Last month, the European Central Bank stated that China has been flooding European markets with excess goods at dumping prices for several years, harming EU manufacturers. These remarks come amid mounting pressure on European policymakers to address the sharp increase in imports from China.

In the face of high US tariffs and a protracted slump in domestic demand, Chinese companies are actively seeking buyers beyond their home market. However, the ECB estimates that the influx of cheap Chinese goods into Europe is not solely the result of American tariffs. After all, this trend began in 2021 when the Chinese real estate crisis first affected consumption in the world’s second-largest economy.

Government investments aimed at promoting growth have led to an oversupply of production capacity and price wars in the domestic market, making exporting a much more appealing option. To maintain competitiveness abroad, Chinese firms are slashing short-term costs, reducing margins, and sometimes even selling at a loss.

In a recent analysis, Goldman Sachs noted that intensified Chinese competition presents "ambiguous consequences" for ECB policy. An increase in imports could ease price pressures, but the overall impact on inflation will depend on the response of domestic demand and whether new price risks emerge. Analysts assert that the central bank has limited tools to react if inflation expectations remain stable.

Historical research indicates that the ECB has generally preferred to maintain its policy course unchanged when declines in domestic inflation coincided with accelerated growth in other regions. Goldman anticipates that interest rates will remain unchanged "for the foreseeable future," although the regulator will continue to closely monitor labor market conditions, wage dynamics, and core inflation.

At the same time, analysts warn that the risks to the scenario of stable rates lean toward a potential resumption of rate cuts next year, especially if external shocks continue to amplify competition while domestic activity remains sluggish.