Spain's China Bet: Engagement in Search of a European Framework

When Chinese leader Xi Jinping told Spanish Prime Minister Pedro Sánchez during the latter’s April 11-15 visit to China that Spain and China stand on “the right side of history,” and jointly reject “the law of the jungle,” the intended audience was hard to miss. These statements were meant as a joint rebuke, delivered in Beijing, of an American president who has threatened to cut off trade with Spain, demanded use of its military bases for a war Madrid considers illegal, and displayed great hostility towards Spain’s worldview.

This was Sánchez's fourth consecutive annual visit to Beijing, making him the most frequent China traveler of any major Western leader since COVID. Coming in the immediate aftermath of Spain's open rupture with the Trump administration over Iran, and in the footsteps of the Spanish King’s own China visit in November, the summit’s symbolic weight was unmistakable. 

But beyond geopolitical signaling, this summit was principally about deepening a bilateral economic relationship that Madrid has been cultivating for years. The question many now have in Brussels, various European capitals, and Washington is what this bilateral warming means for the EU’s pursuit of strategic autonomy and for whether the West can develop a common overall approach to China. 

An “Unsustainable” Trade Relationship 

Sánchez began his three-day trip with a carefully worded warning against China’s “unsustainable” trade imbalance with the EU, noting how the Europeans “need China to open up so that Europe does not have to close itself off.” 

These comments come in the context of growing imports. Spain’s trade deficit with China reached over $35 billion in 2025, its largest bilateral deficit by a large margin (See Figure 1). 

Indeed, as seen in Figure 2, Chinese imports account for a rising share of Spain's total import bill, tracking above the EU average and climbing steadily since 2010. Yet, Spain's exports to China remain limited, consistently running below the EU average, and well behind Germany and France (see Figure 3). The relationship is, in short, unbalanced and the sectoral composition reinforces this: China's three largest export categories to Spain (electronics at $12.9B, machinery at $8.9B, and vehicles at $4.8B) alone exceed the entirety of Spain's exports to China ($8.98B), which remain concentrated in food, raw materials, and pharmaceuticals.

However, if we go by the summit outcomes, it is clear that Spain’s bilateral engagement will not be enough to solve these imbalances. The impact of five new agrifood export protocols or one memorandum of understanding (MOU) on geographical indications will be rather limited at the topline level and do little to address the underlying macroeconomic factors driving China’s export boom. While specific sectors like dry figs, pistachios, poultry and pork may benefit at the margins, the overall impact of these sectoral deals on the trade balance will remain limited.

The Investment Bet

More likely, it seems that the Spanish government is betting on inbound Chinese investment to help rebalance both the Spain-China and the EU-China economic relationship. Pre-summit reporting indicated that securing meaningful technology transfer commitments from Chinese investors was among Madrid's key priorities. The main deliverable on this front was an MOU between both countries’ trade ministries, containing language on technology transfers, joint ventures, capacity building, and joint decarbonization projects. 

However, Spain’s ability to translate political goodwill into tangible industrial gains remains to be seen. Positive-sounding language in a framework document might provide valuable political impetus, but it is not the same as binding commitments, and a degree of skepticism is warranted. Beijing has a track record of limiting outbound transfers of technologies it considers strategically sensitive, and it has been growing more protective in recent years. For instance, under July 2025 changes to Chinese export control law, outbound transfers in sectors like batteries and advanced materials now require government approval.

The early signs of this investment bet are mixed. Over the past two years, Spain has attracted a wave of announced Chinese industrial projects. The flagship example is the joint venture between CATL and Stellantis to build a $4.5 billion battery gigafactory in Zaragoza. Structured as a 50-50 partnership, the plant is expected to reach an annual capacity of up to 50 GWh, enough to power 750,000 EVs per year. Construction began in late 2025, backed by over $327 million in state aid and projected to generate around 4,000 direct jobs.

This has been accompanied by other high-profile announcements. The joint venture between Chery Automobile and Ebro-EV Motors aims to revive a former Nissan plant with a $436 million investment, targeting an annual production capacity of 150,000 vehicles by the end of the decade. Envision Energy has also committed close to $927 million for a green hydrogen electrolyzer facility, positioning Spain as a potential node in Europe’s emerging hydrogen economy. 

Taken together, these announcements have driven a noticeable uptick in annual headline figures. Chinese foreign direct investment in Spain reached $700 million (€643 million) in 2025, the highest level since 2018, though still far from the scale and consistency of the mid-2010s surge in Chinese capital flows.

Yet many headline investments remain at relatively early stages or have encountered delays. The Zaragoza gigafactory only broke ground in late 2025, with production expected by the end of 2026 and full capacity not expected to be reached until 2028. Reports surrounding the construction phase, including the possible deployment of up to 2,000 Chinese workers, have also sparked local concerns. Similarly, the Chery-Ebro project has already seen its production timeline slip from an initial 2024 start date to 2026.

More fundamentally, the structure of some investments raises questions about their long-term contribution to Spain’s industrial base. The Chery-Ebro project, for example, is expected to rely initially on a DKD (“direct-knock-down”) assembly model, in which key components are produced abroad and only assembled locally. Doing so risks turning Spain into a final assembly destination rather than a center of advanced manufacturing, all while generating externalities on other EU partners by facilitating Chinese companies’ bypass of the Union’s tariffs.

Madrid has repeatedly emphasized that it welcomes Chinese investment “with conditions.” In practice, however, these conditions remain loosely defined. Spain’s FDI screening mechanism is primarily a security instrument; it does not impose local content requirements, mandate technology transfer, or require R&D investment as conditions of approval. The PERTE VEC, the state aid program channeling EU recovery funds into the EV supply chain, does incorporate technological additionality and industrial spillovers as selection criteria, but this falls short of binding conditionality and applies only to projects seeking public funding. In other words, if Spain is to pursue a genuine strategy of calibrated coupling, one that actively structures the terms on which Chinese investment is welcomed, the policy toolkit is yet to catch up. 

The Limits of Spain’s China Strategy

No episode better captures the limits in Spain's China policy than the October 2024 EU vote on countervailing duties against Chinese EVs. Ten member states voted in favor, five opposed, and twelve, including Spain, abstained, allowing the Commission to proceed with ad valorem duties of up to 35.3 percent.

Spain's abstention was particularly salient given its earlier support for the Commission's anti-subsidy investigation. The shift coincided with mounting pressure from Beijing, most importantly through the launch of an antidumping investigation into EU pork exports, a sector to which Spain is uniquely exposed. 

Such readiness to soften under bilateral pressure points to a broader tension. Investment attraction and trade defense should not be alternative strategies but complementary ones. A Spain that positions itself as a preferred destination for Chinese capital while hedging on the trade defense architecture that underpins fair competition is pursuing a strategy that is, at best, incomplete, and at worst, self-defeating.  

Engagement with China can be economically beneficial, particularly if it brings capital, green technology, and frontier industrial capacity into Europe. But without a parallel commitment to robust, EU-level trade defense, Spain’s engagement risks undercutting the Union's very ability to manage systemic imbalances and what is coming to be known as the second China shock.

Implications

Spain’s soft pivot toward China is understandable and not without strategic logic given the current state of transatlantic relations. Active bilateral diplomacy and openness to investment can serve legitimate national and European interests. But on their own, they are unlikely to rebalance trade or secure meaningful technology transfer. Spain should therefore work towards an EU-level economic framework that welcomes Chinese investment but is built on robust trade defense and a degree of industrial policy conditionality. In this sense, Spain is best understood as a stress test for the EU. Variations in national approach need not be a weakness, but without a firm common baseline, they risk feeding into China’s implicit divide-and-conquer strategy.

Related Articles

Scott Kennedy, The Power of Innovation: The Strategic Value of China’s High-Tech Drive, CSIS Report, March 2, 2026.

Ilaria Mazzocco, Canada and the European Union: Two New Wins for Chinese Exports in the West, CSIS Commentary, January 22, 2026.

Ilaria Mazzocco, Will the United States Push Europe Toward China?, CSIS Commentary, July 18, 2025. 

Ilaria Mazzocco, Driving Diplomacy, CSIS Brief, March 24, 2025. 

Ryan Featherston, Slamming the Brakes: The EU Votes to Impose Tariffs on Chinese EVs, CSIS Trustee Chair Blog, December 16, 2024.