In China, Germany’s Olaf Scholz calls for ‘open and fair’ competition as differences weigh on trade

Scholz is leading a delegation that includes environment, agriculture and transport ministers, as well as business executives of manufacturing giants such as Siemens, BMW and Benz.

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Siemens CEO Roland Busch told state media CGTN on Sunday that he was confident in the potential of the Chinese market, and he pointed to years of “very strong” relations between the two countries.

“Germany has a lot of technologies to offer,” he told the broadcaster. “This is how we grow the economies. And going forward, I think we have the next level ahead of us to keep on going. We believe in the Chinese market, and we’ll be doubling down on our investment.”

China has been Germany’s largest trading partner for many years, and an estimated 5,000 German companies currently operate in China, according to official German figures.

But bilateral relations have somewhat soured amid conflicts concerning human rights and security, as well as alleged unfair competition and the pace at which Beijing has been opening up market access to foreign companies.

Last week, international insurance firm Allianz Trade said China had been “making significant gains” in the European market across sectors such as computers; metals; electronics and optical products; and basic pharmaceuticals, with momentum being “especially strong” in electric equipment.

And Dong Jinyue, a senior economist at Spanish multinational financial services firm BBVA Research, explained that German investments in China largely target hydrogen, automobiles, chemicals, power-generation equipment, communications and steel. Both countries also cooperate in education, cultural and technology sectors.

Scholz’s trip comes at a time when the European Union is undertaking an anti-subsidy investigation into Chinese electric vehicles (EVs), and as criticism is growing from across the Atlantic on China’s overcapacity, especially in the new-energy sector.

Chinese EVs, along with solar panels and lithium-ion batteries, have seen robust growth and exports since last year, but exports of these products are at risk of punitive tariffs and trade restrictions from Brussels and Washington.

“It’s quite futile for Europe to use trade as leverage against China,” said Andy Xie, a Shanghai-based independent economist. “If you leave China, then your economy is going to suffer, because China makes more cars than anywhere else.

“For Germany to compete, its technology needs to rise again; China is setting the pace for automotive technology. Best you can do is stay in China and try to compete.”

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Germany relies heavily on China for new-energy products, as well as for pharmaceuticals and rare earths, said Mark Natkin, managing director with Hong Kong-based market research firm Marbridge Consulting. “So, [Germany] must walk a tightrope between de-risking and maintaining access to key supplies,” he said.

At the same time, Natkin noted that China represents a “critical market” for BMW and Volkswagen, underscoring why Scholz will work hard to maintain relations with Beijing.

Although China remains Germany’s largest trading partner, figures from the former’s General Administration of Customs showed that the value of exports and imports between the two countries in 2023 dropped by 8.7 per cent from a year earlier, falling to US$206.8 billion.

Meanwhile, analysts have pointed out how the German government is facing challenges to balance its economic needs by working with China against the backdrop of internal and external political pressure.

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Chinese leaders still value Germany for the technological quality of its products, especially cars, said James Chin, a professor of Asian studies at the University of Tasmania.

Scholz is also in a unique position to raise concerns held by the EU and the United States about the level of China’s support given to Russia, Chin said.

Additionally, he touched on how German businesses still grapple with Chinese “red tape” and perceived uncertainty in Chinese business laws.

A survey conducted by the German Chamber of Commerce in China last week found that two-thirds of German businesses in China have observed “unfair competition” when operating in the country.

China-Germany ties are resilient despite EU push to ‘de-risk’: Beijing envoy

Dong at BBVA said that the future of China-Germany relations will be influenced by Berlin’s policy priorities and will require a balancing act between ideology and economic interests.

“The confrontations between China and Germany will be less severe than China-US tensions, as the German economy is going into a downward trend and they really need economic cooperation with China,” she added while also noting that ideological confrontations are likely to persist.

Shen Dingli, an international relations scholar based in Shanghai, said that political differences also factor into the equation, with some German politicians favouring a de-risking approach to reduce the nation’s economic reliance on China.

“This differences among German politicians in terms of strategic planning is not something that can be resolved in the short term,” he noted, adding: “Geopolitical security concerns of Germany and other EU countries have been amplified by the Ukraine war, and this affects their policies towards China and Russia.”