Lagarde warns China competes in 40% of eurozone’s key sectors

European Central Bank President Christine Lagarde warned on Wednesday that China now directly competes with the eurozone in close to 40% of the sectors where Europe holds a comparative advantage, up from around 25% in the early 2000s, as she urged the bloc to accelerate reforms to maintain its economic standing.

Energy Costs and Eroding Advantages

Speaking at the World Economic Forum's International Business Council meeting in Geneva, Lagarde painted a stark picture of Europe's competitive position. She noted that "Europe's strength in mid-tech manufacturing, supported in part by access to relatively cheap energy, is also being eroded" as China steadily moves up the value chain.eunews+1

The ECB president highlighted that EU electricity prices for energy-intensive industries were on average more than twice US levels and around 50% above those in China last year, a burden she tied to the loss of cheap Russian gas. "The cheap energy on which European industry once relied — including that from Russian gas — has faded," she said.eunews

Market Fragmentation as a Barrier

Lagarde argued that Europe's fragmented single market prevents firms from achieving the scale needed to compete globally. "Firms still compete too much within national borders, which weakens the competitive pressure to adopt new technologies," she warned. She also pointed to fragmentation of capital markets as a second structural barrier.eunews

While acknowledging the European Commission's EU Inc. initiative as a step in the right direction, Lagarde cautioned that it "only addresses one part of the problem." The wider task, she said, is removing barriers that fragment the single market so that competitive pressure and new technologies can spread more broadly.eunews

Domestic Demand as a Bright Spot

Lagarde noted that the euro area economy grew 1.5% last year, driven entirely by domestic demand, and projected that domestic demand would remain the main source of growth this year. The euro area recorded 0.4% quarter-on-quarter expansion in the second quarter of 2026 despite energy headwinds. But she made clear that internal resilience alone would not be enough to counter China's advance without deeper integration and faster adoption of technologies including artificial intelligence.econostream-media