Welcome to Red Thread, Euractiv’s weekly newsletter on the EU’s relationship with China and the wider Asia-Pacific.

I’m Christina Zhao in Oceania, joined by Anupriya Datta in Europe.

This week, we look at the industries Beijing wants to dominate next...

As Europe builds trade defences against China's "new three" – electric vehicles, batteries and solar panels – Beijing already appears to be moving on.

State media has begun promoting what it calls the country’s “next new three”: artificial intelligence, robotics and innovative medicines. Science and Technology Minister Yin Hejun recently endorsed the trio at a State Council policy briefing, while the Communist Party’s People’s Daily and Global Times have presented the sectors as China’s next engines of growth.

For the past three years, Brussels has focused on Beijing’s previous industrial breakthroughs, investigating Chinese electric vehicles, tightening procurement rules and trying to reduce dependence on Chinese green technology.

Officials increasingly frame the country’s economic rise as a succession of export eras. The first was the “old three” – clothing, furniture and household appliances – which powered an export boom from the 1980s through the 2000s and cemented China’s reputation as the world’s factory.

Then came the “new three” of EVs, lithium batteries and photovoltaic products – industries that transformed China from a low-cost manufacturer into the dominant supplier of technologies underpinning the global energy transition.

Instead of physical goods, the "next new three" are technological capabilities. Official messaging has focused on exporting AI models rather than software, robotic systems rather than machines and innovative medicines rather than generic drugs.

“China is accelerating its transition from a global manufacturing hub into a global source of innovation,” Global Times wrote this month. Beijing wants the next phase of growth to come from frontier technologies and industries of its own creation rather than cheap goods produced at scale.

The Politburo, the Communist Party's top decision-making body led by President Xi Jinping, enshrined the strategy on Thursday, pledging to deepen the "AI+" action plan, accelerate breakthroughs in frontier technologies and develop "future industries" in the second half of the year.

That matters for Europe because AI, robotics and biotechnology also sit at the heart of the EU's competitiveness agenda. China's "next new three" align with the sectors Brussels hopes will drive its future competitiveness.

But unlike solar panels or batteries, leadership in these industries remains contested. The US retains an edge in frontier AI models and much of pharmaceutical innovation, while Europe remains highly competitive in robotics, medical research and advanced engineering.

In little more than four decades, China has gone from one of the world's poorest countries to competing at the technological frontier. Matching its success in clean technology in sectors where the US and Europe remain formidable competitors may prove its most ambitious challenge yet.

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Politburo promises more stimulus

China’s Politburo on Thursday pledged fresh “incremental policies” for the second half of the year, signalling further stimulus as it acknowledged the economy still faces "difficulties and challenges."

The leadership also vowed to curb “involutionary competition” – its term for the destructive price wars that have swept industries from electric vehicles to solar panels – while accelerating fiscal spending and boosting domestic demand.

Brussels has long urged China to rely more on domestic consumption and less on exports. Thursday’s readout, published by state media agency Xinhua, promised stronger demand while affirming support for the industries at the centre of the EU’s trade dispute with China.

The pig test: China's top leadership still discusses hog prices in Politburo meetings because pork remains the country's most important food staple and is a key inflation indicator.

Beijing fights the overcapacity label

China's commerce ministry on Tuesday rejected Western accusations that state subsidies and weak domestic demand have fuelled industrial overcapacity, arguing instead that the country’s manufacturing strength stems from innovation, economies of scale and market reforms.

The position paper comes as Beijing faces mounting trade pressure from the EU and US, which argue that support for industries including EVs, solar panels and steel has distorted global markets. The ministry dismissed allegations of overcapacity, trade surpluses and currency suppression as “unfounded” and accused Brussels and Washington of using them to justify protectionism.

The politics of language: In Beijing, "overcapacity" (产能过剩) is treated as an accusation. Officials use terms such as "advanced productive forces" and "comparative advantage."

Tit-for-tat retaliation

Beijing on Friday imposed export controls on 14 European entities, including German defence giant Rheinmetall, Czech HGV builder Tatra Trucks and French drone manufacturer Cavok UAS, after the EU added 14 Chinese and Hong Kong entities to its latest Russia sanctions package.

Chinese companies will be barred from exporting dual-use goods to the affected entities, while foreign firms will be prohibited from supplying them with Chinese-made dual-use items.Beijing called the EU sanctions “unwarranted,” reiterated that it is neutral on the conflict and urged Brussels to “immediately correct its wrongdoing.”

Neutrality? Beijing calls the conflict the "Ukraine crisis" rather than the "Ukraine war," language that avoids assigning responsibility for the fighting.

China closes in on ASML

China has reportedly begun mass producing domestically developed immersion deep-ultraviolet (DUV) lithography machines, marking a significant step in Beijing's drive to reduce its reliance on foreign semiconductor technology.

The state-backed effort is being led by Shanghai Aishengna Electronic Technology Group, according to Reuters, with the first machines expected to be delivered this year to leading Chinese chipmakers. The equipment remains well behind Dutch group ASML's systems and is unlikely to pose an immediate commercial threat to the European company.

No chips without them: Every advanced processor, from AI chips to smartphone processors, starts life inside a lithography machine. ASML dominates the most advanced end of the market.

A new friend in Europe

Chinese President Xi Jinping urged Slovakia on Tuesday to deepen co-operation in clean energy, robotics and artificial intelligence, while calling on Bratislava to play a "constructive role" in promoting stable China-EU relations as trade tensions between Beijing and Brussels continue to mount.

The remarks came during talks with President Peter Pellegrini, who is making the first visit to China by a Slovak head of state in 16 years, as Beijing seeks to strengthen ties with one of the few EU countries to maintain warm relations despite frictions over trade and Russia.

A different era: When Slovakia's last president, Ivan Gašparovič, visited Beijing in 2010, Hu Jintao – not Xi Jinping – led China.

Russia wants more North Korean troops, Zelenskyy says

Ukrainian President Volodymyr Zelenskyy said Russia was preparing to deploy a further 30,000 North Korean troops to fight in Ukraine, with preparations under way in Russia's Voronezh region since June. Pyongyang has already sent an estimated 12,000 soldiers under a 2024 mutual defence pact, according to Kyiv. Zelenskyy warned the partnership was strengthening North Korea’s military and posing a broader threat to Asia.

Volkswagen cuts outlook again

Volkswagen cut its full-year revenue forecast after a sharp deterioration in its China business, warning sales could fall by up to 3% instead of rising 3% as previously forecast.

The German carmaker also reported a 9.5% drop in second-quarter operating profit to €3.5 billion, missed analysts' expectations, and confirmed it would expand a restructuring programme that includes up to 100,000 job cuts as it grapples with intensifying competition from Chinese manufacturers.

India courts Romania

Indian President Droupadi Murmu travelled to Bucharest on Friday for a two-day state visit, holding talks with Romanian President Nicușor Dan and signing three memoranda of understanding covering science and technology, sport and Indian studies at the University of Bucharest.

An Indian foreign ministry spokesperson said the visit advanced plans for a mobility agreement covering skilled workers, particularly in high-demand ICT sectors, according to The Hindustan Times. The two sides also discussed expanding defence cooperation, including in manufacturing, defence technology, maritime security and cybersecurity.

NATO intern arrested on espionage suspicions

Belgian authorities extended the pretrial detention of a Canadian woman of Chinese origin who had been interning at NATO’s strategic military headquarters in Belgium. She is suspected of spying for a foreign power and participating in a criminal organisation, Alice Tidey reports.