Structural Fragmentation and Strategic Myopia: What Europe Can Learn from China's Climate Investment Strategy

Introduction

Europe’s institutional investors command extraordinary resources, with pension funds alone holding 10.3 trillion EUR and asset managers overseeing 33.7 trillion EUR. They have pioneered Environmental, Social and Governance (ESG) frameworks, set net-zero targets, and have proudly showcased their climate credentials on the world stage. However, despite this sophistication and scale, Europe lags behind China in mobilising climate investment at speed and scale. The problem is not a lack of capital, but a lack of coordination: structural fragmentation and short-term strategic myopia have turned Europe’s strengths into constraints.

This comparison between Europe and China can feel like a familiar refrain. It is often said that ‘China is years ahead’ in clean tech, batteries, or digital infrastructure.  However, repetition should not breed complacency. Instead, each new example underscores a deeper structural point: Europe has the means but not the machinery to compete in a global economy where strategic coordination determines industrial survival. Therefore, to close that gap, Europe must rethink how it channels patient, long-term capital across borders and sectors.

China's Long-Term Climate Investment Strategy

The scale of China’s state-backed financial commitment to climate infrastructure is striking. The China Development Bank, for instance, deployed 3.08 trillion yuan (433 billion USD) in loans in 2023, roughly half of which went to infrastructure development, equivalent to about half of the European Investment Bank’s entire ten-year climate mandate. A recent initiative adds another 500 billion yuan (70 billion USD) to ‘policy-based financial instruments’ designed to attract private capital for strategic sectors such as artificial intelligence, digital infrastructure, and transport, potentially leveraging up to 5 trillion yuan over time.

A good example is Beijing’s policy of ‘computing and power coordination’ (算电协同), which forms part of a broader push that includes the more well-known ‘East Data, West Computing’ programme and national green-data-centre plans to integrate rapid AI and data-centre expansion with electricity planning and renewable deployment. Under this approach, data centres are treated not as passive, constant electricity drains but as flexible, schedulable loads and grid resources. Grid operators can shift or aggregate compute tasks, responding to demand and scheduling usage between regions to make times of heavy workloads coincide with periods of surplus renewable generation. At the policy level, this is reinforced by measures such as green targets for data centres and incentive schemes that give energy-efficient and grid-supporting facilities preferential access to subsidies and other forms of support,   thus lowering financing costs. The result is a strategy linking energy and digital development, which reduces the costs of scaling AI infrastructure. This approach creates clearer pathways for patient, policy-backed finance and a degree of cross-sector coordination that European investors cannot yet replicate, as technology, energy, and infrastructure financing remain largely siloed.

China’s coordinated strategy compounds competitive advantages across its industrial base. Renewable-energy firms benefit from predictable domestic demand (which the upcoming 5-year plan will undoubtedly focus on bolstering further), standardised financing, and integrated supply chains, including the processing of critical minerals. As has been incessantly covered in recent news, China processes over 90% of the world’s rare earths, giving it a cost and resilience edge that no Western economy has yet matched. This dominance in refining and processing, rather than merely raw material ownership, illustrates how control over midstream bottlenecks determines long-term competitiveness.

Through this integration, China has demonstrated that climate investment can drive, not constrain, growth. Indeed, China's clean tech sector accounted for 40% of the country's GDP growth in 2023, highlighting that through coordinated climate infrastructure investment, China has aligned decarbonisation with its economic growth strategy.

Europe's Lack of Coordination 

In contrast, Europe’s fragmented regulatory landscape slows even the most well-intentioned climate investment. Instruments like the European Long-Term Investment Fund (ELTIF) regulation were meant to ease cross-border capital flows, but remain hampered by inconsistent national rules. Similarly, InvestEU faces coordination hurdles as investors navigate divergent tax and governance regimes. The result is years-long project delays, rising costs, and missed opportunities for scale.

Europe’s ESG standards, capital depth, and accountability remain global benchmarks, but they cannot compensate for a system that treats every major project as a national rather than continental effort. As in defence spending, Member States often prioritise domestic capacity over efficiency: building smaller, costlier projects to secure local jobs and tax revenue rather than pooling resources for superior, shared outcomes.

For instance, a Rotterdam taxpayer’s taxes subsidising an initiative in Amsterdam feels completely normal and is politically acceptable, but this same Rotterdam taxpayer supporting a Milan-based company, even if it delivers better results at lower cost within the EU, can be framed as ‘money lost abroad’. This recurrent logic fragments Europe’s green transition.

A now well-known research from the IMF even estimates that non-tariff trade barriers within the EU equate to tariffs of around 44% for goods and 110% for services, which clearly demonstrates the extent of Europe’s lack of harmonisation and coordination.

The automotive industry, which accounts for about 7% of EU GDP and provides one in twenty jobs, is a good example of Europe’s structural fragmentation and strategic myopia. When the EU introduced vehicle CO₂ regulations in the 1990s, Europe’s carmakers did not double down on clean-tech R&D. Instead, they poured resources into lobbying to delay or dilute targets. That short-term calculus reached its climax in the Dieselgate scandal, when automotive firms were found to have used software to cheat emissions tests, investing in deception rather than innovation.

This decades-long detour proved costly. Europe has always been uniquely skilled at creating combustion engines, and China realised this decades ago, so instead of trying to compete, they pivoted to electric vehicles (EVs). The Chinese government supported innovation with massive subsidies and favourable legislation, which allowed Chinese firms like BYD to become the largest EV producer globally. Although the European combustion engine remains among the most desired in the world, this may not be as significant in a world that is rapidly adopting EVs en masse.

Chinese EV manufacturers are now entering Europe with price and technological advantages backed by a coordinated domestic market. Europe’s failure, then, was not capital scarcity, but instead an inability to translate regulatory ambition into industrial renewal.

Future Steps Europe Must Take

To address its structural fragmentation and strategic myopia, Europe must move beyond a patchwork of national initiatives towards a governance framework capable of coordinating capital at the continental level. This does not require emulating China’s state capitalism, but rather designing institutions that can translate Europe’s market-based capital strength into collective strategic direction. 

A first step would be to establish an entity tasked with aligning national regulatory incentives, coordinating cross-border infrastructure investments, and identifying projects with significant transnational spillovers, such as renewable energy grids, critical mineral processing, and AI-enabled energy efficiency systems. This would complement an expanded mandate for the European Investment Bank, which could evolve into a genuine European Climate Bank with greater risk-bearing capacity and the authority to issue joint climate bonds backed by EU guarantees. At the same time, harmonising the rules and tax treatment of long-term investment vehicles such as ELTIFs would reduce the frictions that currently deter institutional investors from financing cross-border projects.

Beyond institutional design, Europe must also cultivate a shared strategic culture among its major public and private investors. A Pan-European Strategic Capital Forum could provide a regular platform for coordination between national promotional banks, sovereign funds, and institutional asset managers, aligning private capital deployment with the EU’s industrial and climate priorities. 

Finally, Europe’s approach to sustainable finance should evolve from one centred on compliance and disclosure towards one that also rewards strategic impact. Integrating metrics such as cross-border spillovers, supply-chain resilience, and contributions to strategic autonomy into ESG frameworks would allow investors to align sustainability with competitiveness. The challenge, in short, is to build a financial architecture capable of acting collectively, investing boldly, and thinking beyond the next fiscal or electoral cycle.

Again, Europe does not need to mimic China’s state capitalism, but it can learn from its effectiveness. The overused ‘China is ahead’ refrain remains true for a reason: coordination works. If Europe continues to divide the effort along national lines, it will likely just keep producing world-class ESG reports while others build world-class industries.

The main hurdle is therefore less about new funding and more about new governance. A continent able to marshal 30 trillion EUR in assets should be able to act as one strategic investor. The question is whether Europe can evolve from fragmented virtue to collective effectiveness, before the next ‘China is ahead’ story writes itself once again.

The views expressed in this article belong to the author(s) alone and do not necessarily reflect those of European Guanxi.

ABOUT THE AUTHOR

Bob Geels is an economic affairs intern at the UN's Economic and Social Commission for Asia and the Pacific. He previously worked at OMFIF, a geoeconomics think tank based in London. He holds an MSc in Political Science from the London School of Economics and a BA in International Studies from Leiden University, where he focused on East Asia and China.

This article was edited by Alice Baravelli.

Featured Image: Aerial View of Solar Panels on Industrial Roof / Changsha, China  / Free for use / China Yu / Pexels