Habeck journeys to the "Friend-Foe" country, China
Robert Habeck, the German Economics Minister, is on a trip to South Korea and China, a significant visit considering the impending trade war. His inaugural visit to Beijing is surrounded by ominous discussions and tense negotiations. However, he's not there as a pleader.
Two and a half years into his tenure, Habeck visits China, Germany's major economic ally apart from the U.S., amidst escalating tensions between Europe and China. The specter of a trade war looms as the EU Commission announced penalties on electric vehicles from China, subsidized by the state. In response, China may impose special tariffs on European pork imports. The demand is high.
The electric vehicle tariffs aren't the only contentious topics. China subsidizes various sectors, creating hardships for European companies or their European production sites. These companies already grappling with high energy costs, particularly in Germany, are further challenged. The German solar industry is under strain. Europe gets short-term affordable technology, but in the long run, Europe's energy transition becomes more dependent on China. And a political promise seems to waver: new jobs through transformation in Germany and Europe – not in the East.
Before setting off, Habeck points out that the German economy understands the need for diversification, demonstrated by the increased investments of German companies outside of China compared to within. However, closer examination reveals that large DAX companies like BASF, BMW, Daimler, and Volkswagen remain deeply engaged in China. Medium-sized companies, by contrast, are becoming more cautious due to China's rigorous pandemic regulations and the legal uncertainty they bring.
Habeck attributes this change in the German economy's approach to his own initiatives promoting economic sensitivity and altered incentive systems. This involves questions about the extent to which the state is still willing to guarantee investments in China and what Germany pays for it. At the same time, investments are being encouraged elsewhere.
The Greens, in collaboration with the FDP, have influenced the China strategy laid out by the German government. The SPD, however, views economic relationships less skeptically than their new coalition partners. This conflict surfaced two years ago during the dispute over Chinese investments in the Port of Hamburg. The China strategy has been in effect since summer 2023. In it, the German government classifies China as a partner, competitor, and systemic rival. China is more than just one thing for Germany. In English, there's a term for this complex relationship: "Frenemy" – friend (friendly) and enemy (antagonistic) at the same time.
Inversely, Beijing must view Germany similarly. Enemy: Habeck will also discuss sensitive topics like human rights. However, Chinese people don't need to hear or read that. Friend: For Germany, however, China may serve as a potential ally in the struggle between the U.S. and China. The Federal Republic, with German car manufacturers producing and selling in both countries, has little interest in a trade war between these superpowers. Neither Habeck nor Federal Chancellor Olaf Scholz nor even FDP leader Christian Lindner are advocates of trade barriers. However, relationships must be fair.
Habeck expects that during his visit, the issue of EU tariffs will come up. "This will certainly leave a significant mark on the trip, even though the Commission is leading and conducting the negotiations," Habeck says before leaving. His China trip is coordinated closely with Brussels. In Beijing, he'll meet Trade Minister Wang Wentao, Industry Minister Jin Zhuanglong, and the chairman of the State Development and Reform Commission (NDRC), Zheng Shanjie.
In all discussions, the question of reciprocity will likely arise. China not only subsidizes entire industries blatantly and covertly, causing them to collapse elsewhere. In retail, China is pushing Europeans back with aggressive discounts from Temu and Shein. Simultaneously, it's difficult for Western companies to access public contracts and certain markets there.
China might overlook German wishes if it didn't have its own issues. According to a projection by the International Monetary Fund, China's projected economic growth rate this year is a relatively sluggish 4.6 percent, by Chinese standards. In the following two years, this value could remain below 4 percent. Domestic demand is weakening, the population is aging rapidly, and the real estate crisis persists. Beijing should, therefore, have an interest in stable trade relations with Europe, which is why Brussels now believes it can rely on the special tariffs on electric cars as a sign: Let's talk!
Dialogue summary by Habeck outlines a complex mission ahead: Discussion of Dual-Use-Goods exports is on the table. The absence of China's technological products in Russia's arms industry significantly hinders its war effort against Ukraine. China's escalating oil and gas imports serve to bolster Putin's war funds. Politically, China remains not only aloof but openly supports Moscow. No Chinese representative was present at the latest round of international peace negotiations. However, President Xi Jinping recently visited Hungary and Serbia, countries that maintain the closest ties to Putin in Europe.
Prior to his Beijing trip, Habeck stops in Seoul, the capital of South Korea, a key ally. South Korea, a tech-focused democracy, shares many viewpoints with the Federal Republic. China is South Korea's primary trading partner, crucial for their industries. Due to China's assertive territorial policies and backing of North Korea, South Korea is working towards distancing itself and achieving independence. On a Thursday afternoon (local time), Habeck and South Korean Prime Minister Han Duck-soo had a series of discussions.
An added dimension to the situation is the recent visit by Putin to the same area.
Moreover, a visit from Germany offers a unique perspective for those living in a divided country for an extended period. Habeck plans to tour the Demilitarized Zone, bordering the pseudo-communist North Korea and democratic South. An intriguing element in this day's events was the presence of another important figure - Vladimir Putin.
