Sino-European trade looks beyond goods

Trade relations between China and the European Union are feeling the heat following the release of the latest customs data in mid-July.

In the first half of 2026, China's trade surplus in goods with the EU climbed to a record high.

Yet the broader picture tells a more nuanced story. For example, a considerable share of China-EU trade is generated by European companies operating in China, with 40 percent of their output exported back to Europe, leaving China with the surplus and the EU with the profits.

Nor should it be overlooked that the EU has long maintained a surplus in services trade with China. In 2025, China's services trade deficit with the EU reached $48.3 billion, accounting for 41.6 percent of its total services trade deficit, according to Chinese authorities. The EU was, therefore, China's largest source of such a deficit.

With China's 15th Five-Year Plan (2026–30) explicitly calling for a better balance between imports and exports, as well as an expansion of trade in services, experts said there remains immense potential for win-win cooperation in the sector, which could help grease the wheels of bilateral ties.

Alex Zhou, a consultant at China Macro Group, a macroeconomic consulting and research company with offices in Zurich, Munich, and Beijing, said the precise wording in the document is key to understanding the depth of China's commitment.

"It is a pragmatic response to current geopolitical headwinds, while also reflecting China's own needs at its next stage of development. China is seeking to transition toward a growth model driven more by domestic demand, rather than relying heavily on external markets amid growing geopolitical uncertainty," he said.

"Imports then become increasingly important, because in many areas, including services, the domestic supply of high-quality offerings remains insufficient, which leaves room for European providers to play a greater role."

Betty Wang, head of Northeast Asia research at United Kingdom think tank Oxford Economics, noted that services accounted for nearly 58 percent of China's GDP and close to half of total employment in 2025. These figures demonstrate the sector's already substantial role in driving growth and stabilizing the job market.

Yet its share of economic output remains below the 70 to 80 percent typically seen in developed economies, suggesting that the shift still has further to run.

Media headlines tend to focus heavily on goods trade, partly because tangible products, particularly those linked to national security, make for more eye-catching figures, Wang said. Services, along with the sheer size of China's untapped market, tend to fade into the background.

Beyond factory floor

In many types of services, experts see ample scope for the EU to export more producer services to China. While both are manufacturing powerhouses, European manufacturing is more service-oriented.

The more sophisticated manufacturing becomes, the more it relies on services. Wang pointed to the automotive industry as an example.

When a German carmaker invests in China, it sells more than vehicles alone. Engineering services design how each stage of assembly fits together. Industrial software coordinates the machinery and workers. Supply-chain and logistics optimization ensure that thousands of components arrive where and when they are needed.

After a car goes on sale, services continue throughout its lifecycle, including maintenance, infotainment system updates, and more.

"Knowledge-intensive producer services tend to have higher labor productivity than traditional services. They can therefore contribute not only to economic growth, but also to improving the overall quality of that growth," Wang said.

Zhou added that a big share of the revenue in European manufacturing often comes from value-added services, as well as the proprietary know-how embedded in them. Even when service providers do not make the products themselves, they retain a sizable economic return through IP licensing.

In China, services accounted for only 26 percent of the value-added inputs in manufacturing's total backward linkages. That compares with more than 41 percent in Germany, another major manufacturing economy, according to OECD data cited in a 2019 report jointly produced by the World Bank Group and China's Development Research Center of the State Council.

The figure suggests a "weak linkage" between services and manufacturing in China, the report said.

China needs not only to learn from Europe how to deepen such linkages, but also to embrace the "awareness" underpinning them, Zhou said.

"You cannot simply sell a product and think that is the end of it."

Lay of the land

And as successive waves of Chinese companies go global, professional services could offer another avenue for cooperation, experts said.

Regulatory environments in Europe can be far more multilayered and complex, spanning taxation, employment, data protection, environmental standards, competition law, and corporate responsibility, before companies even turn to marketing and branding.

Miguel Otero-Iglesias, a professor of practice in international political economy at Spain's IE University and a senior analyst at Elcano Royal Institute, said: "It is a whole different political, social, legal, and media environment. You seek out local partners because you are out of your depth … This is a revolution that a lot of multinational corporations have experienced before. The Americans did it before, the Japanese did it before."

Businesses may naturally want domestic professional-services companies to follow them, and China is seeking to build its own "China Services" brands. But on-the-ground expertise is only part of the equation, Wang said, as European regulators are often more accustomed to working with local advisers, making such interactions more familiar and smoother.

What also sets Europe's professional-services sector apart is a track record built over decades of helping its companies at home build an international presence, Zhou said.

"They have learned which pitfalls to avoid, with those lessons embedded in their institutional knowledge. That accumulated expertise is extremely valuable to Chinese companies."