Diplomats from the EU’s 27 member states were pressured this week to lift sanctions on Yusha Group, a Chinese textiles manufacturer accused of selling sensitive European technology to Russian buyers. In exchange, Beijing has pledged that the company will refrain from shipping banned items to Russian military-linked buyers. It will also remove German company Sindlhauser Materials from its own export controls list, according to multiple sources familiar with the affair.

The unusual quid pro quo – the product of high-wire negotiations at the top level of EU and Chinese politics – is designed to protect the supply chain of Europe’s most valuable technology company, Dutch-based ASML, of which Sindlhauser is a reported supplier.

Yusha Group was blacklisted by the European Union in February 2025, three years after Russia launched its full-scale invasion of Ukraine. The Hubei-based company, whose primary business is textile manufacturing, was then named in an Irish Times investigation for shipping Irish-made antennae to Quasar, a Russian company that has been sanctioned by the United States for its role in the Russian invasion.

Now, should EU diplomats agree to de-list it, Yusha could be free to buy and sell sensitive goods in the European market again, showing the negotiating leverage China’s grip on the global minerals market affords it.

During talks in the Chinese capital this month, top-level EU trade officials led by commissioner Maros Sefcovic were presented with the proposal, according to multiple sources familiar with the affair.

Sindlhauser, which was listed by Beijing in July in a dramatic response to another raft of EU sanctions, is reported to be part of the supply chain of ASML, which has cornered the market for the precision lithography machines that are essential to the global supply chain for semiconductors.

Beijing’s sanctions cut Sindlhauser, which makes specialist materials used in precision coatings for the semiconductor industry, off from rare earths and other critical minerals that are essential to its manufacturing processes.

Earlier this month, Bloomberg – which first reported the exchange regarding Sindlhauser but did not name Yusha – said the German manufacturer was at “risk of going out of business in the coming months” after being choked from its Chinese supplies.

The European Commission declined to comment on the situation, while the Chinese Mission to the EU, Sindlhauser Materials and Yusha Group did not immediately respond to requests for comment.

The dynamic shows the fraught nature of Europe’s new-found appetite for geoeconomic manoeuvres. It is heavily dependent on suppliers from China and the United States, meaning its every offensive move risks a counterpunch that can hurt its own struggling industries.

Nor is it the first time the bloc has backtracked on its listing of Chinese firms. In June, EU ministers paused restrictions on Chinese chipmaker Yangzhou Yangjie Electronics, which had been sanctioned in an earlier round of measures targeting Russia’s war machine. The move allowed European carmakers reliant on the firm’s supplies to complete existing orders.

During Wednesday’s debate at the Coreper II grouping of EU ambassadors, sources said some capitals had reservations about delisting a company that has been implicated in assisting Russia’s war effort. No final decision was made and the debate is expected now to move next week to the Working Party of Foreign Relations Counsellors, a committee that deals with legal, financial and institutional issues related to EU foreign policy.

On Wednesday, during a speech at the European Parliament, European Commission President Ursula von der Leyen hailed the success of recent talks between her trade chief Maros Sefcovic and Chinese Commerce Minister Wang Wentao.

While the headline deliverable was a 350,000 cap on Chinese hybrid car exports to the bloc, the German official talked of “the removal of certain EU companies from Chinese control lists” – an oblique reference to Sindlhauser, sources confirmed. It is unclear at this stage whether the controls have been fully lifted from Sindlhauser, but the expectation in Brussels is that Beijing will stick to its side of the deal if the EU delists Yusha.

In an effort to unpick these sorts of dependencies and to restrict their impact, the commission is set to make a trio of proposals in December. DiversifyEU, an initiative aimed at reducing the bloc’s dependence on critical foreign supplies, will compel companies in key sectors to broaden their pool of suppliers in an effort to stop the weaponisation of key inputs. A “solidarity mechanism” will compensate companies subject to retaliation from trade rivals, which is seen as a way of ensuring the EU’s member states do not block trade actions against China. A “kill switch”, meanwhile, will give the bloc the power to kick Chinese companies out of the EU market with near-immediate effect.

The latter is seen as a second strike weapon – usable in an instance where China weaponises its critical mineral dominance should the sides descend further into a trade war.

The instruments are being developed in tandem with intense negotiations with China’s commerce ministry about rebalancing the bilateral trade relationship, talks which yielded the breakthroughs on hybrid cars and export controls.

Beijing has, in recent days, repeatedly warned the EU not to believe it has landed on a “dual track” formula for extracting concessions from the Chinese government. “The EU should not fantasise about gaining benefits through pressure, nor should it underestimate China’s determination and ability to safeguard its own interests,” read a Ministry of Commerce statement last Friday.