The EU's "Made in Europe" new regulations are frequently emerging. How can Chinese companies break through? | Wenhai

Currently, the European Union’s Carbon Border Adjustment Mechanism (CBAM) has been officially in effect for four months. In early March, the EU also released the legislative proposal for the Industrial Accelerator Act (IAA), aiming to achieve “manufacturing return.” How will Chinese companies going abroad to Europe adapt to this series of new regulations?

At the Boao Asia Forum 2026 Annual Meeting held recently, First Financial journalist interviewed Roland Berger’s Global Senior Partner and Head of the Asia Industrial Platform, Xu Jigang. He believes that, in the short term, major industries such as steel and aluminum are well prepared for the formal implementation of CBAM; in the long term, addressing the further expansion of CBAM’s scope requires leading roles from supply chain leaders, and industrial clusters to deepen cooperation in data collaboration.

Regarding the prospects of the IAA, Xu Jigang thinks that the bill still faces legislative and enforcement difficulties, and it is too early to discuss how Chinese companies should respond.

New regulations in place, short-term pressure manageable

After a two-year transition period, the world’s first cross-border carbon pricing system—the EU Carbon Border Adjustment Mechanism (CBAM)—was officially launched on January 1, 2026. Since then, the EU will conduct carbon emissions accounting and declaration management for imported goods in six high-carbon industries: steel, aluminum, cement, fertilizers, hydrogen, and electricity, and will start carbon cost payments from 2027.

Since CBAM’s implementation, how are Chinese companies progressing in compliance? Regarding this, Xu Jigang is quite optimistic. “At least from our observations, the industry as a whole has not shown panic or faced very difficult enforcement. I don’t think so,” he told reporters.

Xu Jigang explained that the first batch of industries covered by CBAM, such as steel and aluminum, are highly concentrated, with leading companies having relatively mature compliance awareness and management systems. Their long-standing data collection and reporting habits help them better handle the scope one direct carbon emissions statistics, scope two indirect emissions from purchased electricity and heat. Due to Europe’s strict trade regulations, these companies and European importers have long established deep collaborative relationships. Plus, after years of preparation, major energy-consuming industries like steel and aluminum demonstrated high readiness when CBAM officially took effect.

Regarding carbon emissions, CBAM offers two calculation paths: one based on “actual emissions” and the other based on “default values.” If companies wish to calculate based on “actual emissions,” they need to accurately understand and define key factors such as the scenario boundaries for calculating carbon emissions. Additionally, to support calculations, companies must have the ability to collect accurate data from suppliers. Moreover, the validity of the calculation results must be verified by third-party organizations approved by the EU. If companies choose the second path, they can save the calculation step but face the EU’s set high default values. A spokesperson from China’s Ministry of Commerce clarified in a press conference on January 1, 2026, that the EU disregards China’s significant achievements in green and low-carbon development, setting notably high default values for the carbon intensity of Chinese products, which will be increased annually over the next three years. This is inconsistent with China’s current actual levels and future development trends, constituting unfair and discriminatory treatment against China.

Furthermore, on the eve of CBAM’s formal implementation, the EU also proposed a legislative draft to expand CBAM’s scope from 2028 to include about 180 downstream products such as machinery, automobiles and parts, and household appliances. Xu Jigang believes that if CBAM’s scope expands to downstream products like automobiles, and if scope three (full carbon footprint) is also included in carbon emissions calculations, compliance difficulty for companies will significantly increase.

Talking about future compliance challenges, Xu Jigang said that, on one hand, the EU expects “chain-leading companies” to play a leading role in tracing the full lifecycle carbon footprint, helping small and medium-sized enterprises in the supply chain establish carbon tracking systems and improve processes to reduce emissions. On the other hand, regional platforms will become increasingly important in supporting common needs of enterprises. If platforms can provide comprehensive data infrastructure, the data produced by companies will be more credible and traceable in future carbon certification or compliance verification. “The future competition will occur between chains and regions,” he stated.

IAA faces legislative and enforcement difficulties

Earlier this month, the EU released the IAA proposal to boost “European manufacturing” and imposed a series of restrictive requirements on foreign investment. According to the bill, foreign companies investing in the four major industries of batteries, electric vehicles, photovoltaics, and key raw materials must face mandatory technology transfer, restrictions on foreign shareholding ratios, local content requirements, and local employment ratios. These restrictions specifically target third-country investors with more than 40% global capacity share in these industries. The bill also explicitly states “EU manufacturing priority” in public procurement and fiscal support projects.

Xu Jigang believes that the IAA is still at the legislative proposal stage and may face challenges within the EU in the future. Moreover, it is difficult for the EU to frequently invoke “ownership and benefit rights” (OBD) or other “penetrative regulations” like the U.S. Department of Commerce in anti-avoidance investigations, because “it’s hard to convince legislative bodies that this is a reasonable setup rather than an emotional vent.”

Within the EU, opinions are divided on this bill. France hopes to limit the scope of “European manufacturing” to the European Economic Area—i.e., the 27 EU member states plus Iceland, Liechtenstein, and Norway—while the current draft also includes countries that have free trade agreements (FTAs), customs unions, or government procurement agreements with the EU. Most member states such as Germany, Sweden, Czech Republic, Estonia, Finland, and the Netherlands have expressed doubts and opposition, fearing that the bill will restrict foreign investment and raise prices.

Xu Jigang believes that even if the bill is ultimately passed, its enforcement may be significantly weakened. On one hand, in rapidly evolving fields like batteries, photovoltaics, and electric vehicles, the EU is already behind China by one technological cycle; by the time the bill takes effect, technology may have already advanced, weakening its protective effect on manufacturing. On the other hand, the bill allows for many exemptions—“exempt here, exempt there”—making enforcement difficult.

First Financial found that, according to Article 11 of the bill, exemptions are permitted in public procurement if local content and low-carbon requirements cause “disproportionate cost increases” (exceeding 25% price difference compared to alternatives) or if there are technical incompatibilities in operation and maintenance. In public aid programs, exemptions are allowed if local content requirements cause significant delays (over seven months).

Xu Jigang said that although CBAM, the IAA, and the EU’s recently enforced Sustainable Products Regulation (ESPR) aim to promote green products and production through premiums and also protect domestic manufacturing, their approaches differ. CBAM is unrelated to market access and functions more like a universal tariff targeting high-energy-consuming, high-carbon industries. ESPR, however, is directly linked to market access, tracking products throughout their lifecycle, setting multiple compliance points, and with very low tolerance for violations, but its mandatory “carbon footprint disclosure and restrictions” list is only initially applied to sectors like electronics and appliances.

“IAA is more like a hybrid of the two, lacking detailed industry-specific policies and trying to balance many elements with more trade protectionist tendencies,” he said.

(This article is from First Financial)