Olaf Scholz Is on a Telltale China Trip

After years of speaking softly and carrying a small stick, the European Union has begun flexing its economic muscles with China, concerned that an influx of cheap Chinese products could kill off homegrown industries. The big question is whether Germany, the bloc’s biggest economy, is fully on board with the more assertive approach.

This is what makes German Chancellor Olaf Scholz’s trip to China next week especially interesting. Berlin’s policy toward Beijing has hardened in recent years. Last July, Scholz’s government came out with a toughly worded China strategy that shifted the focus to de-risking, diversification, and a reduction of dependencies on China.

But the strategy might never have been published in the first place if it had been up to Scholz alone. The driving force behind the new critical approach has been one of Scholz’s coalition partners, the Greens. Scholz himself remains cautious, reluctant to push China too hard, in part due to fears that Beijing could retaliate against the handful of large German companies that have tied their futures to the Chinese market.

In one of his longest bilateral visits since taking office in 2021, Scholz will spend three full days in China from April 14 to 16, visiting German companies in Chongqing and Shanghai, before heading to Beijing for meetings with Chinese President Xi Jinping and Premier Li Qiang. Both sides will be keen to stress areas of cooperation.

Scholz, under pressure at home due to a weakening German economy and a Ukraine policy that has satisfied neither the hawks nor the doves, is keen to avoid opening up new fronts with Beijing in a year that could end with a shock to trans-Atlantic relations from the reelection of Donald Trump in the United States. Xi will want to send a signal that China and Germany remain committed to working with each other at a time when the Chinese economy is under mounting pressure from a property crisis, COVID restrictions hangover, and U.S. technology restrictions.

But lurking just below the surface are a range of divisive issues that will be difficult for the two leaders to contain.

High on the German agenda will be China’s support for the Russian war machine in Ukraine, as concerns mount that Beijing is crossing the West’s red lines and providing Moscow with goods and technical assistance that are essential to its military campaign.

U.S. Treasury Secretary Janet Yellen warned, during a visit to China last week, that Chinese companies that provided material support for Russia’s war would face “significant consequences” in the form of sanctions. Expect Scholz to deliver a similar message in more dulcet tones.

But perhaps the most important topic on the agenda will be the worsening trade relationship between the EU and China. In Brussels, fears are growing that China could try to export its way out of its economic malaise by flooding the European market with cheap, subsidized goods. At the same time, European countries are debating how far to go in restricting the export of sensitive technologies to China amid mounting pressure from Washington.

Last June, European Commission President Ursula von der Leyen unveiled an economic security strategy that aimed to define red lines for technological cooperation with China. A few months later, the commission launched a high-stakes investigation into imports of electric vehicles from China. And in recent weeks, it has announced subsidy probes tied to wind turbines, solar panels, and trains, accusing Chinese firms of gaining an unfair advantage in the European market thanks to the generous state support they receive at home.

Together, it amounts to the most forceful pushback against China that we have ever seen from Europe—and it is just the beginning.

In an important speech at Princeton University this week, Margrethe Vestager, the European commissioner in charge of competition issues, highlighted the new measures but admitted that Europe’s “whack-a-mole” tactics may not be sufficient.

“We need more than a case-by-case approach. We need a systematic approach. And we need it before it is too late,” she said. “We can’t afford to see what happened on solar panels, happening again on electric vehicles, wind, or essential chips.”

Vestager proposed the development of “trustworthiness” criteria for critical clean technologies—an echo of the approach taken to “high-risk” 5G suppliers such as Huawei. Countries that did not meet European standards in areas such as cybersecurity, data security, labor rights, and environmental standards would find their companies restricted or excluded from the market. This would mean a momentous change in Europe’s economic relationship with China.

But for it to work, support from Germany will be essential. And it is unclear whether Scholz is prepared to put Germany’s privileged economic relationship with China—even if it is increasingly under strain—at risk. He will travel to China with a delegation of leaders of German industry, including the CEOs of the three big carmakers—BMW, Mercedes, and Volkswagen—that have been doubling down on the Chinese market in recent years. According to Rhodium Group figures, German direct investments in China hit a record 7.1 billion euros in 2022, a whopping 79 percent of the EU total.

In the weeks before his first visit to China as chancellor, in November 2022, Scholz rammed through a deal giving Chinese shipping giant Cosco a stake in one of the terminals in the Hamburg port, Germany’s biggest. He has also resisted pressure from his coalition partners to take a decision on phasing Huawei out of the German telecommunications network. The Chinese group has a 59 percent share of the 5G network in Germany, one of the highest levels in Europe.

Against this backdrop, European Commission officials will be watching the messages Scholz sends in China closely. Will he explain to his Chinese hosts the seriousness of Europe’s concerns about the trade relationship and signal that the EU will respond? This would show that Germany and its partners are prepared to use their economic leverage at a time when the Chinese economy is struggling and leaders in Beijing are desperate to attract European investment and retain access to the European market.

Or will Scholz play down trade tensions, as German businesses are urging him to do, and undermine Brussels in the process?

The answer will say a lot about how united Europe is on China in a crucial year, culminating in a momentous U.S. presidential election in November. Weeks after the Scholz visit, Xi will make his first trip to Europe in five years, passing through France, Hungary, and Serbia. If Scholz and French President Emmanuel Macron deliver the same message to Xi, it would send a powerful signal. If they fail to do so, it would be fatal.