Germany’s Leader, Olaf Scholz, Walks a Fine Line in China

Chancellor Olaf Scholz of Germany tried to strike a delicate balance on a trip to China this week, promoting business ties with his country’s biggest trading partner while criticizing its surge of exports to Europe and its support for Russia.

Mr. Scholz met with China’s top leader, Xi Jinping, at the Diaoyutai State Guesthouse in Beijing on Tuesday, the culmination of a three-day visit with a delegation of German officials and business leaders. He was also expected to meet with Premier Li Qiang, as the two countries navigate relations strained by Russia’s war in Ukraine and China’s rivalry with the United States, Germany’s most important ally.

Throughout his trip, Mr. Scholz promoted the interests of German companies that are finding it increasingly hard to compete in China. And he conveyed growing concern in the European Union that the region’s market is becoming a dumping ground for Chinese goods produced at a loss.

It was Mr. Scholz’s first visit to China since his government adopted a strategy last year that defined the Asian power as a “partner, competitor and systemic rival,” calling on Germany to reduce its dependency on Chinese goods.

Germany’s economy shrank last year, and its weaknesses have exposed a reliance on China for growth. Energy prices have risen because of the war in Ukraine, which has been facilitated by Beijing’s support for the Kremlin. German companies have pushed for more access to China and complained that they face unfair competition.

During his trip, which began in the sprawling industrial metropolis of Chongqing in China’s southwest and continued in Shanghai and Beijing, the chancellor visited German companies with extensive investments in China, met with trade representatives and talked with university students.

“Competition must be fair,” Mr. Scholz told a group of German-speaking students in Shanghai on Monday. “We want a level playing field,” he said.

Mr. Scholz’s trip was an example of the difficult dance that Germany is trying to do: maintaining economic ties with China while managing U.S. pressure to align itself more closely with Washington against Beijing. He was also expected to convey European leaders’ geopolitical and trade concerns to China.

In his meetings, Mr. Scholz highlighted Germany’s commitment to doing business with China, but he also warned that Beijing had to curb the flood of Chinese goods into Europe. At the same time, he expressed reservations about the European Union’s investigations into China’s use of subsidies for green technology industries, saying that any discussion about trade must be based on fairness.

“This must be done from a position of self-confident competitiveness and not from protectionist motives,” Mr. Scholz told reporters on Monday.

China’s manufacturing push in green sectors like electric cars and solar panels has touched off trade disputes with Europe and the United States, where such industries have also received government support. But with 5,000 German companies active in the Chinese market, Germany stands to lose more than many of its European partners would if Beijing were to retaliate against the European Union.

“If the E.U. goes too hard against China, we could expect countermeasures and this would be a catastrophe for us,” said Maximilian Butek, the executive director of the German Chamber of Commerce in China.

“For us it’s extremely important that the Chinese market remains open,” he said.

In his meetings with Chinese leaders, Mr. Scholz was also expected to raise concerns about Beijing’s support of Moscow’s wartime economy, especially its continued sale to Russia of goods with potential uses on the battlefield.

In his discussion with students in Shanghai, Mr. Scholz alluded to Russia’s war in Ukraine, saying that the world functioned best when all nations embraced some basic shared principles.

“One of these is that one should not have to fear its neighbors,” Mr. Scholz said, without naming any nations. “Borders cannot be changed with force.”

China is hoping to drive a wedge between Europe and the United States by courting leaders such as Mr. Scholz. State media reports depicted his visit as demonstrating the strength of China’s relations with Europe, playing up its economic ties with Germany.

Beijing is sure to welcome the message that German businesses are committed to China. The Asian giant is trying to court foreign investment to reinvigorate its economy, which has faltered because of a housing slowdown. Some Western businesses and investors have also been rattled by Mr. Xi’s emphasis on national security, which they regard as making it riskier to operate in the country.

From China’s perspective, Germany may be its best hope of delaying or watering down any trade restrictions from Europe, said Noah Barkin, a senior adviser in the China practice at the Rhodium Group, a research firm.

German carmakers have invested billions of dollars in China, and much of their revenue comes from there. Many worry that if the European Commission imposes higher tariffs on Chinese exports, and Beijing retaliates, German businesses will suffer most.

Chinese officials “know that German companies are heavily invested and they use that politically to influence political decision making in Berlin,” Mr. Barkin said.

Germany’s biggest companies, including BMW, Mercedes-Benz and BASF, are heavily invested in China and have strong, effective lobbies in Berlin, Mr. Barkin added. Executives from those companies, along with several others, traveled with Mr. Scholz to China.

“The supply chain in China is stuffed with German goods,” said Joerg Wuttke, a former president of the E.U. Chamber of Commerce in China. “If China has a price war with Germany, than no one will make money anymore.”

Chinese officials, for their part, have brushed off the European accusations of unfair trading practices, calling them groundless and an act of “typical protectionism.” They have hinted that they could retaliate for any actions taken by the E.U., saying that China was “strongly dissatisfied with and firmly opposes” its investigations.

Wang Wentao, China’s commerce minister, went to Europe last week to show Beijing’s support for Chinese companies and push back against the accusations that China was dumping goods on the region and posing a risk to global markets.

In an interview with the German newspaper Handelsblatt, Wu Ken, China’s ambassador to Germany, said the competitive of Chinese electric vehicles “relies on innovation, not subsidies.”

“The challenge faced by developed countries lies more in the fact that Chinese companies are more efficient,” the ambassador said.

Zixu Wang contributed reporting from Hong Kong.

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