Will markets surge? Tension mounts as EU and China chat

News.com.au

24-07-2025

As China and the European Union engage in their 25th high-level summit in Beijing late this week, a delicate dance is unfolding.
Fifty years of official ties hang in the balance, with both sides cautiously testing the limits of cooperation.
Talks were initially scheduled in Brussels but were quickly truncated, which is an unmistakable signal that the relationship is strained.
These aren't academic nuances. The EU has shut Chinese firms out of bidding on public tenders exceeding €5 million, covering some €60 billion annually, on grounds of unfair domestic procurement barriers in China.
Beijing hit back by barring EU-made medical devices from Chinese public contracts over RMB 45 million ($6.3 million) and slapped hefty levies on brandy and certain food exports.
Amid these titâ€'forâ€'tat moves, including antiâ€'dumping probes, EV tariffs, rareâ€'earth export controls, momentum is shaky.
Markets hate uncertainty. They crave a stable roadmap. Tariffs, bans, and retaliatory duties are precisely the variables that feed volatility.
If this summit yields a clear ceasefire in trade restrict ions, particularly in medical devices, autos, and rare earths, the payoff could be swift.
European and Chinese equities would rally; supply chains that have been rerouted for risk avoidance might realign for efficiency. Investors would interpret that as a signal: despite ideological differences, constructive engagement remains viable.
On the other hand, if Beijing and Brussels reaffirm their bargaining stances without tangible easing, equities could crack.
China's medicalâ€'device shares, already under pressure, would slump further. Europe's medâ€'tech sector stands to lose momentum despite EU protective measures, which may not insulate them entirely if Chinese market access contracts deeper.
Meanwhile, EU auto and rare earth sectors, already in the crosshairs of Chinese retaliation, would be cautious, dragging industrial benchmarks lower.
Supply chain confidence
Multinationals in automotive, health tech, renewable energy: they've been diversifying production away from China, at significant cost.
A summit that acknowledges reciprocity, embedded in the EU's IPI initiative, could slow that flight, preserve European jobs, and reduce capital expenditure on manufacturing shifts. This uptick in industrial activism would flow into equity prices.
Financial flows and FDI
China is Europe's largest source of foreign capital in certain niches, while the EU is critical for Chinese investment in renewables and high-end manufacturing. Easing restrictions on procurement and curbing anti-dumping probes would unlock previously frozen deals.
This alternative capital entry could buoy both EUR assets and Chinese yuanâ€'linked equities.
Geopolitical narrative versus economic logic
Brussels has grown sceptical of Beijing's stance on Ukraine, dualâ€'use exports, and climate honesty.
However, economics can override posturing. If leaders emphasize mutual dependency, rare earths for Europe, medâ€'tech for China, it resets rhetoric. Reset or escalation will be broadcast globally, and markets will respond accordingly.
Sentiment ripple effects
A recovery in global risk appetite could lift commodities, emerging markets, and cyclical sectors. Renewed trade momentum might even pressure USâ€'China tensions, prompting a broader regional thaw. But should the summit fracture badly, a riskâ€'off wave could sweep markets, collapsing industrial indexes and pushing safe-haven flows into bonds and gold.
Both sides signal caution. China's commerce ministry labelled EU procurement curbs 'necessary' but 'regrettable,' and praised its own policy as measured.
The EU likewise calls for fairness, not confrontation—but insists on reciprocity.
Neither side seems predestined to yield ground.
For investors and business leaders, Beijing's summit – even more than the USâ€'China saga –could be the pivot point of 2025.
A breakthrough would send equities roaring back; even partial progress would steady markets. It could also give breathing space to firms that have spent months hedging geopolitical risk, encouraging renewed capital deployment.
But stall, standâ€'off, or frigid statements on rare earth export curbs or dualâ€'use technology, and we could see equities hit the skids by week's end. Even central bank forecasts might adjust if growth expectations dim.
The summit won't be retail theatre. There will be no sweeping announcements or flashy deals.
What matters is tone – are leaders calm and collaborative, or tense and distant? Subtle shifts in communiqués, press briefings, joint statements will matter. Analysts are watching carefully: will Procurement Ministers meet China's counterpart? Will stateâ€'owned bids move forward? Will linguistic nuance cool or inflame?
The fate of portfolios may hinge on diplomatic rhythm. If Friday's bulletins hint at thaw, markets will rally. If they echo last month's righteousness, markets might roll.
On balance, the potential upside seems greater – and more urgent – than the downside. A summit that edges ahead, even modestly, could catalyse auto, medâ€'tech, and commodity sectors into sustained recoveries.
But a failure to clear trade barriers would chill overconfidence across global markets.
The clock is ticking. By the end of this week, markets will know: did Beijing and Brussels pivot or just posture?
The verdict will echo across trading floors, and boardrooms. The summit is not about symbolism, it's about signal, and markets will interpret it fast and unforgivingly.
Nigel Green, is the group CEO and founder of deVere Group, an independent global financial consultancy.
The views, information, or opinions expressed in the interviews in this article are solely those of the author and do not represent the views of Stockhead.