Most of the time a year later there would be a quite similar looking car from a Chinese brand.
If the chain is as you suggest that the Chinese authorities hand over documentation for Chinese manufacturers to copy, that would be an issue for EU.
I don't believe things happened quite the way you suspect. But for instance Xiaomi when they developed the SU7 had European designers on it, and they chose to copy Porsche.
But good design elements have a tendency to spread, and Xiaomi does not make a secret of where their inspiration came from.
You don't have to give the specs to Chinese authorities for that to happen. Every manufacturer can buy a European car, and tear it apart to see how every component is built.
Their sales of petrol cars gone down in China the last few years
That's happening to everybody, including Chinese car makers. I don't get what you point is with that?
IDK about other countries, but Mercedes seems about as popular as it always was here:
https://fdm.dk/nyheder/nyt-om-trafik-og-biler/elektrisk-bilsalg-elbiler-har-kurs-mod-90-procent
With 3 models in the top 25, it's not exactly bad for a brand that is more expensive than the competitors.
2 models beat Tesla model 3, which is a cheap crap car, and all 3 models beat VW ID.3 which is a very decent car, and they all beat the Chinese Zeekr which is a new darling in the market. In the list 13 models are German brands, which make German cars just beat 50%!!
In fact Mercedes and BMW are the only luxury brands on the list!
Notably Volvo and Polestar are out completely! And that's significant because in Denmark we have always bought many cars from Sweden!
It is also notable that the field is pretty narrow, so although Mercedes is a bit down the list, the sales are not that much behind.
But in China the market is dominated by subsidized Chinese cars, in an exploding market, and in USA tariffs have nearly destroyed the market for cars made in Europe.
So European car makers are not doing great internationally ATM. Not because of incompetence, but because of a very tough even hostile market for European cars.