Overcapacities, particularly from China, are perceived as a threat to European manufacturers, distorting competition and straining bilateral trade. On the basis of a dynamic definition of ‘industrial overcapacity’, this study identifies overcapacities for most industrial sectors in China. Absorption occurs primarily through inventory accumulation, while six sectors with rising export-to-revenue ratios account for the large increase in China’s exports to the EU. At the same time, case studies of semiconductors, electric vehicles and batteries, hydrogen, and robotics show that concrete risks from overcapacity for manufacturing in the EU are sector-specific and partly mitigated by value-chain dynamics and technological leadership. In China, overcapacities — discussed as ‘involution’ — are perceived as an unwelcome outcome of industrial policies and an obstacle to the high-priority objectives of technological upgrading and self-sufficiency. As the effectiveness of Chinese policies to reduce overcapacities remains uncertain, competitive pressures upon European companies are likely to persist or intensify. This highlights the need for context-specific EU policy responses, including the full use of traditional trade defence as well as other EU instruments. Policy space provided by WTO law should be tested, renewed efforts for a targeted reform of WTO rules be made, while cooperative efforts with China should be maintained.