Scholz, Xi disagree over over-capacity, Ukraine invasion

Mark O'Neill April 18, 2024 22:13

German Chancellor Olaf Scholz met Chinese President Xi Jinping but failed to convince him that his country’s industrial over-capacity was threatening the global economy nor reduce his strong support for Vladimir Putin’s invasion of Ukraine.

The two met in Beijing on Tuesday, the high point of Scholz’ three-day visit to China that also took him to Chongqing and Shanghai. He also met Prime Minister Li Qiang. Germany is Beijing’s most important economic partner in Europe, with investment by its companies much the largest of any European country.

Scholz said he had expressed his “concern” to Li that “unilateral economic policy decisions in China are creating big structural difficulties for companies in Germany and Europe”. He discussed with Li the need for “fair competition  . . . equal market access, the protection of intellectual property and the necessity for reliable legal conditions. Germany does not want to decouple from China, but to scale back lopsided dependences, diversify supply chains and reduce risk for the economy,” he said.

Xi told Scholz: “both sides should be wary of the rise of protectionism” and insist on looking at production capacity issues objectively. China’s exports of electric vehicles, lithium batteries and photovoltaic products have not only enriched global supply and alleviated global inflation pressure but also made great contributions to the global response to climate change and green and low-carbon transformation,” Xi said. “Both sides should be wary of the rise of protectionism.”

Joerg Wuttke, Emeritus Chairman of the European Chamber of Commerce in China, said that Chinese over-capacity threatened the world market. “Its economy suffers, 12 provinces are more or less bankrupt, the population consumes less, while the country overproduces and wants to export its goods,” he said.

“China is increasingly dependent on Europe, the less it can count on the U.S. and the more it itself is in an economic crisis. China is waiting because of the presidential election in the U.S., Beijing’s policy fixation,” he said. “Do they not understand that their inaction will eventually lead the EU to use tariffs and other anti-dumping measures it has available? This consciousness does not exist in Beijing – they do not understand that the Europeans can also act.”

The EU is considering measures against Chinese electric cars and solar and wind park equipment. European manufacturers say that producers in China receive unfair state subsidies. Speaking at Tongji University in Shanghai, Scholz said: “at some point, there will also be Chinese cars in Germany and Europe. The only thing that must always be clear is that competition must be fair.”
He and Xi also disagreed over China’s increasing support for Putin’s invasion of Russia. “I asked Xi to use his influence on Russia so that (Russian President Vladimir) Putin finally stops this insane campaign, withdraws his troops and ends this terrible war,” he said.

China is the biggest economic beneficiary of the war. It buys Russian oil and gas at discounted prices. Chinese companies sell billions of dollars of goods ranging from cars to machine tools, many of them dual civilian-military use. Bilateral trade last year reached a record US$240.1 billion, up 26 per cent from 2022, The renminbi is used to settle one third of all Russian exports, up from 0.4 per cent before the war.

Video footage from the front line shows Chinese vehicles used by Russian soldiers being blown up by Ukrainian drones and artillery. But only a limited number of Chinese have “volunteered” for the Russian army, fewer than the number of Nepalis, Ghananians, Ethiopians and other foreigners.
According to official Ukrainian figures, as of April 1, 2024, Russian combat losses in the war amounted to 442,880 troops. So, as the war drags onto its third year, Russia will increasingly depend on China for many kinds of industrial goods that it cannot buy from western countries, Japan, Taiwan and South Korea.

Scholz and Xi also disagreed over a high-level peace conference to be held in Switzerland in mid-June, to discuss a peace framework proposed by Ukraine. As the invading power, Russia has not been invited. But Xi said that he would only support such a conference if it was “recognised by Russia and Ukraine”.

Xi is the only world leader close to Putin. The two men have met at least 42 times since Xi came to power in 2012. Putin is due to make a state visit to China this year. So Xi is paying no heed to the words of Scholz and other western leaders.

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.