China warns of possible 'trade war' with EU

Beijing warned on Friday that escalating frictions with the European Union over electric vehicle imports could trigger a trade war, as Germany's economy minister arrived in the Chinese capital with the proposed tariffs high on his agenda.

Robert Habeck's three-day trip to China is the first by a senior European official since Brussels proposed hefty duties on imports of Chinese-made electric vehicles to combat excessive subsidies. That has unleashed countermeasures by China and harsh criticism from Chinese leaders.

In an unexpected twist, Habeck - from the ecologist Greens Party that is a junior partner in Germany's fractious three-way coalition - issued a statement criticising Berlin's 11-month-old China strategy document as already out-of-date and not in synch with the evolving EU position on China.

This week alone, Chinese automakers urged Beijing to hike tariffs on imported European gasoline-powered cars and the government launched a dumping probe into EU pork imports in retaliation for the EU Commission's move.

"The European side continues to escalate trade frictions and could trigger a 'trade war'," a statement attributed to the Chinese commerce ministry's spokesperson said. "The responsibility lies entirely with the European side."

It said that with its dumping probe, the European side had "intimidated and coerced Chinese enterprises, threatened to apply punitive high tariff rates, and demanded overly broad information".

OPPORTUNITY TO EXPLAIN

Habeck's visit is seen as an opportunity for Germany, Europe's biggest economy, to explain to Chinese officials the recent tariff announcement while allaying the risk of retaliation from China that could harm German businesses.

Germany's voice carries particular weight, and its leading car manufacturers have vociferously opposed the EU tariffs. Berlin has urged dialogue while expecting China to compromise.

The country's carmakers would be the most exposed to any countermoves from China, as almost a third of their sales came from the $18.6 trillion economy last year.

The EU's move on EV tariffs plunged trade ties with the world's second-largest economy to a new low.

But Chinese state media portrayed his visit as a chance to defuse tensions. Germany should seek consensus, some experts said, according to state-controlled tabloid Global Times.

NEW LOW

On his arrival in Beijing on Friday, Habeck met ambassadors of several EU countries at the start of a trip due to include talks with Premier Li Qiang and other officials, with stops in Shanghai and Hangzhou.

At a reception at the German embassy in Beijing, Habeck expressed dissatisfaction with Berlin's current China strategy as outlined by a document released last July after months of coalition wrangling.

The 64-page document accused Beijing of increasing assertiveness and "unfair practises" but was vague on policy measures to reduce critical dependencies.

"A strategy means you have to look in the future and to describe at least a path to the future, even when it will never happen as it is described," he said.

"This is a German government's China strategy, so what is missing is the European approach," he said, adding that an update would be required "sooner or later". He did not spell out in exact terms how he saw Germany's strategy evolving.

The German government did not immediately reply to a request for comment on Habeck's statement, which adds to perceptions Berlin has yet to establish a clear path for the export-oriented German economic model in an era of rising protectionism.

Earlier on Friday, Habeck had tempered expectations for what could be resolved during his visit, saying he did not expect to reach a solution on trade tensions.

Germany is also seeking to broaden access for its companies to the vast Chinese market, while also trying to "de-risk" its economy from being too reliant on any one country.

Trade experts say economic and political factors all increasingly favour the US-German relationship.

Germany's 60 billion euros ($64 billion) of trade with China in the first quarter of 2024 was less than the 63-billion-euro total volume of US-German trade. That snapped a trend that has ranked China as Germany's top trading partner for eight years in a row.

Official figures released on Friday underlined the shift: German exports to China fell 14% in May from a year ago while exports to the United States rose 4.1%.