HIKMA SUMMIT
OF INTERNATIONAL RELATIONS

On 4 October, EU member states voted in favour of imposing tariffs of up to 45 per cent on Chinese electric vehicles for at least five years. The topic was highly contentious: 10 member states supported the measure, 12 abstained, and another 5 voted against the tariffs.

Although the tariffication is already in effect, this fragmentation complicates Europe's ability to form a cohesive policy response and benefits China's strategic interests.

The backdrop of this tariff decision is further complicated by the broader geopolitical landscape shaped by U.S. trade policies aimed at preventing China's rise as a global technological leader. For several years, the US had encouraged the EU to follow a similar approach. As the Union became increasingly wary of its economic dependency on foreign exports, in 2023, the European Parliament called for clarity and unity in policy towards China. This resulted in Von der Leyen discourse switching from decoupling EU-China relationship to de-risking it.

However, to a greater extent than ever before, EU investments in China are being driven by Germany and its carmakers. This colluded with Von der Leyen approach. With its “no” vote on Chinese EV tariffication, Germany has further cemented its status as the most Beijing-friendly of the large EU member states.

Von der Leyen and EU : economic “de-risking”

China and the EU are major economic partners, but it is key to rebalance the trade relationship as the EU's trade deficit has reached almost €400 billion, compared to €40 billion, 20 years ago. That constitutes a great concern for the EU side. At the press conference of Brussels, 8 December 2023,  President von der Leyen explained that the sources of such imbalances are well known: “They range from a lack of market access for European companies to the Chinese market, to preferential treatment of domestic Chinese companies and overcapacities in the Chinese production.”

During the meeting, she also elaborated on the EU's approach to de-risk and not decouple its relations with China. “De-risking is about managing risks, addressing excessive dependencies, and increasing resilience”, the President explained. Last summer NATO declaration echoes Von der Leyen 2023 discourse, with the allies describing China as “profound concern” and a security challenge for NATO.

This year, on September 17th, Von der Leyen’s new top team had been nominated  to help steward the EU through the next five years of global uncertainty. She announced that the Commission’s first initiative will be a competitiveness compass, to close Europe’s innovation gap with the US and China – increasing security and independence while delivering on decarbonisation.

Germany and China : The German Zeitenwende (svolta epocale)

However, while the EU tries to emulate a cohesive front, Germany seems to backpedal on its previous declaration. In fact, even though Germany’s traffic light coalition ambitiously stated the need for a “comprehensive China Strategy, resulting in the drafting of Germany’s first-ever China Strategy released on July 13th, 2023, since then, there has been no sign of a Zeitenwende in Germany’s China policy.

Germany’s posture towards China  in recent years has been characterised by the need to safeguard Germany as a business location. About 5,000 German companies are active in China. But in a recent survey of 150 members of the German Chamber of Commerce in Greater China , two-thirds of the respondents  said they felt facing [ms9] unfair competition in the country. German companies believe their products offer superior quality, innovation and technical leadership compared with those made by their Chinese competitors.

Yet, increasingly limited access to government officials and regulators have the Germans concerned they will lose out on business that is key to their global success. More than that, they fear a no return on investments. In fact, German FDI made up 57% of total EU investments in China in the first half of 2024, 62% in 2023, and a record 71% in 2022. As for October 2024, there are three Chinese battery plants in Germany. So, Germany’s Strategy on China is therefore more of a strategy on Germany.

These investments are deepening the dependency of some of Germany’s largest companies on the Chinese market at a time when economic de-risking from China is a stated policy goal in Berlin and Brussels.

China the Great Winner ?

On the fringes of the G20 Summit in Rio de Janeiro, Federal Chancellor Scholz met Chinese leader and party leader Xi Jinping. This included the conflicts around Taiwan and Ukraine ; Olaf Scholz promoting himself to work together for peace and security in the world.

The Chinese state news agency Xinhua reported that Xi had promoted the meeting for bilateral relations with a "strategic" and "long-term" perspective. According to the figures, Xi also said in the talks with Scholz that China was willing to work with Germany to consolidate this comprehensive strategic partnership: “Both countries must see and develop bilateral relations from a long-term and strategic perspective.”

Xinhua also released a readout from Xi who stated that “it is hoped that Europe and China will resolve the issue of electric vehicles through dialogue and negotiation as soon as possible, and the German side is willing to make active efforts in this regard.” Moreover, China seems to have understood how to also gain support from other European countries, such as Hungary. From its failure in threatening Spain to uphold their votes on the EV, China seemed to understand that getting on the good side is more effective.

Will the rope break ?

However, there is no overarching, long-term goal for German-Chinese relations. The characterisation of China by Germany as a “partner, competitor and systemic rival”is no longer appropriate and must be updated. In the future, China, with its now “declared” support to Putin, could fear more economic sanctions to an international level. 

Germany is in a delicate position, trying to balance its relationship with China and the needs of the European Union. As the German government continues to invest heavily in the Chinese market, growing economic dependence and pressures for a "de-risking" strategy raise questions about the sustainability of this alliance. In a geopolitical context of tensions and rivalries, the challenge for Berlin will be to strike a balance between supporting national interests and European cohesion.

Sources

New York Time, (2024, April 16), “Why Germany can’t break up with China”

Spiegel, (2024, July 11), “China fühlt sich durch »aggressive Rhetorik« in Nato-Erklärung brüskiert”

Spiegel, (2024, November 19), “Niemand soll sich vor seinen Nachbarn fürchten müssen”

European Commission - Announcement, (2023, December 8), “President Von der Leyen calls for a rebalanced trade relation with China in “Summit of choices”