The EU's Industrial Accelerator Act does not mention China once. It does not need to. A 40% global-capacity threshold, a €100 million investment trigger and a list of six conditions — joint ventures, IP licensing, European workers — describe one country's position in batteries, electric vehicles and solar. Here is how the rules work and what they change for Chinese manufacturers and their European partners.
Status checked 28 October 2026 · Proposal stage — not yet law
TL;DR
- The IAA attaches conditions to foreign investments above €100 million in batteries, electric vehicles, solar PV and critical raw materials — but only for investors from a country holding more than 40% of global capacity. In practice, that means China.
- Approval requires meeting at least four of six conditions, such as a 49% ownership cap, a joint venture with an EU partner, IP licensing and 1% of revenue spent on EU R&D. Employing at least 50% EU workers cannot be waived.
- China is outside the public-procurement equivalence clause because it has neither an FTA with the EU nor membership of the WTO procurement agreement.
- "Made in Europe" is mostly about where a product is made, not who owns the factory — but ownership still matters in procurement and for new investment.
- Beijing has called the proposal institutional discrimination and threatened countermeasures.
Key takeaways
- A Chinese-owned plant inside the EU can still make EU-origin products; the IAA shapes how such plants are financed and controlled.
- The FDI conditions copy, in mirror image, the joint-venture and technology-transfer terms foreign carmakers once faced in China.
- Battery cells are the hard part: EU-made cells are required for vehicles to qualify, which makes Chinese cell plants in Europe both necessary and politically sensitive.
- Nothing applies until adoption, expected mid-to-late 2027 at the earliest.
How does the Industrial Accelerator Act target China without naming it?
The European Commission presented the Industrial Accelerator Act (IAA) on 4 March 2026. Most attention went to its "Made in EU" preferences for public procurement and public support schemes. A separate chapter, on foreign direct investment, is where China comes into focus.
The chapter covers four "emerging strategic sectors": battery technologies and their value chain for energy storage; pure electric, plug-in hybrid and fuel-cell vehicles, including electrification and digitalisation components; solar photovoltaic technologies; and the extraction, processing and recycling of critical raw materials. It applies to investments — including greenfield projects — worth more than €100 million that give a foreign investor control, defined as 30% or more of the shares, voting rights or ownership of an EU company or asset.
The key filter is the investor's home country. The rules apply only to investors from a non-EU country that accounts for more than 40% of global manufacturing capacity in the relevant sector, and to any subsidiary they control, wherever it is incorporated. Law firms that analysed the text concluded that, today, only China crosses that threshold across all four sectors. The Commission could later add sectors such as other net-zero technologies or electric propulsion, but it cannot use delegated acts to extend the regime to digital technologies, AI, quantum or semiconductors.
Investors from countries that have an FTA or economic partnership with the EU containing investment commitments — Canada, Chile, New Zealand and the UK are examples — are exempt, as are services investments and pure portfolio stakes. Parliament's rapporteurs want to go further and lower the investment threshold to €50 million.
What are the six conditions, and which one cannot be waived?
A covered investment must be notified in advance to the national investment authority and cannot go ahead until it is approved. Approval is possible only if the project meets at least four of six conditions:
| # | Condition | What it means in practice |
|---|---|---|
| 1 | Ownership cap | The foreign investor holds no more than 49% of the shares, votes or control rights. |
| 2 | Joint venture | The investment is made through a JV with one or more EU entities, again capped at 49% foreign ownership, with real EU participation in management and technology transfer. |
| 3 | IP licensing | The investor licenses IP and know-how to the EU entity; IP the EU side developed before or independently stays its own, jointly developed IP is jointly owned. |
| 4 | R&D spending | At least 1% of the EU entity's gross annual revenue is spent on R&D in the EU each year, in proportion to the investor's control. |
| 5 | EU workforce mandatory | At least 50% of the workforce, in all roles, consists of EU workers, at launch and throughout operation. This condition cannot be waived. |
| 6 | EU value-chain strategy | A published strategy to strengthen EU value chains and aim to source at least 30% of inputs for products sold in the EU from EU manufacturers. |
The Commission also gives itself a new role. It may review a covered investment instead of the national authority on its own initiative when the deal is likely to have a significant effect on value creation in the EU, at the request of a member state, or automatically when the investment exceeds €1 billion. That is a notable shift: investment screening has so far been a national competence, coordinated but not decided in Brussels. The IAA regime would also run alongside — not instead of — the existing FDI Screening Regulation, merger control and the Foreign Subsidies Regulation, so large deals may face several parallel filings with different tests and timelines.
Why do these conditions look familiar?
For three decades, foreign carmakers entering China had to form joint ventures with local partners, typically with foreign ownership capped at 50%, and share technology with them. China removed the ownership cap for passenger cars only in 2022. The IAA's 49% cap, joint-venture route and IP licensing condition are a deliberate mirror image. Commentators have called the approach "strategic reciprocity": applying to Chinese investors in Europe terms that Chinese authorities long applied to Western investors.
Beijing's procurement policy is part of the same argument. A State Council notice that took effect on 1 January 2026 gives domestic products a 20% price preference in Chinese government procurement, and defines "domestic" by local manufacture, a minimum share of domestic components and completion of key processes in China. The European Parliament's research service notes that China is not a party to the WTO Government Procurement Agreement, which makes its procurement rules hard to challenge legally. Seen from Brussels, the IAA is a late answer to policies China has run for years.
How does China lose access to European public procurement?
The IAA's "Made in Europe" clause lets some third countries count as EU origin. In public procurement, that applies to countries with an FTA containing procurement commitments, a customs union, or membership of the WTO Government Procurement Agreement, where the EU has corresponding obligations. China has none of these, so Chinese-made products do not count as EU origin in covered tenders for steel, aluminium, cement, net-zero technologies or vehicles.
The IAA goes a step further than product origin. In covered procurement sectors, contracting authorities would have to exclude suppliers that are owned or controlled by an entity established in a country without an agreement giving the EU comparable access. That ownership test is the clause most relevant to Chinese companies that already manufacture inside Europe: a plant in Hungary or Spain may make products of EU origin, but a supplier controlled from China could still be excluded from covered public tenders.
The direction is consistent with other EU tools. In 2025 the Commission used the International Procurement Instrument for the first time to exclude Chinese companies from EU medical-device tenders above €5 million. And on 9 September 2026 the Commission proposed a horizontal Public Procurement Act that would let authorities restrict tenders to EU or "covered" bidders, apply price advantages to EU-origin content and reject tenders where EU or equivalent content is below half the value.
Do Chinese cars built in Europe count as "Made in Europe"?
Often, yes — and that is the paradox of the policy. Origin under the IAA follows EU customs rules, which look at where a product is manufactured, not who owns the factory. A car assembled in Hungary with 70% EU-origin components and EU-made battery cells would meet the product test, regardless of the badge on the bonnet. The same applies to battery cells produced in Chinese-owned gigafactories in Hungary or Germany: they are EU-made cells.
That is why the IAA works on three levels at once. The product rules reward manufacturing in Europe, which encourages Chinese companies to build locally. The FDI conditions shape how they build — through joint ventures, with European workers, with technology shared. And the procurement ownership test keeps Chinese-controlled suppliers out of the most sensitive public tenders. The EU wants Chinese capital and know-how in Europe, but on terms that leave more of the value and the learning with European partners.
Corporate behaviour is already adjusting. BYD has prioritised its plant in Szeged, Hungary, and in June 2026 said its planned Turkish plant was on hold while it looked for a second site in southern Europe — inside the EU. Bloomberg reported in May 2026 that BYD was in talks with Stellantis and others about European plants. Earlier deals already had the shape the IAA rewards: Stellantis took a majority stake in a Leapmotor international joint venture in 2024, and CATL and Stellantis announced a 50:50 battery venture in Spain. Deals like these, structured with European partners in control or sharing control, are the template the regulation is pushing towards.
How has Beijing responded?
Quickly and in legal language. Two days after the proposal, on 6 March 2026, China's Ministry of Commerce (MOFCOM) said the restrictive provisions on foreign investment in batteries, electric vehicles, photovoltaics and critical raw materials — mandatory technology transfer, shareholding limits, local-content and local-employment rules — could amount to significant investment barriers and institutional discrimination. MOFCOM submitted formal comments to the Commission on 24 April and then warned publicly that it would take countermeasures if the legislation went ahead unchanged and harmed Chinese companies.
China's arguments are threefold: that the IAA conflicts with WTO principles such as most-favoured-nation and national treatment; that it discriminates against Chinese investors and will damage investment prospects; and that it will slow Europe's own green transition by cutting it off from Chinese supply chains. The China Chamber of Commerce to the EU made the decarbonisation argument most forcefully. Some European experts agree that linking consumer subsidies to "EU origin or equivalent" carries a real risk of WTO challenge, even though the procurement provisions look more defensible.
Context explains the intensity. The EU's goods trade deficit with China reached €359.8 billion in 2025, close to a billion euros a day. The EU already applies anti-subsidy duties on China-made EVs — BYD's combined tariff is 27% including the standard 10% — and Chinese automakers have responded by moving assembly into Europe. The IAA is designed to make sure that this localisation produces European jobs, suppliers and know-how, not only final assembly. China, for its part, has shown in recent disputes that it is prepared to open trade-remedy cases against politically sensitive EU exports such as brandy, pork and dairy.
What happens to batteries — the hardest part of the chain?
Battery cells are where Europe's dependency on China is deepest and where the IAA asks the most. For a vehicle to qualify under the automotive rules, its traction battery must contain EU-made cells and at least three main battery components of EU origin. Separately, any Chinese investment above €100 million in battery manufacturing must clear the FDI conditions.
In the short term, those two rules pull in opposite directions. Europe needs Chinese cell technology, especially in lithium-iron-phosphate chemistry, to build enough EU-made cells for qualifying vehicles; but the FDI conditions make Chinese-controlled gigafactories harder to approve. Reports from the negotiations suggest a phased approach — a transition period and a lower initial battery-content requirement — but the final design is not settled. Expect licensing deals, minority stakes and European-majority joint ventures to become the default model for new battery capacity.
What should European partners of Chinese companies do now?
- Map deals against the triggers. Check every planned investment above €50 million (the Parliament's proposed threshold) in batteries, EVs, solar or critical raw materials for a counterparty from a country above 40% of global capacity.
- Design for four conditions, not one. Workforce (mandatory) plus three others. In most cases the cheapest set is EU workforce, 1% EU R&D, a published 30% EU-inputs strategy and either the 49% cap or IP licensing.
- Separate product strategy from ownership strategy. A product can qualify as EU origin even if its maker is excluded from covered tenders. Decide which channels — retail incentives, fleet sales, public procurement — the business really depends on.
- Plan for parallel filings. Budget time for IAA notification, national FDI screening, merger control and Foreign Subsidies Regulation review in the same transaction.
- Write IP terms carefully. The licensing condition protects IP the EU side developed independently and makes jointly developed IP joint. Get those definitions right in the JV agreement before the regulation applies.
- Track retaliation risk. If China responds with countermeasures, they are likely to target politically visible EU exports. Exporters with China revenue should map their exposure.
Pro tip
For European suppliers, the IAA can be an opportunity: Chinese automakers localising in Europe need EU-origin components to reach 70%. Suppliers with documented EU origin and battery-component capability are now strategic partners, not just vendors.
Risk to watch
If the investment conditions make Chinese cell plants too hard to approve, Europe may not have enough EU-made cells for qualifying EVs in the early years — raising prices for European buyers and slowing electrification, which is precisely the argument Beijing is making.
Made in Europe Tracker
Where the Industrial Accelerator Act stands
- 4 Mar 2026Commission proposal: FDI conditions for >€100m deals
- 6 Mar 2026MOFCOM: "investment barriers and institutional discrimination"
- 24–27 Apr 2026China's formal comments; countermeasures threatened
- 9 Sep 2026Public Procurement Act proposed (European preference)
- Oct–Nov 2026EP rapporteurs push €50m threshold
- 1 Dec 2026Parliament committee vote
- 2027Trilogues; adoption expected mid-to-late 2027
Frequently asked questions
Does the Industrial Accelerator Act ban Chinese cars from the EU?
No. It does not ban imports or add tariffs. It decides which products qualify for public procurement and public support schemes, and it sets conditions on large new Chinese investments in four sectors. Chinese cars can still be sold, but China-made cars will not count as EU origin for subsidised or publicly procured sales.
Which sectors do the investment conditions cover?
Batteries and their value chain for energy storage; battery-electric, plug-in hybrid and fuel-cell vehicles including electrification and digitalisation components; solar PV; and extraction, processing and recycling of critical raw materials. The Commission could add other sectors later but not digital, AI, quantum or semiconductor technologies.
Can a Chinese-owned factory in Europe produce "Made in Europe" goods?
Yes, as far as product origin is concerned: origin follows where the product is manufactured. But in covered public procurement, suppliers owned or controlled from a country without a procurement agreement with the EU can be excluded, and new controlling investments above the threshold must meet the FDI conditions.
Will China retaliate?
MOFCOM has said it will take countermeasures if the law harms Chinese companies, while also offering dialogue. It has not specified targets. The law is still a proposal, so any response is likely to be calibrated to the final text, expected no earlier than mid-to-late 2027.
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Sources
- Skadden — IAA: strategic sectors, Made in EU requirements and FDI controls (Apr 2026)
- EPRS — International dimension of the proposed IAA (Sep 2026)
- Global Times — MOFCOM criticises the IAA (Mar 2026)
- Euronews via Yahoo — China slams Made in Europe push, mulls retaliation (Apr 2026)
- electrive — BYD puts Turkey plant plans on hold (Jun 2026)
- Euronews — EU slams door on China with Made in Europe push (Mar 2026)
- Chatham House — European preference signals a wider change of EU doctrine (Mar 2026)
This article explains a legislative proposal that is still being negotiated. It is not legal or investment advice; transaction structures should be reviewed by counsel against the final text.
Reviewed by the Kurums Industry desk · Startup › Industry › Automotive · Last checked 28 October 2026
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