This article investigates the sudden rise and subsequent slow decline of the European Union (EU) in Chinese diplomacy between 2002 and 2007. China’s decision in 2003 to consider relations with the EU as ‘strategic’ in nature does not reflect a fundamental change of mind but rather a perception of favourable circumstances. China has a long track record of high expectations towards a united Europe. After the World Trade Organization (WTO) negotiations had created a positive image of a united and independent EU, the transatlantic rift over the Iraq War in 2002 and 2003 seemed to present an international environment that was conducive to stronger China‐EU ties. Subsequently, however, the difficulties of engaging with a complex entity like the EU have contributed to souring diplomatic relations. This development is traced for two major cases of Chinese foreign policy towards the EU: the quest for recognition as a market economy; and the push to have the EU’s arms embargo lifted. Over time, Chinese engagement with the EU on these issues has gone through different phases, reflecting repeated attempts to improve the diplomatic approach, to eliminate unsuccessful strategies and to react to EU feedback. China has not yet reached its goal on either issue. The article concludes by pointing to the specific difficulties that have emerged from the evolution of Chinese diplomacy towards the EU on these two cases.