MUNICH: Chinese Premier Li Qiang’s European tour last week made clear that Europe is not about to decouple from China. If anything, Sino-European cooperation will deepen on technology and, critically, on development issues in the Global South
Li is not only China’s second-ranking official but also Xi Jinping’s closest political associate since the time when the two worked together in Zhejiang Province, more than two decades ago. As Shanghai party chief, he expedited the Tesla Motors mega-factory that helped make China the world’s top auto exporter.
His visit included meetings with Chancellor Olaf Scholz and top German industrial leaders, as well as the up-and-coming prime minister of the state of Bavaria, and finished with an address to a Paris conference on development financing convened by President Emmanuel Macron.
Li called for a “global development partnership” to provide more resources to developing countries, and for “liberalization and facilitation of trade and investment” to “inject fresh growth impetus into developing countries,” rather than “trade protectionism and decoupling and severing supply and industrial chains in any form,” according to a Chinese government statement.
The 27 leaders of the European Community meanwhile will “resort to a soft tone on China” at their June 28-29 EU Council summit in Brussels, according to a draft resolution leaked to Politico.
“Despite their different political and economic systems, the European Union and China have a shared interest in pursuing constructive and stable relations, anchored in respect for the rules-based international order, balanced engagement and reciprocity,” the draft reads, adding that Europe “does not intend to decouple or to turn inwards” or adopt policies “to harm China, nor to thwart China’s economic progress and development.”
The draft language echoes Scholz’s comments to the German Bundestag.
China’s exports to the Global South have doubled since 2020 and now exceed its total exports to developed markets for the first time. China is also the largest lender to developing countries. As central banks in developed markets tighten credit conditions in response to inflation, bank lending in dollars and euros to developing countries has shrunk. Many countries of the Global South are turning to China’s renminbi for trade and development financing as a substitute.
China’s exports of digital and physical infrastructure to the developing world have enabled the Global South to increase its exports to developed markets. According to a forthcoming World Bank analysis, China’s exports of intermediate goods to East Asia-Pacific countries have risen in tandem with the exports of EAP countries to developed markets. That is the virtuous cycle of globalization of which Li Qiang spoke in his Paris address.
China’s role in building infrastructure in the Global South is important for Europe’s exporters, but European governments have a more urgent reason to cooperate with China. Immigration from the world’s poorest economies from Africa to South Asia is Europe’s most sensitive political issue. Without stabilizing the economies of the poorest countries, Europe can’t stop a tidal wave of migrants from seeking refuge on its shores. China is the only economy with sufficient resources and technology – especially in digital infrastructure – to make a difference in the Global South.
After Li departed for Paris, Scholz told the German Bundestag that he is striving for “a geopolitical Europe” – that is, a Europe that plays an independent geopolitical role – together with French President Macron.
Scholz also announced a November conference of the Group of 20 Compact with Africa in Berlin, to “strengthen economic cooperation with our neighboring continent.” In addition, the EU is scheduled to hold a summit meeting with the countries of Latin America and the Caribbean in July.
The German Chancellor added that before Li Qiang’s visit, he had held intensive exchanges with other European leaders in preparation for the European Council’s discussion of EU-China policy in the coming week. In this context, he stressed China’s role in food security, in helping heavily indebted states, in investing in future technologies, in the fight against poverty, and in the fight against climate change.
Li Qiang’s visit marked the first formal government consultation between Germany and China since 2018. Consultations of this kind are reserved for Germany’s closest partners, and the visit’s protocol was a clear indication that the German chancellor seems to have little interest in dismantling relations with China
Washington has urged Europe to “de-risk” its economic relationship with China – a euphemism for decoupling – but the facts on the ground point toward a deepening economic relationship with China
With its economy in recession, Germany’s economic relationship with China has taken on additional importance. China is Germany’s most important trading partner. Much more than other European countries, Germany has built up its trade relations with China over the last 20 years. The exchange of goods between China and Germany amounted to almost EUR 300 billion in 2022 – well ahead of the volume of EUR 249 billion exchanged with the United States. Conversely, Germany is also China’s most important trading partner in Europe.
Germany’s automakers—the country’s largest industry—sell nearly 40 percent of the 14.2 million cars they make annually in China,
China also supplies indispensable intermediate products on which German chemical and electronics manufacturers depend. In addition, China has a quasi-monopoly on rare earths. These are required for batteries, solar modules or electric cars.
Germany’s business community, understandably, has expressed frustration with the hostility towards China of leaders of the Green Party and its ministers in the coalition government. Volker Treier, head of foreign trade at the German Chambers of Industry and Commerce (DIHK), recently said: “The business community is very angry about this ambiguous communication on the China strategy, given the importance of China for our economy.”
Li Qiang’s visit marked a departure from a confrontational tone that had been set by Green Party German Foreign Minister Annalena Baerbock in recent months. Baerbock’s trip to China in April raised political debates in Germany, with her critical remarks on issues such as Russia, Taiwan, and human rights drawing strong reactions from Chinese officials. Foreign Minister Qin Gang retorted, “We don’t need condescending lectures.” Baerbock characterized her trip as “shocking in parts” and claimed that China had become more aggressive internationally and repressive domestically, viewing it as a rival rather than a partner.
As the senior cabinet member for the Green Party, the second largest party in Berlin’s three-way coalition, Baerbock’s influence has waned along with support for the Greens, who won 22% of the national vote in last year’s federal elections but are now polling at just 13.5% of the voters.
By contrast, Li Qiang’s meeting with Bavarian Prime Minister Markus Söder in Munich underscores the political dynamics within Germany, where the governing parties face increasing pressure. Söder, a potential beneficiary of an early end to the governing coalition, previously aspired to the chancellorship in 2021. He organized for Li to meet with the heads of Siemens and BMW, leading German firms based in Bavaria, and arranged a gala dinner in the Munich Residence in Li’s honor.
Influential voices inside Scholz’s Social Democratic Party are urging more cooperation with China. The Seeheimer Circle, an official think tank inside the SPD, released a paper last April on Germany’s relationship with China calling for a “multi-dimensional” – that is, open – policy towards the Asian giant.
Within the center-left SPD, the Seeheimer group emphasizes the interests of industry and labor; it forms part of the personal support base of Chancellor Scholz. The Seeheim Circle has gained in importance within the SPD in recent months. It is known within the center-left SPD as a conservative group more interested in economic policy.
An “abrupt end to trade relations with China” would be “an economic disaster,” the paper argued, rejecting an “anti-China strategy.”
Before Li’s arrival, the German government rejected de facto a call from the European Commission to exclude Chinese companies like Huawei and ZTE from Germany’s telecommunications architecture.
In March, Germany’s Economics Ministry, controlled by the Green Party, warned of risks to the network from a future Chinese retrofit, but the Interior Ministry, under the aegis of the Social Democrats, announced only that it was monitoring the situation. Germany’s largest mobile phone provider Deutsche Telekom categorically rejected the charge that Chinese providers represented a security rest, stating that it had tested its networks exhaustively for such vulnerabilities.
Diego Fassnacht is an international economist and an investment advisor to individual clients and institutions. Prior to his work in finance, he served on the governing council (Deutschlandrat) of the youth organization (JU) of the main German opposition party, the CDU.