The recent EU-China Summit, held in late July, highlighted once again the persistent gap between political expectations and economic cooperation. While Brussels reiterated its concerns on issues such as market access, industrial overcapacity and fair competition, the China side emphasized the need for dialogue, mutual respect and practical cooperation.
According to China's foreign affairs spokesperson, the two sides reached a certain degree of consensus, including commitments to continuing discussions on multilateralism, free trade, and the resolution of specific trade frictions. However, from a European perspective, the overall outcome appeared modest, as calls for stronger guarantees and structural adjustments were not fully met.
Although the relationship is destined to remain fundamentally shaped by deep economic interdependence, the European Union's framing of it as a strategic rivalry is increasingly driven – unfortunately – by a widening knowledge gap on the European side.
However, while trying to assess what is really happening on the field, it is becoming increasingly evident that the gap between official rhetoric and actual dynamics is growing. From this perspective, the persistence of European corporate investment in China – particularly in Shanghai – comes as no surprise.
Indeed, Shanghai illustrates how economic logic continues to override political caution. While policymakers in Brussels speak of reducing risk exposure, many European companies are doubling down: Volkswagen, Airbus, BASF, L'Oréal – to name only a few – are not only maintaining but expanding operations in the city. Far from retrenching, they are adapting to the Chinese market through deeper localization and stronger engagement with municipal authorities.
This "Shanghai paradox" – political disengagement at the strategic level, economic entrenchment at the operational level – is essential to understanding the real trajectory of EU-China relations.
Shanghai: strategic infrastructure for European business
Shanghai occupies a unique position in China's economic geography. As a financial center with world-class logistics, digital and R&D infrastructure, it offers an ecosystem that is difficult to replicate elsewhere in China – or Asia. For European firms, Shanghai represents not only a market but also a strategic base for regional operations, innovation and partnerships.
The city's cosmopolitan orientation, transparent local governance, and advanced industrial base make it particularly attractive for companies seeking stability amid rising geopolitical uncertainties. Local authorities have maintained open channels with foreign business chambers and embassies, offering targeted incentives and regulatory clarity that contrast sharply with the perception of an increasingly hostile national environment.
Moreover, cooperation with Shanghai as a subnational actor allows European businesses to engage China pragmatically without drawing the full attention of national-level scrutiny or media backlash. Within the EU, all member states – except for the Czech Republic – have indeed expressed interest in sustaining commercial ties with China, similar to the approach that, despite all rhetoric, Donald Trump's America seems also willing to endorse.
By EU companies' standards, Shanghai is perceived almost as a country of its own, enabling a flexible, discreet, and operationally efficient mode of engagement.
European industry footprint: deepening, not withdrawing
European companies in Shanghai have responded to global uncertainty not by retreating, but by adapting. Four emblematic cases illustrate this pragmatic engagement.
Volkswagen's joint venture with SAIC in Shanghai is one of its most important global operations. Despite growing calls in Germany to diversify away from China, the company has doubled down on electric vehicle production in Shanghai, launching new EV models tailored for the Chinese market. It has also expanded R&D activities to better integrate with local supply chains and consumer preferences.
Airbus has also chosen Shanghai for its business coordination and high-level negotiations although its final assembly line is located in Tianjin. The company has benefited from Shanghai's strong aerospace ecosystem and its facilitation of European-Chinese cooperation in civil aviation. Rather than seeing de-risking as a barrier, Airbus views Shanghai as a platform for controlled engagement.
German chemical giant BASF has also significantly increased its footprint in Shanghai, opening a new innovation hub and strengthening its collaboration with local research institutions. BASF's strategy focuses on localizing production and innovation to ensure operational continuity and supply chain resilience – a form of internal de-risking, managed from within the Chinese context.
L'Oréal's China headquarters are also in Shanghai, from where it orchestrates advanced marketing strategies, product development, and AI-based consumer analysis. The company sees China not only as a market but also as a global innovation driver. Its Shanghai operation is now a testing ground for digital solutions later exported to other markets.
Generally speaking, EU firms arriving in Shanghai today are often struck by the level of innovation embedded in the Chinese market. From digital payment ecosystems to e-commerce infrastructure and AI-driven retail, Shanghai offers a window into the future of consumer markets. Rather than retreating, these companies are exploring ways to absorb, adapt, and incorporate this innovation into their business models – often with tangible results.
Although it is a fact that the EU's de-risking agenda is rooted in legitimate concerns such as technological dependency, asymmetric market access, and the weaponization of interdependence, most European companies are also aware that they do not have the capacity to compete with their Chinese counterparts. Therefore they prefer exploring new forms of "cooperative development" and emphasize the debate on property rights and regulations.
None of them considers exiting China as a good or viable idea. On the contrary, they are soliciting experts and consultants to favor the enhancing of compliance, to diversify suppliers, and to increase localization of both production and personnel. In doing so, they aim to create internal buffers against external shocks, reducing exposure without forfeiting market access.
Shanghai plays a pivotal role in this logic. Its urban ecosystem allows companies to consolidate their Chinese operations in a relatively predictable environment, while still aligning with EU-level demands for more responsible engagement.
Shanghai as Europe's economic interface with China
The relationship between Europe and China is increasingly defined by asymmetric interdependence. European firms depend on China for growth, innovation and scale; China depends on them for jobs, quality control, and reputational legitimacy. In this delicate balance, Shanghai seems more and more comfortable in acting as an interface: an urban node where this dependency can be managed pragmatically.
Indeed, rather than viewing the Europe-China relationship in strictly bilateral or state-to-state terms, Shanghai suggests a third axis: the urban-industrial interface.
Cities like Shanghai enable a form of structured engagement that bypasses some of the frictions at the national level. This opens up the possibility of a more granular, polycentric diplomacy of economic relations, where city-level dynamics shape international outcomes. It would be ideal for both EU countries and Shanghai to see the latter pragmatic approach endorsed by other cities in China, creating room for the emergence of other local platforms for constructive engagement, where economic pragmatism and strategic caution can coexist.
Rather than imposing top-down prescriptions, Brussels would do well to integrate insights from businesses and cities alike – especially those that continue to demonstrate that engagement with China is not only possible but essential for their economic survival.
(The author is a Paris-based independent researcher. The views are her own.)