European Union leaders are preparing to debate how to respond to China's surging trade surplus, which has doubled the bloc's deficit in five years and now tops EUR1 billion (US$1.15 billion) a day, reported Reuters.

The Council is split. France favors tariffs and restrictions similar to those imposed by US President Donald Trump, while Germany, Italy, and the Netherlands want greater access to China's market. Volkswagen's 'in China, for China' strategy has already run into fierce local competition.

Analysts say the roots of 'China Shock 2.0' lie in Beijing's industrial policy, technological advances, and undervalued currency. China now accounts for a third of global manufacturing, with auto exports rising from one million vehicles in 2020 to an annualized 12 million last month.

The OECD estimates Chinese firms received three to eight times more government support than rich-country peers over two decades, attributing nearly 60 percent of their global market share gains to subsidies. EU tariffs on Chinese electric vehicles are seen as one possible countermeasure.

China is also grappling with overcapacity. A Korean study found only four of 130 EV makers were profitable in 2024. Beijing has acknowledged the unsustainable trajectory and pledged to curb 'rat-race competition.'

Beyond subsidies, China has become the global leader in 66 of 74 critical technologies, including AI and computing. Its focus on open-weight AI models and rapid electrification contrasts with Western approaches. Analysts suggest the EU should replicate some of these strategies.

The IMF says China's currency is undervalued by 12 to 21 percent, fueling cheap exports. It urged Beijing to allow the renminbi to appreciate and pursue reflation, advice China has so far ignored.

EU leaders will meet next week to decide whether to retaliate, replicate, or press Beijing for structural adjustment. Without change, analysts warn the second China Shock is imminent.