Decoding China: EU, China headed for challenging summit

Tensions ahead of the EU-China summit in Beijing next week are clearly visible just by looking at electric car sales — Chinese-made cars seem to be conquering the global market the same way its hairdryers and washing machines did 20 years ago. They can be bought across the globe and are pushing out once untouchable car-producing giants from Europe, Japan and the United States.

Chinese officials are happy to note that their country is now the largest electric car producer in the world. Their data shows Chinese companies exporting more than half a million electric vehicles in the first half of 2023, marking a 160% growth compared to the same period last year. And, like Chinese hairdryers, its cars are also cheap. Too cheap, according to the EU Commission chief Ursula von der Leyen.

"Global markets are now flooded with cheaper Chinese electric cars," she said in September. "And their price is kept artificially low by huge state subsidies. This is distorting our market."

To counter this, von der Leyen announced the EU was launching a probe into Chinese state subsidies. The move was slammed by Chinese officials as "pure protectionism."

On 7 December, less than two months after this announcement, the EU Commission chief is set to attend an EU-China summit in Beijing. There, she will probably be pressed to explain her recent comments. But it would take more than an EU probe to stop China's march into the European market.

Dreams of selling Chinese cars in Germany

"Right now, there are 26 Chinese electric car manufacturers who plan to enter the German market by 2025," says Bend Dipenseifen from the KPMG consulting firm. "Even with a low number of units, this would mean that the market share of German producers must and will drop."

The key to China's advance is its batteries, Dipenseifen told DW. According to the ranking compiled by Bloomberg New Energy Finance (NEF) on the global delivery chains for lithium-ion batteries, China leads the world. The biggest battery producers are all Chinese.

"China has access to raw materials and boasts the biggest production capabilities and consumer market," Dipenseifen said.

EU builds fences

The news of EU probing Chinese state subsidies is only a reflection of a wider, systemic competition between Brussels and Beijing. In 2020, the EU introduced a mechanism to screen direct foreign investments and halt them if they are deemed to be a risk to the safety of the public. The main goal of this rule was to make it more difficult for Chinese investors to gain access to the critical infrastructure of EU nations.

Earlier this year, Ursula von der Leyen also called for a screening of European investments in China.

"We need to ensure that our companies' capital, expertise and knowledge are not used to enhance the military and intelligence capabilities of those who are also systemic rivals," she said in March.

China sees Europe as a 'museum and a shopping mall'

The EU, with its 27 members, is China's number one trading partner, with about a million dollars traded every minute. Trade balance between China and the EU reached nearly $850 billion (€780 billion) in 2022. Between China and the US, it was $690 billion.

Brussels officially labels China as a "partner for cooperation and negotiation, an economic competitor and a systemic rival." This stance was also adopted by the German government while rolling out its China strategy in the summer of 2023.

In turn, China sees Europe "as a museum and a shopping mall… where Chinese companies can buy everything," according to political scientist Axel Berkofsky from Pavia University in Italy.

Beijing will need to shift its view of Europe, he told DW, and stop perceiving it as a "weak mid-sized power that will kowtow [to China] to sell more cars and machines," he added.

Berkofsky sees the action on Chinese subsidies as a signal of new European confidence.

"The EU is not the strongest actor when it comes to geopolitics," he said. "However, the EU Commission has some weight when it comes to trade policy and investment policy and can be seen as a major power."

Cooling ties

The EU's weariness of China does not stop at launching probes and professions of rivalry. In 2021, the EU Commission froze the EU-China Comprehensive Agreement on Investment (CAI) over diplomatic tensions with Beijing, including the oppression of Uyghurs in Xinjiang.

Can the wintertime summit in Beijing bring a diplomatic thaw? This week, China's Deputy Foreign Minister Sun Weidong spoke of understanding "core interests" on both sides. But it appears the core interests of China and the EU are very different, and that politics still casts a long shadow over trade.

DW journalist Dang Yuan writes under a pseudonym to protect himself and his family.

Disclaimer: This article first appeared on DW, and is published by special syndication arrangement.