Germany's Habeck navigates delicate China mission

Escalating trade tensions between the EU and Beijing overshadow the German vice-chancellor's first trip to China and South Korea.

China is one of Germany's top trading partners, accounting for a significant portion of their sales in recent years

Robert Habeck, Germany's economy minister and vice-chancellor, arrived in China on Friday after visiting Seoul in South Korea as part of a multi-day diplomatic trip to East Asia. He is be accompanied by a business delegation and members of the Bundestag, Germany's lower house of parliament.

The Green politician is set to address high-ranking lawmakers in Beijing, where he will likely be asked to explain the European Commission's decision to impose significant tariffs on Chinese electric vehicles (EVs). This move has strained economic relations and prompted China to issue threats of retaliation.

Habeck also wants to address Germany's de-risking strategy in its dealings with China, which is aimed at stopping Berlin from becoming overly entwined with the world's second-largest economy.

Habeck is set to discuss climate protection and longstanding trade issues, including fair competition for German companies and transparent public tenders. His itinerary includes visits to the BMW research center in Shanghai, discussions with Chinese students in Hangzhou, and a scheduled visit to e-commerce giant Alibaba.

Addressing the thorny issue of EV tariffs

Last week, the European Commission said it was planning to impose tariffs of up to 38% on Chinese electric vehicles from July 4. It followed warnings from EU policymakers that Europe was being swamped with cheap Chinese EVs. They accused Beijing of backing major production overcapacity to allow Chinese automakers to grow their share of the global EV market.

In response to the EU's decsion to hike EV tariffs, China's Ministry of Commerce announced on Monday that it would launch an anti-dumping investigation into certain pork products imported from the EU, which totalled over $3 billion last year, according to Beijing customs data.

After China announced its pork probe, the European Commission said it "will follow the proceedings very closely in coordination with EU industry and our member states."

"We will intervene as appropriate to ensure that the investigation fully complies with all relevant World Trade Organization rules," spokesperson Olof Gill said.

The exchange prompted concerns from the German car industry over a potential tit-for-tat trade war, leading Chinese automakers to urge Beijing to increase tariffs on European gasoline-powered cars as a retaliatory measure, as reported by the state-backed Global Times.

The newspaper quoted Cui Hongjian, professor of European Studies at Beijing Foreign Studies University, as saying that Habeck's visit was an opportunity for the German government to emphasize bilateral cooperation rather than confrontation.

Germany has previously expressed concerns about applying higher tariffs, fearing reprisals for its car giants, such as Volkswagen, Mercedes-Benz and BMW, which are heavily invested in China.

Will Habeck manage China-EU relations amid tariff tensions?

"Habeck should act as a mediator between the EU and China here and resolve a trade dispute early in the interests of German small and medium enterprises," said Patrick Schoenowski from the German Association for SMEs (DMB), which advocates for their economic and political interests.

The China Daily newspaper expressed hope that "proper solutions" could be found during Habeck's talks with Chinese officials before the tariffs come into effect on July 4.

But Habeck's ministry pointed out that he is "not conducting talks on behalf of the EU Commission, that is the task of the Commission."

Addressing China's overproduction issue

Meanwhile, the German Engineering Federation (VDMA), which advocates for the interests of Germany's capital goods sector, called on Habeck to address the issue of overcapacity in China. In some segments, such as construction machinery, this has led to significant market distortions in Europe, said VDMA's head of foreign trade, Ulrich Ackermann.

"There is a risk that this phenomenon will also be observed in other mechanical engineering sectors in the near future," said Ackermann.

There will likely be additional questions for Habeck about his proposals to tighten the process for reviewing foreign investments, which would lead to addidional scrutiny for Chinese companies seeking to acquire stakes in German firms.

Habeck's ministry is said to have considered canceling the trip to China because Beijing had not made any definite commitments for weeks, according to Noah Barkin, a senior fellow in the Indo-Pacific Program at the German Marshall Fund of the United States (GMFUS), based in Berlin.

He suggested that the apparent lack of commitment was due in part to the China-critical stance of Habeck and German Foreign Minister Annalena Baerbock, who emphasized a balanced approach in Berlin's relations with China.

"Due to the delay, Habeck left Germany three days later than originally planned and has made South Korea the first stop on his itinerary instead of China," said Barkin.

Last year, German direct investment in China rose to a record €11.9 billion ($12.9 billion), showing that firms continue to plough money into a country that Berlin calls a systemic rival.

This article was originally published in German.

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Author: Martin Fritz