German Chancellor Olaf Scholz sought to strike a delicate balance during a trip to China this week, promoting business ties with his country's largest trading partner while criticizing rising exports to Europe and its support for Russia.
Scholz met 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 due to meet Premier Li Qiang, as the two countries face strained relations over Russia's war in Ukraine and China's rivalry with the United States, Germany's most important ally.
During his trip Scholz promoted the interests of German companies that are finding it increasingly difficult to compete in China. And he expressed 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 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 dependence on Chinese goods .
The German economy shrank last year, and its weaknesses have highlighted its dependence on China for growth. Energy prices have risen due to the war in Ukraine, facilitated by Beijing's support for the Kremlin. German companies have pushed for greater access to China and complained they face unfair competition.
During his trip, which began in the industrial metropolis of Chongqing in southwest China and continued in Shanghai and Beijing, the chancellor visited German companies with large investments in China, met with trade representatives and spoke to university students.
“The competition must be fair,” Scholz told a group of German-speaking students in Shanghai on Monday. “We want a level playing field,” he said.
Scholz's trip was an example of the difficult dance Germany is trying to do: maintain economic ties with China while managing U.S. pressure to align more closely with Washington against Beijing. He was also expected to convey European leaders' geopolitical and trade concerns to China.
In his meetings, Scholz stressed Germany's commitment to doing business with China, but also warned that Beijing must curb the flow of Chinese goods into Europe. At the same time, he expressed reservations about the European Union's investigation into China's use of subsidies for green technology industries, saying any discussion on trade must be based on fairness.
“This must be done from a position of confident competitiveness and not from protectionist motivations,” Scholz told reporters on Monday.
China's manufacturing push into green sectors such as electric cars and solar panels has sparked 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 EU were to act too harshly against China, we could expect countermeasures and that would be a catastrophe for us,” said Maximilian Butek, executive director of the German Chamber of Commerce in China.
“It is extremely important for us that the Chinese market remains open,” he said.
In his meetings with Chinese leaders, Scholz was also expected to raise concerns about Beijing's support for Moscow's war economy, particularly its continued sale to Russia of goods with potential battlefield uses.
In his discussion with students in Shanghai, Scholz referenced Russia's war in Ukraine, saying that the world worked better when all nations embraced some basic shared principles.
“One of them is that you shouldn't fear your neighbors,” Scholz said, without naming any nations. “Borders cannot be changed by force.”
China hopes to drive a wedge between Europe and the United States by courting leaders like Scholz. State media reports described his visit as a demonstration of the strength of China's relations with Europe, highlighting its economic ties with Germany.
Beijing will certainly welcome the message that German businesses are committed to China. The Asian giant is trying to attract foreign investment to reinvigorate its economy, which has faltered due to a slowdown in the real estate sector. Some Western businesses and investors have also been rattled by Xi's emphasis on national security, which they say makes operating in the country riskier.
From China's perspective, Germany may be the best hope for delaying or easing any trade restrictions by Europe, said Noah Barkin, senior advisor for the China practice at the Rhodium Group, a research firm.
German automakers have invested billions of dollars in China and much of their revenue comes from there. Many fear that if the European Commission imposed higher tariffs on Chinese exports and Beijing retaliated, German businesses would suffer more.
Chinese officials “know that German companies are heavily invested and use that politically to influence political decision-making in Berlin,” Barkin said.
Germany's largest companies, including BMW, Mercedes-Benz and BASF, have strong investments in China and have strong and effective lobbies in Berlin, Barkin added. Executives from those companies, along with many others, traveled with Mr. Scholz to China.
“The supply chain in China is full of German products,” said Joerg Wuttke, former president of the EU Chamber of Commerce in China. “If China has a price war with Germany, then no one will make any more money.”
Chinese officials, for their part, have rejected European accusations of unfair trade practices, calling them unfounded and an act of “typical protectionism.” They hinted that they could retaliate for any action taken by the EU, saying China is “strongly dissatisfied and strongly opposes” its investigations.
Wang Wentao, China's trade minister, traveled to Europe last week to demonstrate Beijing's support for Chinese companies and reject accusations that China was dumping goods in the region and posing a risk to global markets.
In an interview with German newspaper Handelsblatt, Wu Ken, China's ambassador to Germany, said the competitiveness of Chinese electric vehicles “is based on innovation, not subsidies.”
“The challenge that developed countries face lies mainly in the fact that Chinese companies are more efficient,” the ambassador said.
Zixu Wang contributed reporting from Hong Kong.