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Finbarr Bermingham

European Union leaders had a week to bask in their rare, relatively united stance on China policy before news broke to remind them of the urgency of their task: German car giant Volkswagen was reportedly planning up to 100,000 job cuts in the face of cutthroat Chinese competition.
Seven days previously at a European Council summit in Brussels, leaders from the EU’s 27 member states had instructed the European Commission to accelerate its efforts to fight back against what is seen as a damaging surge in Chinese shipments, even while telling it to ramp up engagement with Beijing.
The Volkswagen news was still swirling in Brussels on Monday, as trade chief Maros Sefcovic prepared to welcome Chinese Commerce Minister Wang Wentao for crucial talks.
EU sources confirmed the two sides would launch a new trade and investment consultation platform designed to streamline communications.
But the Europeans also see it as a means of managing the fallout from the spiralling trade tensions between the two sides given their low expectations that they will be able to strike a grand bargain.
“We have to face the reality – China’s economic model, driven by overcapacity, will not change. We have to live with it and change ourselves,” one senior source said.
The numbers underscore European concerns. Calculations by the South China Morning Post, based on the latest Chinese customs data, show the EU’s trade deficit with China widened 15 per cent year on year in May.
Germany’s own deficit expanded by 31.6 per cent and that, coupled with Volkswagen’s job cuts, places Berlin firmly at the centre of the China shock 2.0.
Last week, Chancellor Friedrich Merz – who had accused China of “flooding markets” and complained its currency was seriously undervalued in the wake of the European Council summit – doubled down on his criticisms.
He told German lawmakers: “We are also seeing subsidies, massive overcapacities. We are seeing distortions through currencies that are being kept artificially low.
“This is the part of the competition that we view as unfair. It is not fair competition. On this, we want to take action.”
Trade officials have already started laying the ground for offensive and defensive action. Sources said investigations could be launched before the commission’s summer break in August. These could lead to emergency tariffs and quotas in key sectors such as chemicals and machinery.
Alongside this, several new tools are in the works, including a diversification instrument that will require companies to broaden their base of suppliers to avoid dangerous dependencies in key sectors.
Brussels is also awash with rumours that the bloc will introduce its own equivalent of the US Section 301, which grants the president sweeping powers to impose tariffs on whole sectors or target specific countries in response to actions that restrict American commerce.
The commission has confirmed SCMP reports that there would also be a “solidarity mechanism”, whereby European companies targeted by Chinese retaliation could be compensated in a bid to avoid the bloc being “divided and conquered” by major powers.
“There are urgent issues that Brussels needs to work on now, with national leader backing,” Sense Hofstede, a Brussels-based researcher on Chinese foreign policy, wrote in a blog post.


“The diplomatic tightrope walk is vital to avoid punishment from both Maga’s Washington DC and Xi Jinping’s Beijing. It is therefore vital that all members of the European Council think carefully about the signals that they send.”
Senior officials insist their policies are pro-Europe rather than anti-China and say they remain committed to talks.
They also argue that the EU is doing but a fraction of the de-risking work that Beijing itself has prioritised in recent years.
“China has been introducing more economic security tools than anyone. Their dual circulation strategy [of prioritising domestic production] is built on decoupling from the rest of the world. They have been most active in building policies that can affect others,” said a second senior official.
Brussels insists the bloc is open to Chinese investments, but says they must be on Europe’s terms and that dialogue must yield some results soon.
“China knows what we want them to address but they do nothing. What’s not clear to us is whether they don’t want to address it, or whether they don’t know how,” said a third source.
Several recent speeches suggested – at least to European ears – that Beijing was not ready to take Europe’s claims of a China shock to its industry seriously.
“What China’s technologies and products in emerging fields bring to the world is not a shock, but an opportunity; not a threat, but empowerment,” Premier Li Qiang told the World Economic Forum’s Annual Meeting of the New Champions, an event also known as “Summer Davos”, held in Dalian in northeast China.
Appearing to address EU complaints that Beijing’s success was, in part, powered by subsidies, Li said: “The Chinese government is not that wealthy yet, and we cannot afford such subsidies either.”
In Brussels, meanwhile, the Chinese ambassador to the EU, Cai Run, repeated previous threats to retaliate against any EU policies that affect the country.
“China understands the EU’s efforts to improve competitiveness and safeguard economic security,” Cai told an event hosted by the China Europe International Business School.
“Yet we oppose politicising economic and trade issues and overstretching the concept of security. And we oppose taking restrictive and discriminatory measures against China under the name of ‘de-risking’ and ‘reducing dependency’.
“Should the EU side insist on pursuing such measures, China will have to take countermeasures to firmly defend its legitimate interests.”
In Beijing, Ling Ji, the commerce vice-minister responsible for Europe policy, met both the EU’s top trade enforcer Denis Redonnet and representatives from Airbus on the same day last week.
The latter meeting suggested that the commerce ministry, which has generally taken a tough stance towards EU demands, may also be willing to dangle a carrot in the form of more purchases from the European aviation giant.
The most recent shipments, worth US$379 million, helped boost Chinese imports from France by 24 per cent in May.


There are few European analysts in Europe predicting a happy ending to the EU-China trade saga. Beijing’s reliance on exports as a growth model and Brussels’ new-found determination to do something to prevent deindustrialisation appear to have left the two sides on a collision course.
“Further summits will convene, further mandates will be issued and further communiques will be published. But the direction of travel is now unmistakable,” wrote Alicia Garcia Herrero, a China-focused economist at Bruegel, a Belgian think tank, in a note.
“EU-China relations have shifted from managed competition towards structural confrontation in several key economic and technological sectors.”


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Volkswagen is reportedly considering cutting 100,000 jobs in the face of fierce competition from China. Photo: Reuters 

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French President Emmanuel Macron is calling for a European “Section 301 tool” to prevent Chinese-driven deindustrialisation in the EU. Photo: WPA

German Chancellor Friedrich Merz at the Forbidden City in Beijing during his trip to China in February. Photo: dpa

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 Illustration: Henry Wong

Belgian Prime Minister Bart De Wever has emerged in recent months as one of the European Union’s most vocal China hawks. Photo: AP

Chinese vice-foreign minister Hua Chunying (centre) visited the Czech Republic in January. Photo: AFP

Workers assemble vehicles on a production line at a FAW-Volkswagen factory in Qingdao, in China’s eastern Shandong province. Volkswagen is one of Europe’s biggest corporate investors in China. Photo: AFP

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There is a growing sense Europe will have to learn to ‘live with’ Beijing’s economic model, which it accuses of undercutting its industries


There is a growing sense Europe will have to learn to ‘live with’ Beijing’s economic model, which it accuses of undercutting its industries.


EU confronts ‘China shock’ ahead of pivotal Brussels trade talks

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}There is a growing sense Europe will have to learn to ‘live with’ Beijing’s economic model, which it accuses of undercutting its industries

There is a growing sense Europe will have to learn to ‘live with’ Beijing’s economic model, which it accuses of undercutting its industries