EU divided in how to deal with China

Mark O'Neill July 03, 2023 08:28

In late June China’s Prime Minister Li Qiang went on a charm offensive to Europe, visiting Germany and France, seeking to counter the rising hostility of the European Union to his country. He had mixed success.

“De-risking is a false proposition,” Li said in a speech to the World Economic Forum in Tianjin on June 28. “Governments should not over-reach themselves, still less stretch the concept of risk and turn it into an ideological tool. Businesses were in the best position to assess risk.”

“De-risking” is the term used by Ursula von der Leyen, EU Commission President, to describe its policy toward China. She is one of Europe’s most hawkish officials on China. She says that it must learn from its bitter experience of over-reliance on Russia, especially in oil and gas, the main reason for the continent’s inflation since the invasion of Ukraine in February 2022.

She says that the EU must reduce its reliance on China for raw materials and limit the export of cutting-edge technology to China.

Officials and the public in Europe are enraged by the close relations of China’s President Xi Jinping and Russian President Vladimir Putin, whom they regard as a second Adolf Hitler who should be tried as an international war criminal at the Hague.

During his visit to Germany, Li found his strongest supporters among the giant manufacturing companies who are the largest foreign investors in China. He signed co-operation agreements with BASF, Mercedes-Benz, BMW and Volkswagen and toured a BMW exhibition centre that focuses on electric and new energy cars. He also toured the headquarters of Siemens.

Martin Brudermuller, chief executive of chemical company BASF, said that, while there were risks linked to operating in China, there was also a huge risk not to be in China. It is these German multinationals that are the most outspoken and effective lobby in Europe for more, not less, economic engagement with China.

But Jens Hildebrandt, head of the German Chamber of Commerce in Beijing, said that Li’s line that the business community did not want to de-risk is nonsense. “We see clear signs of de-risking. Some companies are shifting their production away from China to other Asian countries, to guard against future sanctions or export controls,” he said. “The reasons for de-risking come from multiple sides.”

There are different views within the three parties that make up the German government. The Greens are the most hawkish on China. At a news conference with Li, Chancellor Olaf Scholz asked him to give foreign firms a “level playing field in China, access to the Chinese market and fair competitive conditions.”

In Paris, French president Emmanuel Macron talked with Li about Ukraine and Taiwan. “France and China should adhere to resultful multilateralism, promote international solidarity, improve global governance and promote solutions to global issues,” he said.

An editorial in the China Daily on June 24 praised the approach of Scholz and Macron. “Despite the great lengths Washington has gone in a bid to drive a wedge between the EU and China, almost all stakeholders in the block are well aware that the co-operative nature of the ties remain unchanged.”

Accompanying Li on his visit were representatives of Chinese companies, including electric battery giant CATL which has opened a plant in Germany and solar panel maker Longi, who also hopes to build a factory there.

They were a reminder to European automakers of how far they have fallen behind China in the production of electric cars. During the first quarter of this year, China exported one million electric cars, up 58 per cent over the same period in 2022. Last year 5.67 million electric and hybrid cars were sold in China, the world’s largest market. This year BYD has replaced Tesla as market leader in China.

This success is the result of Chinese government policies since 2009 – billions of subsidies and financial support, technological innovation by the manufacturers and increasing acceptance by drivers.

As Europe races to catch up, it is opening this month only the second plant to produce electric batteries for cars in the EU, in Billy-Berclau in the north of France. It is 640 metres long and 100 metres wide and will produce 12.4 gigawatts in 2024, rising to 40 GWHs in 2030.

It is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Mercedes-Benz and Stellantis, which owns a range of brands including Peugeot, Fiat and Chrysler. The factory received aid of 1.28 billion euros from the government of France and Germany.

China’s EV producers aim to become the dominant players in the European market.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.