Friedrich Merz (CDU), Federal Chancellor, photographed before the government declaration in the German Bundestag in Berlin, 18.03.2026. | picture alliance / photothek.de | Florian Gaertner
Berlin; late August: when politics normally stirs into life after the holiday lull. But this year, the lull never came.
German chancellor Friedrich Merz is beset by approval levels plumbing the depths of the depleted Rhine and Danube. His governing conservative CDU party spent the summer at war with itself over pension reform (not helped by a botched cabinet reshuffle). Some of the chancellor’s staunchest supporters are even openly wondering whether he is still up to the job. To get out of the hole they are in, Merz and his ministers now want to project a sense of Aufbruchstimmung—a feeling of renewal and restart.
Whether they succeed will determine Europe’s future.
Germany’s economy has endured six years of paltry growth. Its traditionally strong industries are screaming for protection against China, US tariffs and energy price shocks (and against their own past decisions). Strong end-of-the-republic vibes suffuse dark political commentary, “mainstream” parties oscillate between panic and despair, and resignation has set in among voters. What until recently seemed little more than a media talking point on an “Andy Burnham moment”—meaning the possibility of Hendrik Wüst, North Rhine-Westphalia’s minister-president, succeeding Merz as chancellor this autumn—could yet become reality.
For decades, Germany was Europe’s byword for political stability and predictability. Today, it is hard to overstate how little is now unthinkable in German politics. All bets are off. Decision-makers elsewhere in Europe should get ready for the possibility of a new kind of Germany: no longer boring, no longer stable—and no longer rich.
Why the Angst is now real
Germany is days away from elections in three eastern states which could shake the government in Berlin to its foundations. First up is Saxony-Anhalt, where on September 6th the far-right populist Alternative für Deutschland (AfD) could rewrite German post-war history and turn the decades-long mantra of “never again” into “actually, maybe”. Polling suggests even an absolute majority for the party is within reach. The AfD, the CDU and the Left could be the only parties to clear the 5% threshold for the state parliament. Two weeks after that possible momentous result, the states of Berlin and Mecklenburg-Vorpommern will also elect new parliaments.
While the situation for the political centre looks a little less dire in the latter two places, complicated three-party coalitions are the likely outcome in both. This will have a compounding effect on the stability of the federal government. The CDU leadership under Merz remains adamant that the “firewall” must hold, ruling out any coalition or cooperation with the AfD. Yet this position is increasingly being questioned by local politicians and by conservative thinkers within and around the party. Many in the CDU are frustrated by what they see as the strategic price of the firewall. With their preferred coalition partner, the liberal Free Democrats, now struggling to clear the 5% threshold almost anywhere, ruling out the AfD leaves the CDU ever-more dependent on centre-left coalitions. In critics’ view, this deprives the party of options and leaves it hostage to the remaining potential coalition partners.
An AfD minister-president would be a brutal demonstration of the political establishment’s inability to provide a convincing vision for the country
An AfD minister-president in one of Germany’s states would be more than a striking political development. It would be a brutal demonstration of the political establishment’s inability to provide a convincing vision for the country’s economic, political and social future. In recent years, German leaders have made more reform announcements than actual reforms. The previous government tried to adapt to the Zeitenwende without imposing any hardship on Germans—and failed. Now, the Merz government seems equally unable to muster the political strength for major reform.
Instead, it has too often looked to the past for answers: back to the combustion engine, back to looser labour rights, back to family values. The only policy area where the government now seems readier to change course is on China, where it has said it will push through a more active European position on protecting markets and punishing China’s predatory economic behaviour. In a revealing commentary, however, Merz himself announced this was enabled, not by his decisive political leadership, but by the altered posture of the German car industry.
This vacuum in dealing with the implications of the changing global environment leaves huge room for the political fringes, especially from the far-right. The AfD’s offer is revisionist—drastically curb immigration and asylum, reverse key elements of the energy transition, challenge European integration, end the euro and pursue a distinctly nationalist approach to foreign policy. All this is deeply unsettling to the political establishment, but resonates with a growing constituency of voters united by restrictive stances on migration and cultural issues.
The strength of the AfD is a symptom, not a cause. It did not rise to prominence overnight and has been part of Germany’s political landscape now for more than a decade. But the party is now within striking distance of actual political power at a time when the country’s political and economic foundations are starting to crumble. The war in Ukraine, volatility in America and conflict over the Strait of Hormuz are stretching the limits of German leaders’ attention as well as the country’s fiscal space. Germany’s long-term trade relationship with China is now a liability and an epic drought has shrivelled what little hope remained for Germany’s economic recovery. Berlin is not only forced to reckon with the failures and missed opportunities of the past decade on everything, everywhere, all at once; but the politicians seem unprepared either to put up a real fight for survival or even adjust to this new reality in a form of managed decline.
No time for Schadenfreude
Germany is hardly the first European country to experience a radical reshaping of its party system and the rise of the far-right; Italy and France have been through similar upheavals. And Germany itself, amid deep economic problems, was called “the sick man of Europe” back in 1999, only to recover and to become the continent’s exporting powerhouse. Why should the rest of Europe now worry so much about Germany’s malaise?
The answer is: because a German crisis is a European crisis. Germany is too economically and politically important to fail. Its economic weight, role at the heart of the EU and position as Europe’s most populous member state mean this would be more than just another episode of national political turbulence. A Germany that is oozing 15,000 industrial jobs each month, becoming even more dependent on technology imports and increasingly incapable of internal reform risks dragging Europe towards fragmentation and exploitation.
Unless political leaders come up with something new, a German pall will blot all major items on the EU’s agenda: the next multiannual financial framework; the future of the bloc’s industrial policy; European efforts to rearm and build resilience; a more autonomous capacity on emerging technologies and the economic muscle to create international leverage behind a new global trading agenda. That is not to mention the serious consequences of a German disengagement for Europe’s continued support for Ukraine.
“German leadership is not optional”, Sweden’s defence minister said at a public event this month, attended by one of the authors. German political elites seem to disagree. Theirs is the third largest economy in the world, sitting at the core of the world’s largest single market, boasting leading international companies and building up one of the largest defence budgets anywhere. Yet they appear to lack any sense of their own domestic, let alone global, agency. The three upcoming state elections may give them their last chance and some momentum to turn things around. But if Berlin becomes entirely enfeebled under the ensuing political fallout, the rest of Europe is likely to suffer in the same way.
The increasing intensity of heatwaves is generally attributed to climate change as a result of the global reliance on fossil fuels. While cutting carbon emissions remains the focus of EU climate policy, European governments also need to ensure that their societies can better adapt to extreme weather. Many households have already taken matters into their own hands by turning to portable air conditioners—often Chinese-made—for relief.
And China’s air-conditioner export boom points to a broader challenge: whether confronting extreme weather or fragile economic dependencies, Europeans need to adapt to the consequences while also addressing underlying sources of vulnerability. They should not just accept the status quo; here, some answers may lie in the lessons of China’s own industrial transformation.
China leads on AC
Once again, when Europe looks for a climate solution, China has one ready to ship. China is a powerhouse in technologies used to mitigate climate change, from solar panels to wind turbines; it is also a vital player in helping Europe adapt to warmer temperatures. China produces over 80% of the world’s air conditioners: exports of Chinese AC units to the EU rose by 43% year on year in the first half of 2026. Chinese brands now account for 41% of the European market, up from 27% in 2023.
This success is not only about price and scale. Chinese manufacturers have adapted their products for the European market: for example, Midea’s PortaSplit model is tailored to overcome cumbersome building regulations and high installation costs. Chinese manufacturers were also early adopters of refrigerants less harmful to the climate, ensuring their products meet Europe’s strict environmental rules.
But this is not all. Chinese commentators say that Europe should not only adapt to the hotter climate—it should adapt to the patterns of EU-China trade. They portray the EU’s de-risking and trade-defence measures to tackle economic imbalance with China as economically self-defeating, arguing that Europe lacks confidence in its own industries. European policymakers, they say, are approaching trade as a game of “cold statistics” that will ultimately hurt ordinary consumers.
This is a fatalistic prescription for industrial policy from a country that refuses to accept that its position in global supply chains or its existing competitive advantage is fixed. For decades, Beijing has made industrial upgrading a central policy objective that has reoriented global trade patterns. Europeans are experiencing this firsthand in the AC boom, where China’s position reflects decades of deliberate industrial upgrading. And now Beijing is advising Europe to be content with trade patterns as they stand: strange advice, given that this would not pass the political sniff test in Zhongnanhai.
Since Deng Xiaoping, Chinese leaders have not simply passively adapted to their inherited competitive advantages. Neither do they treat the existing global division of labour as an efficient market outcome to be preserved. This is especially the case when such patterns risk constraining China from developing the sectors it considers strategically important—robotics, clean technology or aviation, for example.
These policies helped Chinese firms “import, digest and absorb” foreign know-how, build scale, and create globally competitive and innovative companies across supply chains. But while the European debate on competitiveness centres on many of the same concepts, European politicians, industries and member states are divided over future industrial policy. One prevailing idea is that Europe should pull a “reverse Deng” by ushering in a new era of industrial policy capable of matching the scale of support and protection that China extended to its domestic industries during the 1990s and 2000s.
Europeans should preserve their ability to source and scale critical technologies through viable alternatives, ensuring they have options should conditions change
But Europe should be cautious in trying to beat China at its own game. It has no centralised state to direct capital and help companies navigate commercial losses in pursuit of their goals. The main lessons from China’s industrial policy lie in the assumptions behind it: Europeans should minimise dependencies that could be strategically constraining; industrial competitiveness is not only about efficient production; Europeans should preserve their ability to source and scale critical technologies through viable alternatives, ensuring they have options should conditions change.
This logic is becoming more relevant as climate shocks intensify and geopolitics grows more volatile.
What Europeans should do
Europeans need to consider what such options would look like in practice. To borrow the question posed by Chinese commentators: what could Europe do right now without Chinese air conditioners?
Cooling is becoming essential infrastructure. Much like heating and water, Europe will need a broader portfolio of solutions to meet demand. AC is part of the answer, alongside low-energy and passive-cooling technologies such as evaporative cooling, reflective roofs and building retrofits, and stronger building standards. But Europe does not need to develop every solution itself; it could build a network of alternative suppliers and production capabilities.
For example, Singapore and the Gulf states are confronting many similar challenges and could be potential partners in deploying more efficient solutions such as district cooling. Europe can build similar partnerships in clean-tech supply chains. South Korea, the second-largest battery manufacturer globally, holds 78% of installed battery capacity in Europe. It can learn from countries such as Japan, which has diversified its rare-earth supply through partnerships with Australia and Malaysia, as well as Vietnam. India doubled solar-cell manufacturing capacity in the first half of 2026 alone, backed by localisation incentives extending to upstream components like ingots and polysilicon.
China will remain part of Europe’s clean-tech supply chains. For Europe, preserving its options does not mean that it needs to produce every critical technology in the clean-tech supply chain. But it should work with external partners to maintain commercially viable alternatives at scale. This can be done through reciprocal access to public procurement markets, targeted incentives and shared product standards.
Where climate and competitiveness collide
Fundamentally, having options means being able to adapt to a problem while tackling its cause. Climate policy offers a useful framework: Europeans have concluded that the impact of heatwaves or floods are not inevitable; they are not relying on AC, seawalls and floodgates as their only response. Instead, they are tackling the cause of climate change by pursuing adaptation while mitigating the underlying problem through cuts in fossil-fuel emissions.
Europe should dare to do the same with its competitiveness and economic dependencies. Rather than simply adapting to change, its governments should invest in Europe’s capacity to innovate, work with partners and build alternatives, with the aim of reducing vulnerabilities and helping preserve its choices.
The summer heat of 2026 is a reminder of the cost of delayed climate action. The same lesson applies to economic security: adapting to today’s dependencies in the name of efficiency will leave Europe with fewer options—and come with a larger bill—tomorrow.
Cover image: picture alliance / Xinhua News Agency | Li Bo
Reluctance among German decision-makers has long stopped Berlin taking a tougher economic approach towards China. When France, Italy, Lithuania, the Netherlands and Spain recently pressed the European Commission for tougher measures and faster trade defence action against China, Germany not only declined to join, it even called for stronger industrial ties with Beijing.
Yet, one thing Berlin should not worry about is voters’ disapproval should it pursue a more hawkish China policy. ECFR polling data find that Germans are the most China-sceptical out of 15 European countries surveyed. No fewer than 60% of Christian Democrat and Social Democrat supporters regard the country as an adversary or rival. In contrast, elsewhere in Europe, majorities still see China as either a “necessary partner” or even an ally. In Italy and Spain, 56% and 65% of people hold this view respectively. (Closest to the sceptical Germans are the French public; President Emmanuel Macron’s increasingly hawkish political posture vis-à-vis Beijing may have found an audience willing to listen.)
The China shock has hit Germany particularly hard: its manufacturing sector lost around 420,000 jobs between 2019 and 2025 and it continues to shed 10,000 jobs each month. The car industry is paying the highest costs, being squeezed out of a market increasingly dominated by Chinese manufacturers at home and abroad.
The mood in the European Council is shifting, and with Germany’s acquiescence. When EU leaders met in June 2026, they backed a stronger trade defence toolbox of existing measures against China. This included instruments such as the Industrial Accelerator Act’s “Buy European” provisions and limits on high-risk Chinese technology. Despite its past hesitations, Germany no longer acts as a spoiler on firmer EU action, and it has cautiously supported this new direction. Nevertheless, the combination of growing public scepticism towards China, mounting pressure on German industry and appetite for a more assertive policy on the European level creates a political mandate that German decision-makers could yet seize.
The German public’s views on the energy transition should also prove encouraging for their leaders. Voters want to see investment in renewables: 57% back what would amount to the growing electrification of the economy. Across the countries polled by ECFR, 61% of respondents say they support prioritising renewables and the clean tech sector.
This public support should help persuade leaders, including in Germany, that they can take action to limit emerging dependencies on China. They can accelerate the energy transition while de-risking the clean tech sector through providing support for domestic European industries, from wind to batteries.
For Berlin, and capitals across Europe, it is safer to move ahead rather than delay. Chinese economic policy is already doing irreparable damage to European industry—but European policymakers still need to protect an increasingly electrified economy from weaponisation by China. If they fail to do so, governments will almost certainly pay the price at the ballot box. Those that pursue electrification and economic de-risking as a single package are most likely to reap the political rewards.
Biomanufacturing uses biological processes to produce food, fuels, chemicals and materials that today rely on fossil resources.
The underlying science is not new. But advances in AI and falling renewable energy costs are transforming biomanufacturing from a niche climate solution into a new production paradigm, with the potential to reshape industrial competitiveness and geopolitical power much as fossil fuels did in the previous industrial age.
China has identified biomanufacturing as a strategic technology for resilience and self-reliance, deploying a familiar playbook of state-backed investment and infrastructure to build globally competitive industries.
Europe remains a formidable competitor, leading in patents and core technologies, with world-class research, specialised industrial clusters, skilled talent and globally competitive firms across the value chain.
Its weaknesses are limited infrastructure, regulatory delays and growing dependence on Chinese manufacturing capacity.
Without greater urgency, Europe risks repeating the mistakes it made in solar panels, batteries and electric vehicles: inventing breakthrough technologies while ceding profits and geopolitical leverage to China, this time with even greater consequences.
The microbe revolution
For two centuries, the molecules that underpin modern life have been pumped from the ground in the form of oil and gas. The next industrial revolution may instead grow them in laboratories and tanks.
This is the promise of biomanufacturing: using biological processes to produce the building blocks of the future economy. Scientists can programme living cells to act like microscopic factories, capable of producing everything from food, fuels and fertilisers to plastic, chemicals and advanced materials—nearly all of which still rely to some degree on fossil resources. For millennia microbes were used to turn grain into beer and milk into cheese. Now they are engineered to turn straw into jet fuel and sugar into armour.
What sounds like science fiction is rapidly becoming reality. Driven by abundant and affordable renewable energy and dramatic advances in artificial intelligence (AI), biomanufacturing is beginning to change not only what economies produce, but how they produce it. In doing so, they address a deeper layer of fossil dependence than renewable electricity alone. The shift could be as transformative as the invention of the petrochemical industry itself. If the geographical distribution of fossil resources shaped the geopolitics of the last industrial age, then the ability to produce key molecules without them could shape the next.
China’s leaders have recognised this opportunity. Beijing has spent an average of roughly €1.4bn per year on electric vehicle research and development (R&D) over 15 years to build a globally dominant industry. It is now reportedly spending €2bn-3bn in biotechnology R&D alone. And it is doing this at a time when China already accounts for more than 70% of global basic fermentation capacity.
But its ambitions for the bioeconomy go much further. The 2022 Bioeconomy Five-Year Plan set a goal of global leadership by 2035, while the 2026 15th Five-Year Plan places biomanufacturing alongside AI at the heart of China’s future industrial model. In July 2025, Beijing unveiled a list of 35 flagship biomanufacturing products to replace fossil-based chemicals or food and feed additives, and selected 43 companies to build pilot plants. No other major power is investing in the bioeconomy with comparable scale or strategic intent.
But Europe has not lost the race to China just yet. As in areas like semi-conductors, European companies provide some of the key foundational technology and microbial strains that make Chinese fermentation successes possible. Europeans are at the cutting-edge of research—the continent has a thriving biosolutions sector worth €60bn, comparable to the GDP of Slovenia, and growing around 5% annually. And according to industry estimates, if scaled successfully, biomanufacturing could replace a quarter of European oil-based chemicals, halve the continent’s protein imports, drastically cut greenhouse gas emissions and create 700,000 additional jobs—by as soon as 2030.
Yet beneath these strengths lie familiar vulnerabilities. European firms already depend on Chinese producers for basic parts of the existing biomanufacturing value chain. As China scales its fermentation capacity, European start-ups are increasingly tempted to manufacture and scale there, exposing valuable intellectual property to a fierce competitor. In a 2025 report to Congress, the US-China Economic and Security Review Commission likened fermentation capacity to that of chip factories, warning that China’s dominance could become a strategic chokepoint. Policymakers are already losing sleep over China’s massive share of global rare-earth refining. But biomanufacturing could prove even more consequential. Imagine similar leverage extending across all future food, pharmaceuticals, chemicals and energy inputs.
Europe’s lack of urgency is worrying. Policymakers still seem to treat biomanufacturing as a niche sustainability issue rather than a foundational technology layer capable of reshaping whole economies. If Europe fails to adjust course soon, it risks sleepwalking into an old pattern: pioneering innovation, creating demand through regulation and then watching production, profits and geopolitical leverage migrate to China.
This paper argues that European policymakers should view biomanufacturing not simply as another industrial sector but as a strategic foundational technology layer. They should see China’s push for leadership in this field as a geopolitical challenge as much as an economic one. The EU needs policies and investments that amplify its significant advantages in research and innovation before they are eroded by China’s scale and industrial capacity. As with solar panels and batteries before it, Europe risks inventing the future only to surrender its strategic power—but this time with far greater consequences.
Biotechnology, biosolutions, biomanufacturing
The terminology surrounding the sector can be confusing. Biotechnology is the broadest catch-all description. In Europe, the term biosolutions is sometimes used to distinguish industrial applications of biotechnology from the pharmaceutical sector, although the boundary between the two is not always clear.
The distinction matters because the pharmaceutical sector follows a very different commercial logic. Biopharmaceutical companies develop low-volume and high-value products, such as specialised cancer treatment, where expensive R&D can be justified by potentially high returns—“consumers”, after all, are willing to pay steep prices for lifesaving or life-enhancing drugs.
By contrast, biosolutions often focus on replacing existing products (fertilisers or fuels). They create an alternative with environmental advantages (animal-free dairy) or inventing entirely new materials with specific qualities (spider-silk fabric) and wide industrial appeal. Unlike pharmaceuticals, these products must compete directly with established products or industries in low-margin markets often dominated by powerful incumbents.
China prefers the term biomanufacturing to describe the industrial applications of biotechnology. This reflects a focus on the process and a view that the technology is not simply the industrial application of biotechnology but the foundation of a new manufacturing model. As the world’s largest manufacturing power, China has already made it clear that it intends to dominate this next stage of industrial development. This policy brief adopts the same terminology to reflect that strategic perspective.
In the end, semantics matter less than the underlying shift. Whether described as biosolutions or biomanufacturing, the underlying transformation extends far beyond a collection of new products. It is a crucial layer of the emerging industrial economy, enabled by electrification and artificial intelligence.
The five pillars of biomanufacturing
Like the petrochemical industry before it, biomanufacturing at scale needs an industrial infrastructure.
Precision fermentation, one of the most promising techniques of the sector, uses genetically engineered microorganisms to produce specific target molecules. These organisms are cultivated in fermentation tanks and supplied with sugar-based feedstocks. The produced molecule is then extracted and purified. It could be a dairy protein made without a cow, a polymer with all the qualities of traditional plastic but none of the fossil-based input, or a protein that mimics spider silk, creating fibres strong enough to be used for body armour.
The science behind all this has been around for a while, but the combination of advances in AI and the renewable energy boom are making some of the existing solutions commercially attractive, while allowing the more cutting-edge innovation to scale from the lab to industrial production faster. Microorganisms are fickle—they are alive and evolving after all—but AI can make working with them more predictable. Success requires the availability of physical infrastructure (large tanks as one would know them from wine production, for example), access to cheap energy, reliable feedstock supply and significant investment before profits can materialise. AI specifically has accelerated the lengthy cycles of designing, prototyping and testing, changing the whole biomanufacturing equation.
China’s advantage is not due to a single scientific breakthrough or one national champion, but because it has positioned itself incredibly well across the five pillars of biomanufacturing and morphed them into a mutually reinforcing ecosystem: patient capital, industrial infrastructure, cheap energy, feedstock access and cost-competitive AI capabilities. Europe will need to accelerate on all of these fronts if it wants to compete.
Capital
Advanced fermentation-derived products still often cost two to three times more than petrochemical alternatives. Many are entering markets where they must either displace a product or create entirely new categories of demand.
This is precisely the sort of problem that China’s state-capitalist system is well suited to solve. Having identified biomanufacturing as a way to build new industries and upgrade existing ones, Chinese leaders are willing to support nascent companies through years of low returns and uncertain future profitability. Abundant patient capital allows Chinese companies, particularly small and medium-sized ones, to experiment, fail, refine and scale.
In Europe, industry groups consider the investment gap and lack of a coherent enabling framework one of the key weaknesses. This includes clear government signalling through consistent regulation. In a December 2025 report, the OECD argued that policymakers are falling to make full use of powerful tools to bring in private investment for the sector, including blended finance, de-risking mechanisms, market-based instruments and public-private partnership frameworks.
Infrastructure
China recognised the need for infrastructure very early. The 13th Five-Year Plan of 2016, for example, called for the development of fermentation products such as amino acids and vitamins, and China has since become the world’s largest producer of these products. They may seem mundane commodities, but the underlying infrastructure is relevant to more advanced applications.
Producing next generation proteins or biochemicals shares many industrial needs with vitamin production, despite the differences in the processes. Fermentation facilities, engineering expertise, supply chains and operational know-how can be decisive advantages in mastering the breakthrough on more advanced products.
However, Chinese producers still depend heavily on imported microbial strains—much like many AI developers rely on foundational models created elsewhere, but then fine-tune them for more specific applications. Denmark’s Novonesis, for example, is one of the world’s leading producers of microbial strains. Yet China is accumulating experience in large-scale fermentation using these strains, and it is advancing fast in building infrastructure needed for testing and scaling. Developing its own foundational strains is the next logical step of its industrial strategy.
Besides, manufacturing itself creates its own chokepoints. As fermentation capacity concentrates in China, innovators elsewhere may increasingly depend on Chinese infrastructure to bring products to market. Similar dynamics have already emerged in batteries and other clean technologies, where manufacturing ecosystems and testing facilities had to rely on infrastructure overseas.[1] As China’s lead grows, private capital in the rest of the world will be less attracted to building competing facilities because they will struggle to match its scale and costs. The result is not only supply-chain dependence, but the risk that valuable know-how migrate with it.
Europeans are not alone in their growing discomfort with this dynamic. The solution is to push for investment in infrastructure in Europe and in a range of partner countries. India, for example, has a strong industrial base in the pharmaceutical sector and low construction costs, making it well-placed to expand fermentation capacity quickly.
For decades, China’s leadership has invested in sectors it considers crucial for national power. Made in China 2025, the industrial masterplan that produced its massive dominance in automotive, robotics and energy technology, was designed as much to boost competitiveness as it was to build resilience and security. Biomanufacturing should be seen in the same way: a strategic capability that can strengthen food and energy security while reducing dependence on fossil imports.
Energy
Fermentation is energy-intensive and, outside pharmaceuticals, price margins for biomanufactured products will likely be slim. Electricity costs are thus a critical determinant of commercial viability. China’s industrial electricity prices are among the lowest in the world, below even those in emerging economies such as India or Mexico—and dramatically lower than in Europe, where energy prices shot up after Russia’s invasion of Ukraine and other geopolitical crises. A massive expansion of renewable energy, continued investment in nuclear and domestic coal, significant state control over pricing, plus regional pricing policies to encourage industries to set up in certain provinces mean that Chinese industry pays roughly 50% of the global average for its electric power.
For China, the green transition is not a hindrance to industrial competitiveness, but the vehicle towards it.Its leaders are driving an ambitious electrification agenda with the declared goal of fully replacing fossil fuels with renewables in the next decades. And the cheaper and cleaner China’s electricity becomes, the more competitive its biomanufacturing industry will be.
Feedstock
Feedstock represents another potential bottleneck. Sugars, grain, agricultural residues and other biological sources of carbon are, according to a recent report, responsible for up to 60% of total production cost.
As in any industry where margins are thin, access to cheap inputs matters significantly for market viability. Transporting large volumes of cheap biomass adds costs, making local supply a competitive advantage. The economics will also create incentives for recycling, reusage and carbon capture, all of which could become more viable as infrastructure for collection and processing expands. Regions that can grow biological feedstock, especially under conditions of rising temperatures, will become attractive partners. But quantity is only half of the equation: equally important will be improving yields and engineering crops better suited for industrial use.
According to one observer, no one has yet fully mastered the feedstock question. But China is positioning itself well. Under Xi Jinping’s leadership, longstanding scepticism towards genetically modified organisms (GMOs) has given way to a more pragmatic approach in favour of domestic innovation and food security. The takeover of European seed and agricultural technology giant Syngenta by state-owned ChemChina in 2017 was emblematic of this shift.
In the emerging bioeconomy, carbon will remain the essential raw material. The difference is that it will increasingly come from renewable, highly available and fully circular sources.
Artificial intelligence
The final pillar of the sector may prove the most important.
AI is beginning to transform biomanufacturing from end to end. By enabling products and production processes to be designed and tested digitally first, it can dramatically accelerate development cycles and reduce the number of costly physical experiments.
Industry leaders argue that the interactions between the production process and AI will become increasingly important. Better data analysis and digital modelling will improve production, while sensors embedded in the industrial process will generate the data needed to improve the AI models in a continued feedback loop. As biology can be fickle, and microbes are living organisms that can evolve during production, achieving consistent results is a challenge. Richer data makes production more predictable and commercially viable. This is why the increasing availability and the falling costs of AI computing and model inference are a game changer for biomanufacturing.
The Chinese leadership is prioritising the industrial use and of AI and is actively encouraging companies to integrate AI and manufacturing. In 2025, for example, the government released a list of 16 typical application cases for AI in biomanufacturing. Chinese AI models are also cheaper, driving uptake in sectors where margins are thin and where start-ups rely on limited funding, both in China and abroad. As analysts Dirk van der Kley and Tom Campbell have argued, China’s emerging lead in biomanufacturing thus does not lie in a single layer of the value chain or the production process, but in its ability to combine these pillars into an ecosystem that increasingly blurs the line between the digital and the physical world.
New materials, new food, new energy
Making things
The application of biomanufacturing extends well beyond replacing fossil-based inputs. It is increasingly focused on creating entirely new materials for new technologies.
Alongside textile and construction, the defence sector has become particularly interested in these products. NATO elevated biotech to a strategic priority with its first dedicated strategy in 2024 and now channels over €500m annually to 28 dual-use startups via the DIANA programme. Although still at the R&D stage, European researchers are developing new bio-based materials with specific defence capabilities, such as armour, drones and rare-earth substitutes.
Here Europe retains an important edge. While Chinese companies dominate production volumes in traditional industries such as textiles or bio-based plastics. Such plastics include PHB—a bio-polymer that can be used in the medical sector for sutures or in the food sector as bio-degradable packaging; it is already being produced at scale in China while in Europe it has barely achieved market entry. European companies lead in several advanced biomaterials for aerospace, defence and other high-performance applications. Germany’s AMSilk, for example, is the world’s first industrial-scale producer of spider silk proteins and is working with Airbus on lightweight aerospace composites and with Evonik for industrial-scale fermentation supply. In 2024, it partnered with Denmark’s 21st.BIO to scale its protein production. Dutch firm Avantium, backed by both EU and private investment, has begun commercial-scale production of PEF, a fully recyclable bio-based alternative to fossil-based PET plastic.
As in other advanced industries, China increasingly leads on scale while Europe remains strong in specialised innovation.
Making food
The food sector is one of the most promising areas for biomanufacturing. In fact, one of the most consequential biotechnology breakthroughs in agriculture passed largely unnoticed by consumers. Fermentation-produced chymosin (FPC), the enzyme used to make cheese, replaced animal rennet taken from a cow’s stomach. It became widespread in the 1990s and today accounts for 80–90% of all commercial cheese production globally. Now, similar technologies are spreading across proteins, fertilisers and crop production.
Microbial biofertilisers can reduce the need for synthetic fertilisers by 20-40% while improving crop yields. Gene-edited crops can be designed to adapt to different nitrogen levels in soil. Precision fermentation allows microbes to produce dairy or egg proteins without animals. Biomass fermentation can grow fungi directly into a protein source. Because these systems depend less on land, climate and livestock, they offer a degree of resilience that conventional food production cannot match.
This matters particularly for China. Protein security remains one of the weakest links in China’s quest for autonomy. The country must feed 19% of the world’s population with only 8% of its arable land, while still importing much of the energy needed to power its economy. As Xi Jinping has repeatedly said, “China must keep its rice bowls firmly” in its own hands. Yet rising incomes have transformed diets, increasing demand for animal protein and imported feed. Food self-sufficiency has dropped from 94% to 66% between 2000 and 2020, while in 2025 soybean imports hit a record 111.83m metric tonnes. By 2035, China could face a protein feed shortfall of 120m tonnes.
Reducing this vulnerability has become therefore a matter of national security. Beijing is pursuing a range of solutions, such as improving crop yields and climate resilience, developing ways to decouple the feed and food supply chains, and creating novel foods.
Europeans, on the other hand, rarely talk about protein security. Decades of subsidies and protection have created the impression of abundance of milk, butter, meat and grain, and Europe’s understanding of food poverty and famines has largely vanished. At the same time, agricultural lobbies continue to exert outsized influence in many EU member states, ensuring that agricultural exports remain a national priority. While exports of cars and advanced machinery struggles, European leaders returning from Beijing increasingly announce deals for oats (Sweden), pork (Spain), dairy and seafood (Ireland) and even chicken feet (Germany).
This is not just a European phenomenon. US president Donald Trump’s visit to China in April brought little clarity on semi-conductor sales, but agreements on soybeans and oil. The problem is that Beijing has little intention of remaining dependent on imported food. By the time Europeans realise this, it may already be too late.
Making fuel
Energy is the third frontier. Biomanufacturing can use engineered microorganisms or synthetic enzymes to convert organic matter into fuels that can replace or complement fossil fuels. The appeal is both environmental and strategic.
The closure of the Strait of Hormuz has yet again demonstrated the vulnerability of global fuel supply chains and its implications for shipping, commercial flying and military mobility. Sustainable aviation fuel (SAF) is a renewable, non-fossil alternative to conventional jet kerosene. Produced from renewable and waste-based raw materials, it can be safely blended up to 50% with conventional jet fuel (because it is chemically almost identical to it), requiring no modifications in existing aircraft or airport infrastructure. It is produced from renewable and waste-based raw materials rather than fossil fuels, cutting lifecycle greenhouse gas emissions by up to 80%. In a major conflict, air forces account for 85% of total military fuel consumption. Recognising this, the UK Ministry of Defence announced that all aviation fuel procured from January 2025 will include SAF.
China sees similar opportunities in global shipbuilding and port equipment. As the global shipping industry moves towards decarbonisation, Chinese firms are seeking to establish an early need. China is the world’s largest shipbuilder, controlling 55% of global output and 75% of new orders. Now the country has launched sea trials for the world’s largest methanol dual‑fuel container ship (designed and built by Nantong COSCO KHI) and is also building the world’s first deep‑sea bulk carriers with ethanol-powered main engines. These technologies allow Chinese shipyards and equipment makers to shape emerging standards and capture the market for biofuel‑ready ships.
The logic mirrors Beijing’s broader strategy: make China less dependent on the world while making the world more dependent on China. As alternative fuels become increasingly integrated in shipping, countries that control both the fuels and the infrastructure that use them will enjoy an advantage. Without investment, European companies such as Maersk or Hapag-Lloyd will have a hard time competing in this sector without embedding themselves into the Chinese supply chain, and risk becoming reliant on Chinese suppliers in yet another strategic industry.
Why Europe can still lead on biomanufacturing
Unlike on solar panels, batteries and EVs, Europe is not playing catch up on biomanufacturing. Europe has world-class research, vast industrial potential and a strong market. But the window to assert itself as a leader is closing fast.
Europe has the market
Europe holds twice the precision fermentation capacity of the US: 479 demonstration, semi-industrial, and pilot plants; 2,362 additional biorefineries, spanning pharmaceuticals, food, chemicals, and industrial biotechnology. With the right support, alternative proteins alone could contribute €111bn in annual gross value added to the EU economy by 2040—comparable to the size of Europe’s entire wine sector and could build a €60 billion export market, comparable to current EU exports to South Korea.
The bloc also has the infrastructure to scale. Although the EU faces a plant protein deficit of nearly 19m tonnes (largely for livestock feed), it holds 47% of global protein and enzyme fermentation capacity for industrial applications. Meanwhile, Europe’s biofuel market exceeded $43.7bn in 2025 and is expected to grow at 9.4% annually in the coming decade. The dependence on imported carbon to power should focus the minds of policymakers on using non-food feedstock (agricultural and forestry residue, waste and algae) and scaling the market to make these products competitive faster.
Perhaps most importantly, the EU is creating demand through regulation. By 2030, EU member states are required to achieve either a 29% share of renewable energy in transport or reduce transport fuel emissions intensity by 14.5%. SAF represented just 0.6% of all aviation fuel in EU airports in 2024 but is required to rise steadily to 70% by 2050. The FuelEU Maritime Regulation aims for a 6% reduction of emissions in 2030 and up to 80% by 2050.
The challenge is to ensure that European firms rather than foreign competitors capture the resulting market opportunities. Today, 69% of feedstocks used for production of SAF used in the EU originated outside the bloc, with China supplying 38% and Malaysia 12%. Europe risks creating demand at home while becoming dependent on foreign imports.
Europe has the conditions
Europe enjoys structural advantages over China as it has abundant, low-cost biomass availability in relation to population size. Denmark benefits from plentiful agricultural waste from sugar beet production, while Germany can use forestry residues and Italy its cereal or wine residues. South-eastern Europe combines renewable energy potential with availability of olive and wine by-products. Bulgaria, for example, could make use of its potent agricultural base to become a hub for large-scale fermentation, using its solar resources to power this infrastructure instead of relying solely on its booming battery storage sector, which largely relies on Chinese battery imports.
Europe also has an often-overlooked advantage: skills. Biotechnology requires not only trained manufacturing professionals but also researchers, scientists and AI experts. In Denmark, a large share of the industrial workforce receives vocational training tailored to biotech manufacturing, including precision fermentation and bioreactor management. Europe’s tradition of apprenticeships and technical education is well placed to adapt. But timing matters. The foundations of industrial leadership in the next decades will be laid over in the next few years.
Europe has the know-how
By combining strong fermentation infrastructure with supportive policies, Denmark has built one of the world’s most advanced biomanufacturing ecosystems, where pharmaceutical, agricultural and chemical firms share industrial waste with one another.
Denmark’s industrial base is also closely linked to agriculture. About 20% of Danish land is organically farmed, while companies like Novonesis produce microbial inoculants that boost crop yields by 3-7% while cutting fertiliser use. Instead of treating biotechnology as a threat to agriculture, Denmark positioned the sector as a tool to make farming more productive and sustainable. This contrasts with many other European countries in which the agricultural lobby continues to push back against genetically modified crops and alternative proteins.
Denmark also shows that the EU’s regulatory hurdles are not inevitable. EvodiaBio moved from laboratory to profitable industrial production in only three and a half years, a remarkable achievement in a region where biotechnology approvals are notoriously slow. Across the EU, novel food authorisations average 2.5 years and can take as long as six; GMO crop approvals take up to six years compared with less than two in America; biopesticide approvals average seven to nine years.
Germany is Europe’s second biotech powerhouse. Companies such as Sartorius, or the pharma companies BioNTech and Merck KGaAhold roughly 25% of EU precision fermentation capacity for low-carbon chemicals. Formo leads in fermentation-derived proteins, while Bayer and BASF are advancing biopesticides and other crop protection agents.
Switzerland dominates contract development and manufacturing organisations (CDMOs) globally, led by companies such as Lonza and Roche. These firms own and operate the specialised infrastructure required to produce biological products at scale. While biosoutions companies own the intellectual property, CDMOs provide the fermentation tanks, the purifiers, and the manufacturing capacity.
The Netherlands is Europe’s leading hub for cultivated meat and precision fermentation, with DSM-Firmenich and Avantium excelling in biomass conversion.
France also has a robust agricultural biomanufacturing industry, with companies like Standing Ovation and Valley in alternative proteins, and De Sangosse (€315m) in biopesticides. Meanwhile, Italy ranks third in the EU by organic farmland area. Firms such as Rovensa Next lead in biostimulants and biocontrol, products that improve crop health while reducing dependence on conventional synthetic chemicals. Finland, France, Germany, Italy and Spain are also leading EU SAF producers, with commercial-scale output already under way—Neste in Finland, TotalEnergies in France, BP in Germany, Repsol in Spain, and Eni in Italy.
How Europe can lead on biomanufacturing
Define the vision
What is holding Europe back is not a lack of capital, talent or technology. It is a lack of ambition, sense of urgency and confidence.
China’s leadership has already articulated its vision. The 15th Five-Year Plan leaves little doubt that Beijing sees biomanufacturing as a pillar of its future economy and is aligning industrial policy, infrastructure, regulation and investment accordingly. European policy makers should pay close attention and decide whether they want to compete or simply adapt to a world of Chinese biomanufacturing dominance, with all the consequences of dependence, deindustrialisation and decline.
If they want to compete, the first step is to move biomanufacturing out of the “green niche” category and recognise it as a strategic component of a post-fossil, highly electrified global economy. Biomanufacturing should not be treated as a sectoral issue but as part of a broader vision for Europe’s future prosperity, competitiveness and security—a holistic push for infrastructure, science, education, regulation and market entry conditions is needed.
This requires political leadership. Key decision-makers, not just technical experts, need to understand the sector’s potential. Policymakers do not need to become fermentation experts any more than they needed to become semiconductor specialists. But they need to become as comfortable discussing microbes and enzymes as they now are rare earths and chips.
European leaders should make the case for biomanufacturing in terms of jobs, growth and innovation as well as harnessing the potential of European frontrunners. The narrative should be less about environmental virtue and more about hard economic reality. The debate must move beyond technicalities around the forthcoming Biotech Act II and become part of a broader conversation about Europe’s future. The China factor can help make this case. The Chinese leadership is not investing billions into a niche sustainability sector. It is investing in what it believes will be the foundational layer of a new industrial order.
Involve the existing industry
European policymakers should bring together representatives from the chemical sector, the manufacturing industry, defence companies and trade unions. Europe’s chemical and machinery industries in particular are under massive pressure from Chinese competition and are looking for new sources of growth. Biomanufacturing offers one. The experience of chemical firms, many of which conduct bio-based research, will be crucial for scaling. The manufacturing sector will be critical in building the new industrial infrastructure. And unions should be involved from the outset to ensure broad societal buy-in for the transformation process.
Defence could become an important catalyst. Europe is currently investing billions in rearming. Even a fraction of that spending directed to biomanufacturing-related R&D could generate a massive innovation push. Applications already under way include biosensors and microbial technologies that detect chemical or biological toxins, which can support clean-up operations in conflict regions. New systems designed to identify chemical, biological, radiological and nuclear threats are expected to reach important milestones before the end of 2026.
New European legislation must also facilitate the integration of biotechnology innovations into civil-military supply chains. A recent ECFR event organised with Dank Industri underscored opportunities ranging from bio-based concrete for reconstruction to drones and medical supplies. In China, this integration of civil and military supply chains is part of its success story which Europe can take note of and replicate at a time of vast defence spending. Framing industrial renewal as defence could even help increase support for defence spending in more reluctant countries. Spain for example has a huge potential for becoming a biomanufacturing champion due to abundant renewable energy and proximity to agricultural feedstocks.
Build coalitions with allies
Besides building internal coalitions, Europe also needs its external partners if it is to succeed in a biomanufacturing revolution.
A grand bargain with Britain
Britain remains a world leader in life sciences and research but faces challenges in scaling. An ambitious EU-UK biomanufacturing partnership could combine European market scale and British scientific strength. Joint infrastructure projects, coordinated funding, university cooperation schemes, student exchanges and shared regulatory sandboxes would all help competitiveness. The UK’s higher appetite for risk-taking in areas such as cultivated products offers valuable lessons for Europe.
An economic security agenda with Japan
Japan’s biomanufacturing sector is smaller than China’s but highly mature and deeply embedded in agricultural, food and chemical supply chains. Patent activity has been consistently high in synthetic and engineering biology but remains dominated by large corporations and public research institutes. Public agencies and private investors support early-stage funding but Japanese companies lack the necessary infrastructure to grow, such as fermentation facilities. But Japan’s manufacturers are also deeply embedded in Asia-Pacific supply chains, making the country a potential hub rather than a standalone actor. Biomanufacturing should become a dedicated pillar in all EU-Japan exchanges, not just from a business but also from an economic security perspective. Japan’s concerns with Chinese coercion closely mirrors Europe’s own.
A dedicated Trade and Technology Council track for India
India has both the potential and the ambition to become an important actor in biotech. It combines a strong pharmaceutical industry with growing renewable energy capacity, while alsoplanning to expand manufacturing. Investments in biomanufacturing have been significant and its regulatory approval processes are much faster than Europe’s, a huge advantage in a fast-moving sector. The recently concluded EU-India Free Trade Agreement provides an opportunity for joint projects and technology exchanges. Biomanufacturing should become a priority track of the regular EU-India Trade and Technology Council, sounding out options for joint research and investment.
Speed up the action
The 2025 EU Bioeconomy Strategy sets out an ambition vision for bioplastics and biobased packaging, textiles, chemicals, construction products and fertiliser. The commission aims to launch theBio-based Europe Alliance to address gaps across the value chain that prevent companies from scaling up at the Global Bioeconomy Summit in Ireland in September 2026. The forthcoming Biotech Act II is expected to address regulatory hurdles and streamline access to European funding. The proposed European Competitiveness Fund could support biobased materials, biomanufacturing and innovative food products and biochemicals. On paper, momentum is building.
The question is whether biomanufacturing will be treated as a standalone sector or become an integral part of European industrial policy. The upcoming Industrial Accelerator Act mentions bio-based solutions only in passing, an omission that should be fixed during negotiations with the European Parliament.
Industry concerns[1] remain strikingly consistent: speed of permitting, over-regulation and lack of access to capital. Shell lost $600m in investments when it cancelled a SAF plant in the Netherlands in 2025, illustrating the risk that continues to deter private capital despite legislative demand signals. To unlock their own markets, governments will need to reduce those risks by providing guarantees, offtake agreements and funding from EU vehicles, such as the new European Competitiveness Fund.
Faster permitting, investment and regulatory simplification must go hand in hand with broader competitiveness policies and responses to Chinese overcapacity. China’s success stems not only from the scale of its investments but from its ability to integrate policy, infrastructure and strategic objectives.
That may be the most important lesson for Europe. If the continent wants to defend its market, preserve its innovation power and defend its manufacturing future, it cannot afford to let its biotechnology assets slip away.
[1] Interviews with biomanufacturing industry representatives between May 2025 and May 2026 in Copenhagen, Brussels, Berlin from a range of European countries.
The race is still open
China’s challenge to Europe’s traditional industries does not stop at cars and solar panels. As the rise of biomanufacturing shows, the competition now extends to the future of industrial production itself. The technologies discussed in this paper are still emerging but the foundations of industrial leadership are already being laid.
China’s leadership understands this. Through a combination of industrial policy, regulatory framework, state-backed capital, and the creative and entrepreneurial force of its companies, Beijing is positioning itself to shape the next industrial revolution.
Europe should take that ambition very seriously. The continent has the talent, the money, the sophisticated industrial clusters, and the network of international partners. It has the ingredients required to build a successful biomanufacturing ecosystem and to emerge as an additional pole in a world increasingly defined by technological rivalry.
Europe has a fair chance to accomplish this. To do so, policymakers in member states and in Brussels must look beyond protecting the incumbents and relieve the regulatory burden, and instead build the conditions for new industries to thrive. Bringing in private capital through the European Competitiveness Fund, the Industrial Accelerator Act, the Biotech Act II and the next EU budget will be key.
Biomanufacturing is not simply another climate technology—it is a new way of producing food, materials, chemicals and energy, driven by advances in biology, data, renewables and AI. The countries that master these technologies will define the rules of the future economy, the ones who do not even try will remain stuck in the industries of the past.
[1] Interviews with industry representatives from the batteries sector in March and May 2036 in various European locations and during the DARE* batteries taskforce meetings.
About the authors
Janka Oertel is a distinguished policy fellow with the European Power programme at the European Council on Foreign Relations. She leads the DARE* project, a three-year initiative focused on European competitiveness and clean technology transition.
Nina Schmelzeris a research assistant for the DARE* initiative at the European Council on Foreign Relations, based in Berlin. She supports a wide range of activities related to Europe’s industrial competitiveness, clean technology leadership and security within the context of global geopolitical and economic shifts.
Acknowledgments
The authors would like to thank Cam Watson, Dirk van der Kley and Nicolas Krink for their fantastic comments to this text and leading intellectual contribution to the overall research landscape; Sofie Carsten Nielsen of Dansk Industri and Emmanuel Molding Nielsen of Think Tank Europa for their support in deepening our understanding of the industry and connecting us to key companies; and Massimo Portincaso from Arsenale Bioyards for providing valuable insights into an entrepreneur’s approach to biomanufacturing and his conceptual framing of “neo-industrial”. Taisa Sganzerla did an outstanding job editing this unusually technical publication and added valuable insights and framing. And yet again, Sonia Li has provided invaluable support on research and conceptualisation. The publication is part of the DARE* initiative. All mistakes remain solely the authors’ responsibility.
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