Düsseldorf, May 29, 2024 – 49 years have passed since the European Community officially established relations with the People’s Republic of China. After almost five decades of economic relations characterized by ups and downs, it is difficult to foresee just how auspicious next year’s “golden wedding anniversary” will truly be. Despite the comparatively lively exchange of high-ranking officials between the European Union and China last year, both sides are keen to reduce their own dependencies on the other market.
A certain mutual mistrust was expressed during the 24th EU-China Summit last December, among other things. Both EU and Chinese representatives expressed concerns about the economic and political behavior of the other side. Europe fears an escalation in the Taiwan conflict, exacerbated by the pro-Russian position of the Chinese government in the Russia-Ukraine conflict. The results of the Taiwanese presidential elections in January and the Chinese reaction to the election victory of William Lai, a politician who has taken a critical stance towards the Chinese government, have reinforced these fears. Nevertheless, attempts are being made to walk a tightrope to avoid making a clear statement: the European Union is officially committed to the “One China” model, but is expanding cooperation with Taiwan, a balancing act that often leads to tensions with Beijing.
There is also concern for the European economy, which is facing increasing pressure from Chinese competition in terms of prices and innovation – triggered by distorting interventions by the Chinese state in fair competition, according to Ursula von der Leyen, the President of the European Commission. Meanwhile, Chinese President Xi Jinping criticizes the categorization of China as a systemic rival and rejects any “interference” in the country’s internal affairs. The consequences of these differences are often steps towards reorientation and diversification on both sides, which are intended to reduce dependencies. The past few years, which have been characterized by geopolitical challenges, have also burnt the need for such steps into the general consciousness.
Internal developments in China are also a cause for concern. The seemingly unstoppable advance of the Chinese economy a few years ago appears to be stalling. The ongoing property crisis and the liquidation of the Evergrande Group, once the richest property group in the world, deflationary trends, and rising youth unemployment are causing concern. State subsidization measures on the demand side have either failed to materialize or are inadequate. Governments at the regional level are deeper in debt than ever before, a legacy of the high costs of the three-year zero-covid policy. Added to this is a specter with which the Western world is all too familiar: demographic change. In 2023, the Chinese population shrank by 0.15 per cent, declining for the second year in a row, a sign that China may soon have passed its population zenith.
This apparent economic weakness is contributing to the erosion of the confidence of European investors in the Chinese market. Foreign companies in China also complain about unfair business conditions due to restricted access to information, protectionist political measures such as “Made in China 2025” and “Buy China” as well as the favoring of state-owned companies in the awarding of public contracts. Seemingly arbitrary use of state power against foreign companies and vaguely worded laws such as the expanded anti-espionage law are contributing to the regulatory uncertainty that is affecting many European companies in China. In addition, the pandemic has severely curtailed interpersonal dialogue, which is still an obstacle to establishing new business relationships. Many European expats who left China during the pandemic have not returned. The hoped-for influx of European tourists has also failed to materialize. In 2023, the National Immigration Administration of the People’s Republic of China recorded only around 35.5 million arrivals from abroad, compared to 97 million in 2019.
China is also the EU’s “problem child” in terms of trade policy. Around half of the imports for which the European Commission has identified a “high dependency” of the EU on third countries come from China. The coronavirus pandemic and the conflict in Ukraine have made the danger of such dependence alarmingly clear. Measures such as the export restrictions on gallium and germanium, which Beijing imposed last year in response to US export restrictions, call into question China’s position as a reliable supplier country. The EU’s clear trade deficit, which totaled around 400 billion euros in 2022, is also an integral part of the increasingly China-critical discourse. There is often talk of a “flood” of cheap Chinese products inundating the European market and forcing European manufacturers out of business.
The reactionary measures taken by the EU to protect the European single market are severe. These include, for example, an anti-subsidy investigation into Chinese EVs, which was launched by the European Commission in October last year. Direct investments by Chinese companies in EU member states and European companies in China are also to be subject to higher scrutiny. Unilateral measures such as these lead to countermeasures and harbor the risk of an escalating trade conflict. We, the German-Chinese Business Association (DCW), are therefore taking a decisive stand against trade barriers. Import tariffs such as the punitive tariffs of 100 per cent on Chinese electric vehicles announced by the US government cannot be a model for the European Union. Right now, it is particularly important to separate polemics from facts and avoid similar steps that go beyond a proportionate response.
How relations will develop in the future depends to a not inconsiderable extent on the decisions made in the European Parliament. This is where the course of European foreign policy is set. The European elections in June therefore represent a potential turning point in European-Chinese relations. Even under adverse circumstances, the importance of the two markets for each other must not be lost sight of. Chinese companies are just as dependent on the European sales market as vice versa. Furthermore, Chinese raw materials are an essential component of many key technologies that are driving the European energy transition. China also has the potential to become an innovation leader in areas such as new energies and electromobility. Steps towards diversification, however necessary they may be, should therefore be taken in a structured, sustainable, and mindful manner. This includes measures that could help avoid a potential conflict with Taiwan. The European Union must act as a stabilizing agent according to its “One China” policy since an escalation would not only have catastrophic consequences for the global economy but would also present a danger to global peace. The German-Chinese Business Association is committed to harmonizing the interests of both the EU and Germany as well as the Chinese side. We firmly believe that a decoupling of the two markets is outside these interests.
Although European companies’ confidence in the Chinese market has been shaken, it is far from broken. Despite serious challenges, most European companies in China have no plans to withdraw from the country; the majority would even be prepared to expand investments if the Chinese government were to facilitate market access and remove regulatory hurdles. German companies are particularly committed to the Chinese market: Around 91 per cent of all companies surveyed by the German Chamber of Commerce Abroad in China as part of their 2023/2024 business climate survey want to remain in China, while a further 7 per cent are considering leaving the Chinese market but have no concrete plans to do so.
The EU and its member states have a balancing act ahead of them: on the one hand, a fair market environment must be created, while on the other, the European market must not be sealed off. Unilateral measures such as punitive tariffs or trade restrictions should be seen as a last resort. Instead, international trade with China must be regulated through bilateral and multilateral agreements. The DCW therefore strongly recommends the resumption of negotiations on the Comprehensive Agreement on Investment (CAI) between the EU and China, which have been suspended since 2021 with no prospect of the agreement being signed. In view of the great importance of the Chinese market for European countries, which is reflected in the enormous direct investment flows between the EU and China in recent years, the signing of the CAI and the associated mutual opening of the two markets is particularly desirable.
The DCW also calls for the exchange between the European Union and the People’s Republic of China to be further expanded and institutionalized. Uniform standards must be set and enforced, particularly in matters relating to ensuring an accessible, fair, and balanced international market environment. Controversial issues such as human rights must also be taken into account.
Concessions must also be made on the Chinese side: A level playing field and fair market access for foreign companies must be guaranteed to ensure that the Chinese market remains attractive as an investment destination. Economic measures must be used on the consumption side and must not flow excessively into industrial modernization and innovation.
The DCW, as a member of the EU-China Business Association and an organization with strong networks in both European countries and China, will continue to promote understanding and mediation between the two cultures. Through its events, publications, and platforms, it will continue to promote direct dialogue between European and Chinese companies. The DCW is happy to provide its expertise to the European committees.
For inquiries, please contact:
Ms. Silke Besser, CEO
Deutsch-Chinesische Wirtschaftsvereinigung e.V.
Ernst-Schneider-Platz 1, 40212 Düsseldorf
Tel.: +49 211 788 813-20
E-Mail:
Silke Besser