At the G7 summit in Italy, EU Commission President Ursula von der Leyen on Friday advocated ratcheting up economic pressure on China in order to get trade relations back on track.
Stressing the need to "de-risk not de-couple," the German-born EU chief stressed the objective of getting Beijing to course-correct and address problems at their root.
"Our objective has to be create leverage to get China to engage," said von der Leyen, according to summit participants in a round table discussion on economic security.
"Without such leverage, China simply ignores our demands for a level playing field."
Von der Leyen cited the recently unveiled EU plans for high punitive tariffs on the import of Chinese electric vehicles as one example of leverage.
The tariffs are to be introduced on July 4 if Beijing does not by then offer an alternative solution to compensate for distortions of competition.
Regarding the global market, von der Leyen said that despite denials from Beijing, it is a fact that China produces more than the members of the G7 group of advanced industrialized democracies combined.
The country accounts for a third of global industrial production, but at the same time only accounts for 17% of global gross domestic product.
"This underscores the magnitude of China's industrial overcapacity," she said.
According to von der Leyen, the housing sector in China is currently in crisis and capital and labour are therefore switching from the real estate sector to industrial production.
This shift is exacerbating existing problems, including weak domestic demand, she said. As a result, China's industrial policy is increasingly focussed on promoting exports.
"All of this creates increasingly troubling spillovers for the rest of the world," said von der Leyen. "As the G7, we have an interest to make sure that world markets can operate in a fair and undistorted way."
The EU Commission head cited an agreement reached to work on a joint assessment of China's overcapacity and to strengthen coordination as a positive outcome of G7 consultations in recent months.
In addition to the EU, the G7 includes Germany, France, Britain, Italy, Japan, Canada and the US.
