Europeans reassess double-edged sword of trade with China

EU exports to China have grown at double-digit rates since the pandemic struck a year ago, a rare bright spot in Europe’s otherwise bleak economic landscape.

But China’s actions in countries like Xinjiang and Hong Kong have made it clear to European businesses that trading with China can be a double-edged sword, prompting some to reassess their ties to the world’s second-largest economy and call their governments to take a harder line with Beijing on human rights and unfair competition.

Since the pandemic first struck, China has become the EU’s largest trading partner for goods, the source of nearly a quarter of goods imported into the bloc last year, while 10% of goods exported by the EU went the other way. Bilateral trade has grown 67 percent over the past decade, compared to 19 percent growth between the EU and other countries.

Therefore, China’s rapid rebound from virus helped protect Europe from the much heavier economic blow it suffered. Figures due for release on Friday should confirm that the eurozone plunged into a double-dip recession in the first quarter of this year as further lockdowns dampened activity.

Trade – and in particular trade with China – is likely to be one of the few parts of the Union’s economy to turn the tide.

But despite this “success story. . . not only [in] Germany but also the rest of Europe ”, warned Wolfgang Niedermark, member of the board of directors of BDI, the main industrial association in Germany.

“It is time to treat China as a competitor, to cooperate with it as a partner and to confront it when we do not agree, for example on human rights,” he said. declared.

China’s internment of Uyghurs, Kazakhs and other Muslims in the Xinjiang region has resulted in US, European, British and Canadian sanctions. reprisals by Beijing and leaving some European companies in the face of controversy on their transactions. The same goes for Beijing’s crackdown in Hong Kong.

Niedermark said Beijing has become more daring in claiming its interests, which means “China’s tone is different, so we need to take a different approach.”

“We no longer accept that China presents itself as an emerging market that is not ready. . . play by the same rules, ”he said.

Earlier this month, three pressure groups and a Uyghur woman interned in Xinjiang filed a lawsuit in Paris against four European and American clothing manufacturers, accusing them of committing crimes against humanity for buying cotton produced using forced labor in the region. about a fifth of the world’s cotton.

“The supply of cotton to this region is inherently problematic and the lack of information also complicates the task of businesses,” said Miriam Saage-Maass, deputy legal director of the European Center for Constitutional and Human Rights. supported the Paris trial. “The only credible companies are those leaving the region.”

Annual column chart (in billions of euros, current value) showing that machinery and cars dominate EU exports to China

ECCHR is working on similar lawsuits in other countries, including Germany and the Netherlands.

The campaign is having an effect. Hamburg-based clothing and coffee maker Tchibo has previously told ECCHR it will stop buying cotton from a Chinese company that activists have accused of using forced labor.

The dilemma is particularly acute for German companies, as the intensification of trade relations is largely a German story.

More than 40 percent of EU goods imported to China in the 12 months ending in February came from Germany.

German exports to China rose 26 percent in February from the same month last year, when the pandemic shut down much of the Chinese economy. This compares to a 1.2 percent drop in all German exports over the same period.

Bar graph of merchandise exports, 2020 (in billions of euros) showing that Germany benefits the most from exports to China

The stakes for German companies will only increase; East Berlin plan a law that would hold companies accountable for violations of human rights or environmental standards in their global supply chains.

“It creates a headache for the strategic departments of many companies,” Niedermark said, adding that several had urged the IDB to speak out on human rights. “We must raise this issue with our Chinese friends and not give it up.”

Volkswagen in particular is facing growth meticulous examination, as one of the few Western automakers to have a factory in Xinjiang. This is a sensitive issue for VW, given its use of forced labor during WWII and because China is its largest market.

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VW denied that one of its employees “works under duress”, adding that “suppliers who do not meet our requirements are not awarded contracts.” The automaker is integrating human rights into its “compliance management system” and “would conduct internal evaluations of Volkswagen-controlled entities in China this year,” he said.

The wider geopolitical environment could take these decisions out of the hands of European companies, according to Janka Oertel, head of the Asia program at the European Council for External Relations. China’s transition to autonomy in key industries should be “a concern for European companies” targeting the Chinese market, she said.

Oertel warned that it was a “risky choice” to assume that Beijing would continue to open up its economy after tit-for-tat sanctions left the EU-China trade deal reached in December on hold.

Line graph of the percentage of total goods exports (12-month rolling sum) showing that German exports to China are increasing

“It’s more important than individual businesses,” she said. “It is a political problem that must be addressed at European level and not at the level of an individual company or a country.”

There are signs that Brussels is hardening its stance vis-à-vis China. Next week, the European Commission is due to unveil legislative powers to crack down on market-distorting subsidies from foreign governments, widely seen as a response to Beijing state’s support for its domestic champions.

The BDI urges the EU and Germany to use public procurement and investment screening as leverage to open up the Chinese economy to fairer competition.

“It sounds like protectionism and we don’t like it because we’ve always tried to be open,” Niedermark said. “But if no one is following us, we need to strengthen our own toolbox.”

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