Watching China in Europe—June 2024

A Perilous Period

It is possible that a few months from now, Ursula von der Leyen, the driving force behind Europe’s tougher China policy, will be enjoying a prolonged vacation after failing to secure a second term as president of the European Commission. Her plans to impose permanent duties on electric vehicle (EV) imports from China may lie in tatters, sabotaged by Chancellor Olaf Scholz and a cabal of German politicians and companies who are more worried about selling cars in China than about Europe’s credibility as a geopolitical actor. I would not bet on either of these scenarios coming true. Heading into European parliamentary elections this week, von der Leyen has no real challenger for the EU’s top post. And Germany’s divided government would struggle, even if Scholz made it his mission, to rally other EU member states behind a plan to undercut the EV effort—a move that would split Europe and undercut the Commission at the worst possible moment. But neither can one rule out either of these scenarios. 

We are entering a perilous period, culminating in the US presidential election in November, in which much more than the future of European policy toward China is at stake. The EU elections will set off a months-long scramble to form a new Commission that will set the European policy agenda for the next five years. A G7 summit less than a week after the elections will show how much consensus there really is among “like-minded” countries on how to respond to mounting economic and security threats from China and Russia. And the EV probe endgame, which could be playing out at a time when the leadership of the next Commission is still up in the air, will demonstrate whether European countries—above all Germany—can keep their nerve in the face of cascading threats from Beijing, or will crumble under the pressure. Europe’s top diplomat, Josep Borrell, declared at the Shangri-La Dialogue in Singapore this past weekend that Europe’s “era of strategic naiveté is over”. I wouldn’t be so sure.

Zelenskyy Zinger

Beijing is certainly betting that, when push comes to shove, it will be able to mine the deposits of strategic naiveté that are still present in some European capitals. It is worth underlining here that since Scholz went to Beijing in mid-April and Xi visited Emmanuel Macron in Paris in early May, the Chinese side has given the Europeans absolutely nothing on the issues they care about most: China’s support for Russia’s war machine and the threat of cheap, subsidized Chinese technologies flooding into the European market. It was striking that Ukraine’s President Volodymyr Zelenskyy, who has shied away from open criticism of Beijing through more than two years of war, went off-piste in Singapore and accused China of actively undermining the very peace conference that Scholz and Macron had spent days trying to convince Xi to support. Berlin and Paris need to recognize that their efforts have failed, and draw the proper conclusions. 

On trade, meanwhile, China’s leadership has dismissed European concerns about industrial overcapacities as delusional, and lobbed one threat after the other at EU member states—cognac, cars, agriculture, aeronautics, the list goes on and on—as part of a highly choreographed public campaign, involving state media and business associations, to convince the big capitals to push back against the Commission’s EV case. A letter sent by China’s Ministry of Commerce to EU Trade Commissioner Valdis Dombrovskis last month contained nothing new in terms of Chinese offers but was littered with threats, I was told. “The Chinese are making the point that our German masters want us to negotiate,” a senior EU official told me. “They think that by giving us a few peanuts they can get the Germans on board.” 

Humbled Hawks

Against this backdrop, it was helpful to hear German Economy Minister Robert Habeck and Foreign Minister Annalena Baerbock throw their weight behind the Commission over the past week. It has been a bad year for the China hawks (relatively speaking) in the German government. Baerbock is persona non grata in Beijing since calling Xi a dictator in September of last year. And I understand that Habeck’s ministry was considering cancelling his mid-June trip to China late last month because their counterparts in Beijing had refused, over a period of weeks, to confirm the availability of top Chinese officials. Habeck will now leave three days later than initially planned, and travel to South Korea first (instead of last), before passing through Shanghai, Hangzhou and Beijing. It will be an opportunity for him to deliver the tough messages that Scholz failed to convey on his April trip. But it is clear that a year after Germany unveiled a tough new China strategy, its chief architects are on the defensive.

This was underscored by the recent Scholz trip. And it has been reinforced by a flurry of visits to China by other German politicians, from Bavarian premier Markus Söder to Lower Saxony premier Stephan Weil, who traveled to China in late May with a massive business delegation in tow. I recommend this head-spinning Handelsblatt interview Weil gave during the trip, in which he comes out against the EV duties (but says Europe did not do enough to defend its solar and wind industries), says China has no incentive to retaliate against Europe (because that would hurt relations), and admits to being wrong on Huawei’s role in the German 5G network and Volkswagen’s role in Xinjiang, which he publicly defended just a year ago. I don’t know if this is strategic naiveté or strategic insanity. In any case, it makes a mockery of Berlin’s China strategy. The foreign ministry had been planning a one-year review of the strategy, but a diplomat told me: “My advice would be to delay this review for as long as possible, until we have something positive to say.”

A Public Lecture

According to officials involved in the planning for the G7 summit in Italy in mid-June, Berlin is increasingly isolated within the grouping. They say that Scholz’s envoys have pushed back against the concept of Chinese overcapacities, suggested that a reduction (rather than an increase) of EV tariffs is key to restoring fair competition with China, and turned a blind eye to China’s support for Russia. The United States is poised to announce far-reaching sanctions against Chinese entities, including financial institutions, during the week of the summit. The EU will unveil its 14th sanctions package around the same time, but it will fall far short, in terms of the entities targeted and the scope of the sanctions, of those announced by the Biden administration.  

It was no coincidence that Deputy Treasury Secretary Wally Adeyemo travelled to Berlin last week and gave what amounted to a polite public lecture to his hosts on the need to hold China accountable for its support of Russia. “Chinese firms can either do business in our economies or they can equip Russia’s war machine with dual-use goods. They cannot to do both,” Adeyemo said. It is a very different message from the one we heard from Borrell, who in Singapore played down China’s role by contrasting it with that of Iran and North Korea, which are both delivering arms to Russia. This was a perplexing line to take given mounting evidence that Chinese technology is being used on the battlefield. The people in Scholz’s entourage are also peddling a different story: “Given all the other problems we have, we don’t want to give the impression that we are engaging in China-bashing,” one official told me.  

A Rocky Ride

Over the past year, it has been von der Leyen, more than anyone else in Europe, who has pushed back against this misguided thinking. Her departure, therefore, could have major implications for Europe’s policy toward China. Although there is little love lost between the two of them, Scholz has little incentive to drop support for her, because then Germany would lose the Commission presidency and the Greens, according to the German coalition agreement, would get to pick Berlin’s next EU commissioner. My expectation is that Macron, who proposed her candidacy five years ago and supports her robust use of trade tools against China, is also unlikely to withdraw his support, despite reports that he has floated former European Central Bank President Mario Draghi as an alternative. Still, von der Leyen faces a massive challenge in winning a majority of votes in a European Parliament that is expected to lurch to the right (see this excellent Politico piece on the post-election timeline). If she fails, and someone with the experience and gravitas of Draghi does not step in, then we will be in for a very rocky ride—on China policy and much more.