on average 30% cheaper than Europe, and “Chinese manufacturers have closed the quality gap.”
The field of industrial robots is particularly eye-catching. In 2025, China’s industrial robot exports increased by 48.7%, surpassing imports for the first time and becoming a net exporter of industrial robots.
In the first half of the year, exports of industrial robots to the EU grew by 81.9%, and the European market’s share of China’s robot exports increased to 28.3%.
In the first 11 months of 2025, China’s exports of industrial machinery and equipment to Europe were US$89.38 billion and electrical equipment exports were US$135.99 billion, accounting for more than 45% of China’s total exports to Europe.
China’s exports of mechanical and electrical products to Germany amounted to US$85.05 billion, a year-on-year increase of 12.5%.
Europe’s deindustrialization is a structural decline.
The China Chamber of Commerce in the European Union estimates that between 2026 and 2030, if Chinese suppliers are forcibly replaced in 18 key areas, the EU will spend an additional 367.8 billion euros.
This “power transfer” in the global manufacturing industry is taking place before our eyes.
