The European Chamber of Commerce in Beijing published a position paper in September that painted a gloomy picture of the sentiment of EU companies. It concluded that companies in China were at a “tipping point.” The reasons for this are challenges such as the flagging economy, regulatory hurdles and a politicized business environment.
Amelie Richter took the paper as an opportunity to talk with Adam Dunnett, Secretary General of the EU Chamber of Commerce, about challenges, prospects and reactions to current developments such as the stimulus package and the EU EV tariffs. “The question for a lot of companies is: Is the reward still worth the risk?” is one of the things Dunnett said in the interview. A question that many are currently still answering in the affirmative. But there are several reasons why companies are concerned.
Meanwhile, our Europe.Table colleague Markus Grabitz takes another look at the EV tariffs that have divided France and Germany. Manufacturers and suppliers in the two automotive countries have different interests. Find out in his analysis why this is and who stands what to lose – and gain.
Have an illuminating read and a pleasant start to the weekend.
In its latest position paper, the EU Chamber of Commerce spoke of a “tipping point” for European companies. Can you tell us what the current situation looks like?
Many European companies have done well in China over the years despite many challenges and hurdles they face in developing and foreign economies. However, more recently, the rewards and returns on investment here simply do not keep up with the increasing challenges that companies face.
We see several major challenges. First, the economic slowdown is affecting nearly everyone. Profitability and revenue outlook are at record lows. Second, although market access has improved on paper, the regulatory environment for our members has become increasingly difficult. Third, we face a much more politicized environment, which adds to general business uncertainty. National security has become a real focus of the economy here in China. A lot of the initiatives focus on self-reliance, dual circulation, autonomous innovation.
Is there still some optimism?
We still see the potential in the market. But the risks and the uncertainty have just reached a level right now where, frankly, some companies can look elsewhere in other markets around the world and can get the same marginal return or more. Diversification also brings some additional layer of security that some companies are looking for in a more politicized business environment. We believe that these are some of the key reasons that have resulted in a decrease in foreign direct investment that we have seen over the last few years. It is a real lost opportunity because we think the market still has significant potential. It just does not have the supporting framework for it right now to give the confidence to the companies to make those investments.
The Chinese government recently announced a major economic stimulus. Does that change your view?
I personally don’t think a stimulus is the answer. I think some of the regulatory reforms we are asking for would be much cheaper and more efficient. There is sufficient liquidity already in the market, but Chinese consumers are also not spending as much as they used to. There is a lack of confidence, causing consumers to save for rainy days, particularly in the absence of strong social safety nets. On the supply side, investors need to see a positive return on their investment. Lowering interest rates may not be enough. Many sectors suffer from overcapacity: coal, cement, steel, apparel, electric vehicles, textiles, solar and panels, etc. It is a very challenging market right now. And so, the question for many companies is: Is the reward still worth the risk?
What are the biggest hurdles currently?
The number one challenge, first and foremost, is the economy. People are concerned about the trajectory of the economy. We think it needs a full-out effort to address all the different ways to let market forces play a more dominating role in the economy. Two areas where we have been most active in the last year are procurement and cross-border data transfer. Many companies that used to do very well in terms of procurement as a part of their business have seen a decline. And despite the comments about equal access to procurement, that’s not the reality. That’s not the message that I hear from our members. The other area is cross-border data transfer. These were issues that were very painful for us last year. The cross-border data restrictions (CBDT) really put a chokehold on companies’ ability to innovate.
Do you see any positive developments?
Yes, we have seen several improvements. This summer, we got a number of CBDT approvals in many sectors, from pharma to medical devices to IT. The negative list has been reduced, and China has eliminated some remaining joint venture requirements. China has also announced many goals. It aims to attract more foreign investment, create new quality productive forces and open up further. The Ministry of Commerce, at all levels, is doing a lot to get that message out and encourage companies to expand and invest in here. However, they are not the sole decision-makers when it comes to investment approvals and the additional regulatory concerns our members face.
The EU has approved the tariffs on Chinese electric vehicles. Are European companies in China afraid of reprisals?
Yes, European industries in other sectors are worried that they could be subject to investigations as well. This is already a reality for some. It is exactly the sort of lack of predictability that really discourages companies from investing. You think that this is only an auto industry issue, and not related to your sector, and then ‘bam’ you are reading about your sector in the news the next days as possible subject of investigations.
My advice is to keep calm. China has invested so much into the e-vehicle industry, and it has reaped a number of real technological advances. China’s e-vehicle prowess is here for the long-term. So likewise, China needs to think long-term. I strongly believe it is in its interest to ensure a degree of market stability. Further, by identifying win-win-relationships with its partners, I believe it can help it maintain access to those markets accordingly. This is actually very similar to what foreign companies have experienced in China.
Adam Dunnett is the Secretary General of the European Chamber of Commerce in China, having previously served as Chairman of EBO Worldwide Network and worked at APCO and the Canadian Embassy in Beijing.
The vote in the Council on the countervailing duties on electric cars manufactured in China reflects the interests of manufacturers and suppliers across the 27 EU member states. The main camps of manufacturers’ consortia are now concentrated in only two member states: France is home to Renault as well as Stellantis with brands such as Alfa Romeo, Peugeot, Citroën, Opel, and Fiat. In Germany, VW, BMW and Mercedes have their headquarters.
The corporate headquarters in France and Germany are differently affected by the tariffs, which is why they are not pulling in the same direction: Paris voted in favor of the tariffs, Berlin against – many EU partners reacted to Olaf Scholz’s decision with incomprehension.
The interests of the French: Stellantis and Renault mainly offer vehicles in the volume segment. They have virtually no presence in the Chinese market. However, they have been feeling the effects of the EV offensive by Chinese manufacturers in Europe for around two years. They chose France first to gain market share by offering competitive prices. As early as 2023, Group CEOs Luca de Meo (Renault) and Carlos Tavares (Stellantis) submitted a request to the EU Commission via the Élysée Palace to impose countervailing duties on EVs produced in China.
The countervailing duties, due to take effect at the end of October, fit the manufacturers’ strategy: The additional tariffs on Chinese-made EVs will increase the price of imports from Asia and improve the sales opportunities of French and Italian manufacturers in the domestic market. Ten member states, representing 46 percent of the EU population, voted in favor of the countervailing duties in the Council. Among them, only France and Italy have a car industry. Countries such as the Netherlands, Estonia, Latvia, Lithuania and Poland have no economic interests of their own in the matter.
The fact that many Member States are no longer affected by upheavals in the automotive industry is also evident from the many countries that abstained in the vote: twelve Member States, representing a third of the EU population. These include Sweden, Finland, Romania, Spain, Croatia and the Czech Republic. However, Spain, Belgium, Croatia, Romania and the Czech Republic have at least assembly plants and supplier factories.
Only five countries voted against the countervailing duties. They represent just under a quarter of the EU population. However, of these countries, only Germany has a large population, namely 19 percent. The other countries that opposed the duties were Hungary, Slovakia, Slovenia and Malta. Hungary and Slovakia may also have voted against the tariffs because they are pro-China. Slovenian Economics Minister Matjaž Han said: “We took the same position as Germany because Germany is our main partner in the automotive industry.”
The interests of the German manufacturers are fundamentally different from those of the French manufacturers: BMW, Mercedes, and the VW brands Audi and Porsche are premium brands and do not compete with Chinese EVs. The CEOs of German companies are expressly opposed to the countervailing duties. For instance, BMW CEO Oliver Zipse recently rejected the tariffs quite brashly in a meeting between car executives and Trade Commissioner Valdis Dombrovskis. He stressed that German manufacturers are competitive and do not need Brussels’ help.
Unlike the French industry, which has no presence in China, German premium manufacturers focus on the Chinese market both in terms of sales and production: On the one hand, they fear that China will retaliate by imposing tariffs on large-volume German-made gasoline cars. Initial signs already point to this. For years, German manufacturers have been making a fortune selling luxury vehicles in China. The profits from this business have formed a significant portion of company profits over the years and have helped compensate for lower returns in the European business.
BMW, Mercedes and Audi have built up their own production capacities in China. In 2023, all three manufacturers sold roughly the same number of luxury cars in China at over 700,000 units each. Only Porsche does not operate any plants of its own in China, having sold just under 80,000 vehicles on the Chinese market in 2023. Retaliatory tariffs on gasoline cars would hurt the bottom lines of BMW, Mercedes and VW. As it is, their biggest concern is that consumption in China is collapsing and sales of premium vehicles are declining drastically.
Moreover, the countervailing duties on EVs produced in China directly affect BMW, VW and Mercedes. In fact, in two ways: Additional countervailing duties will be levied on EVs that they produce in China as well as those imported into the EU. The regular duty rate is already 10 percent. In some cases, the rates of the additional countervailing duties are higher than those of Tesla (7 percent) and Chinese manufacturers such as BYD (17 percent):
BMW is manufacturing two EV models for export to the EU in China: the Mini Cooper SE and the iX1. BMW originally planned to manufacture the e-Mini exclusively in China. Now it will built in the UK after all. Mercedes-Benz has founded a joint venture with the Chinese company Geely to produce the Smart (EV). Two models are currently being manufactured in China and exported to 17 EU member states. A third model has been announced. VW manufactures the Cupra Tavascan (EV) at a Chinese plant. The Tavascan is exported to the EU.
BMW, VW and Mercedes remain silent about the number of units exported to Europe. In terms of total registrations in the EU, German EVs manufactured in China do not play a significant role. However, the companies had firmly included them in their plans to meet the EU fleet-wide emissions. EVs imported from China, which count as zero grams in the CO2 emissions balance, were supposed to reduce the fleet limits and help avoid fines.
This strategy might fail: If EV sales in the EU fall due to the higher tariffs, the fleet-wide emissions of companies will worsen. This means that BMW, Mercedes and VW will have a harder time complying with the stricter fleet limits in 2025. The fines for 2025 could be even higher than recently estimated (15 billion euros).
While the rest of the world weighs the impact of a Donald Trump or a Kamala Harris victory in November’s US presidential election, both candidates present serious challenges for China. To be sure, neither seems to want open conflict between the two powers, which could precipitate a nightmarish descent into global chaos. But Chinese decision-makers expect bitter disputes over trade, technology, and Taiwan regardless of who wins.
China is preparing for more turbulence by taking a whole-country approach to its relations with the US. That means moving beyond the realm of foreign affairs and coordinating with economic policymakers, military personnel, and technology leaders, as well as mobilizing resources across the country. Such an approach is informed by the US strategy of containment, which in recent years has included relentless efforts to maintain America’s technological supremacy, curb China’s access to the global market, and build a coalition of allies, both in Asia and elsewhere, to tackle the “China challenge.” Feeling under siege, China is girding itself for long-term enmity with the world’s largest economy.
As part of this process, China has shifted its economic paradigm away from chasing growth at any cost to building a resilient economy that is driven by innovation and can cope with protracted geopolitical tensions. By accelerating domestic innovation, Chinese President Xi Jinping also aims to restructure the economy and help reduce its overreliance on the property sector. The recently concluded third plenum of the 20th Communist Party of China (CPC) Central Committee gave the final stamp of approval for this massive overhaul.
Scientific advancement and technological prowess is another of Xi’s key strategic goals. China has attached great importance to developing its capacity for innovation and is determined to become a global champion in certain tech sectors. But targeted US sanctions against Chinese tech companies and individuals have thwarted these efforts – and are thus working as intended.
Trade and investment have traditionally been seen as stabilizing forces in Sino-American relations. But Chinese leaders now place less emphasis on them because their tangible benefits to bilateral ties have been significantly reduced, owing to increased commercial competitiveness and the country’s transition from a low-end, export-led growth model to a high-end, technology-driven economy. China’s rapid progress in manufacturing electric vehicles and semiconductors has instead stoked trade tensions with the US.
But Taiwan is still by far the most sensitive issue in US-China relations. Despite no formal changes to the wording of China’s policy, Chinese strategists largely consider the current situation to be precarious, given Taiwan’s new pro-independence government. This will likely result in China shifting to more active deterrence against Taiwan’s leadership and, by extension, the US. With America similarly strengthening deterrent measures against China, the ingredients for a confrontation in the Taiwan Strait are in place. To prevent the worst-case scenario, Xi should conduct regular face-to-face conversations with whomever US voters elect in November.
China’s main goal is to ensure that any further erosion of Sino-American relations does not hinder economic growth, which underpins the regime’s legitimacy. Chinese policymakers have thus tried to minimize damage from the country’s fallout with the US by expanding its economic and political influence in the rest of the world, most notably in the Global South. This could buy time for China to build economic resilience and accelerate the pace of technological development.
With Trump and Harris vying to sound the toughest on China in the run-up to the election, Chinese decision-makers harbor no illusions that rocky relations with the US will magically improve in the near future. But the Sino-American relationship should not be viewed with excessive pessimism. China’s policy toward the US has always been and will continue to be a product of balanced deliberation that accounts for the state of international affairs and weighs the country’s own needs. That has not changed, despite major shifts in the political landscape under Xi.
It is promising that both sides have recently shown more interest in responsibly managing ties. While the Sino-American rivalry will not disappear overnight, the world’s two largest economies could still avoid conflict – and the catastrophic consequences that would likely follow – no matter who enters the White House next year.
Yu Jie is a senior research fellow on China in the Asia-Pacific Program at Chatham House.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
China is known for its spectacular drone shows, with patterns, mythological figures or even comic book heroes displayed in the night sky. As pedestrians captured on video a few days ago, a drone choreography in Guangzhou was apparently used to congratulate Vladimir Putin on his 72nd birthday. A clip circulating on Chinese social media allegedly shows the Russian president’s head flashing red next to the Guangzhou International Finance Center and the words “Happy B-Day Mr. President.”
The European Chamber of Commerce in Beijing published a position paper in September that painted a gloomy picture of the sentiment of EU companies. It concluded that companies in China were at a “tipping point.” The reasons for this are challenges such as the flagging economy, regulatory hurdles and a politicized business environment.
Amelie Richter took the paper as an opportunity to talk with Adam Dunnett, Secretary General of the EU Chamber of Commerce, about challenges, prospects and reactions to current developments such as the stimulus package and the EU EV tariffs. “The question for a lot of companies is: Is the reward still worth the risk?” is one of the things Dunnett said in the interview. A question that many are currently still answering in the affirmative. But there are several reasons why companies are concerned.
Meanwhile, our Europe.Table colleague Markus Grabitz takes another look at the EV tariffs that have divided France and Germany. Manufacturers and suppliers in the two automotive countries have different interests. Find out in his analysis why this is and who stands what to lose – and gain.
Have an illuminating read and a pleasant start to the weekend.
In its latest position paper, the EU Chamber of Commerce spoke of a “tipping point” for European companies. Can you tell us what the current situation looks like?
Many European companies have done well in China over the years despite many challenges and hurdles they face in developing and foreign economies. However, more recently, the rewards and returns on investment here simply do not keep up with the increasing challenges that companies face.
We see several major challenges. First, the economic slowdown is affecting nearly everyone. Profitability and revenue outlook are at record lows. Second, although market access has improved on paper, the regulatory environment for our members has become increasingly difficult. Third, we face a much more politicized environment, which adds to general business uncertainty. National security has become a real focus of the economy here in China. A lot of the initiatives focus on self-reliance, dual circulation, autonomous innovation.
Is there still some optimism?
We still see the potential in the market. But the risks and the uncertainty have just reached a level right now where, frankly, some companies can look elsewhere in other markets around the world and can get the same marginal return or more. Diversification also brings some additional layer of security that some companies are looking for in a more politicized business environment. We believe that these are some of the key reasons that have resulted in a decrease in foreign direct investment that we have seen over the last few years. It is a real lost opportunity because we think the market still has significant potential. It just does not have the supporting framework for it right now to give the confidence to the companies to make those investments.
The Chinese government recently announced a major economic stimulus. Does that change your view?
I personally don’t think a stimulus is the answer. I think some of the regulatory reforms we are asking for would be much cheaper and more efficient. There is sufficient liquidity already in the market, but Chinese consumers are also not spending as much as they used to. There is a lack of confidence, causing consumers to save for rainy days, particularly in the absence of strong social safety nets. On the supply side, investors need to see a positive return on their investment. Lowering interest rates may not be enough. Many sectors suffer from overcapacity: coal, cement, steel, apparel, electric vehicles, textiles, solar and panels, etc. It is a very challenging market right now. And so, the question for many companies is: Is the reward still worth the risk?
What are the biggest hurdles currently?
The number one challenge, first and foremost, is the economy. People are concerned about the trajectory of the economy. We think it needs a full-out effort to address all the different ways to let market forces play a more dominating role in the economy. Two areas where we have been most active in the last year are procurement and cross-border data transfer. Many companies that used to do very well in terms of procurement as a part of their business have seen a decline. And despite the comments about equal access to procurement, that’s not the reality. That’s not the message that I hear from our members. The other area is cross-border data transfer. These were issues that were very painful for us last year. The cross-border data restrictions (CBDT) really put a chokehold on companies’ ability to innovate.
Do you see any positive developments?
Yes, we have seen several improvements. This summer, we got a number of CBDT approvals in many sectors, from pharma to medical devices to IT. The negative list has been reduced, and China has eliminated some remaining joint venture requirements. China has also announced many goals. It aims to attract more foreign investment, create new quality productive forces and open up further. The Ministry of Commerce, at all levels, is doing a lot to get that message out and encourage companies to expand and invest in here. However, they are not the sole decision-makers when it comes to investment approvals and the additional regulatory concerns our members face.
The EU has approved the tariffs on Chinese electric vehicles. Are European companies in China afraid of reprisals?
Yes, European industries in other sectors are worried that they could be subject to investigations as well. This is already a reality for some. It is exactly the sort of lack of predictability that really discourages companies from investing. You think that this is only an auto industry issue, and not related to your sector, and then ‘bam’ you are reading about your sector in the news the next days as possible subject of investigations.
My advice is to keep calm. China has invested so much into the e-vehicle industry, and it has reaped a number of real technological advances. China’s e-vehicle prowess is here for the long-term. So likewise, China needs to think long-term. I strongly believe it is in its interest to ensure a degree of market stability. Further, by identifying win-win-relationships with its partners, I believe it can help it maintain access to those markets accordingly. This is actually very similar to what foreign companies have experienced in China.
Adam Dunnett is the Secretary General of the European Chamber of Commerce in China, having previously served as Chairman of EBO Worldwide Network and worked at APCO and the Canadian Embassy in Beijing.
The vote in the Council on the countervailing duties on electric cars manufactured in China reflects the interests of manufacturers and suppliers across the 27 EU member states. The main camps of manufacturers’ consortia are now concentrated in only two member states: France is home to Renault as well as Stellantis with brands such as Alfa Romeo, Peugeot, Citroën, Opel, and Fiat. In Germany, VW, BMW and Mercedes have their headquarters.
The corporate headquarters in France and Germany are differently affected by the tariffs, which is why they are not pulling in the same direction: Paris voted in favor of the tariffs, Berlin against – many EU partners reacted to Olaf Scholz’s decision with incomprehension.
The interests of the French: Stellantis and Renault mainly offer vehicles in the volume segment. They have virtually no presence in the Chinese market. However, they have been feeling the effects of the EV offensive by Chinese manufacturers in Europe for around two years. They chose France first to gain market share by offering competitive prices. As early as 2023, Group CEOs Luca de Meo (Renault) and Carlos Tavares (Stellantis) submitted a request to the EU Commission via the Élysée Palace to impose countervailing duties on EVs produced in China.
The countervailing duties, due to take effect at the end of October, fit the manufacturers’ strategy: The additional tariffs on Chinese-made EVs will increase the price of imports from Asia and improve the sales opportunities of French and Italian manufacturers in the domestic market. Ten member states, representing 46 percent of the EU population, voted in favor of the countervailing duties in the Council. Among them, only France and Italy have a car industry. Countries such as the Netherlands, Estonia, Latvia, Lithuania and Poland have no economic interests of their own in the matter.
The fact that many Member States are no longer affected by upheavals in the automotive industry is also evident from the many countries that abstained in the vote: twelve Member States, representing a third of the EU population. These include Sweden, Finland, Romania, Spain, Croatia and the Czech Republic. However, Spain, Belgium, Croatia, Romania and the Czech Republic have at least assembly plants and supplier factories.
Only five countries voted against the countervailing duties. They represent just under a quarter of the EU population. However, of these countries, only Germany has a large population, namely 19 percent. The other countries that opposed the duties were Hungary, Slovakia, Slovenia and Malta. Hungary and Slovakia may also have voted against the tariffs because they are pro-China. Slovenian Economics Minister Matjaž Han said: “We took the same position as Germany because Germany is our main partner in the automotive industry.”
The interests of the German manufacturers are fundamentally different from those of the French manufacturers: BMW, Mercedes, and the VW brands Audi and Porsche are premium brands and do not compete with Chinese EVs. The CEOs of German companies are expressly opposed to the countervailing duties. For instance, BMW CEO Oliver Zipse recently rejected the tariffs quite brashly in a meeting between car executives and Trade Commissioner Valdis Dombrovskis. He stressed that German manufacturers are competitive and do not need Brussels’ help.
Unlike the French industry, which has no presence in China, German premium manufacturers focus on the Chinese market both in terms of sales and production: On the one hand, they fear that China will retaliate by imposing tariffs on large-volume German-made gasoline cars. Initial signs already point to this. For years, German manufacturers have been making a fortune selling luxury vehicles in China. The profits from this business have formed a significant portion of company profits over the years and have helped compensate for lower returns in the European business.
BMW, Mercedes and Audi have built up their own production capacities in China. In 2023, all three manufacturers sold roughly the same number of luxury cars in China at over 700,000 units each. Only Porsche does not operate any plants of its own in China, having sold just under 80,000 vehicles on the Chinese market in 2023. Retaliatory tariffs on gasoline cars would hurt the bottom lines of BMW, Mercedes and VW. As it is, their biggest concern is that consumption in China is collapsing and sales of premium vehicles are declining drastically.
Moreover, the countervailing duties on EVs produced in China directly affect BMW, VW and Mercedes. In fact, in two ways: Additional countervailing duties will be levied on EVs that they produce in China as well as those imported into the EU. The regular duty rate is already 10 percent. In some cases, the rates of the additional countervailing duties are higher than those of Tesla (7 percent) and Chinese manufacturers such as BYD (17 percent):
BMW is manufacturing two EV models for export to the EU in China: the Mini Cooper SE and the iX1. BMW originally planned to manufacture the e-Mini exclusively in China. Now it will built in the UK after all. Mercedes-Benz has founded a joint venture with the Chinese company Geely to produce the Smart (EV). Two models are currently being manufactured in China and exported to 17 EU member states. A third model has been announced. VW manufactures the Cupra Tavascan (EV) at a Chinese plant. The Tavascan is exported to the EU.
BMW, VW and Mercedes remain silent about the number of units exported to Europe. In terms of total registrations in the EU, German EVs manufactured in China do not play a significant role. However, the companies had firmly included them in their plans to meet the EU fleet-wide emissions. EVs imported from China, which count as zero grams in the CO2 emissions balance, were supposed to reduce the fleet limits and help avoid fines.
This strategy might fail: If EV sales in the EU fall due to the higher tariffs, the fleet-wide emissions of companies will worsen. This means that BMW, Mercedes and VW will have a harder time complying with the stricter fleet limits in 2025. The fines for 2025 could be even higher than recently estimated (15 billion euros).
While the rest of the world weighs the impact of a Donald Trump or a Kamala Harris victory in November’s US presidential election, both candidates present serious challenges for China. To be sure, neither seems to want open conflict between the two powers, which could precipitate a nightmarish descent into global chaos. But Chinese decision-makers expect bitter disputes over trade, technology, and Taiwan regardless of who wins.
China is preparing for more turbulence by taking a whole-country approach to its relations with the US. That means moving beyond the realm of foreign affairs and coordinating with economic policymakers, military personnel, and technology leaders, as well as mobilizing resources across the country. Such an approach is informed by the US strategy of containment, which in recent years has included relentless efforts to maintain America’s technological supremacy, curb China’s access to the global market, and build a coalition of allies, both in Asia and elsewhere, to tackle the “China challenge.” Feeling under siege, China is girding itself for long-term enmity with the world’s largest economy.
As part of this process, China has shifted its economic paradigm away from chasing growth at any cost to building a resilient economy that is driven by innovation and can cope with protracted geopolitical tensions. By accelerating domestic innovation, Chinese President Xi Jinping also aims to restructure the economy and help reduce its overreliance on the property sector. The recently concluded third plenum of the 20th Communist Party of China (CPC) Central Committee gave the final stamp of approval for this massive overhaul.
Scientific advancement and technological prowess is another of Xi’s key strategic goals. China has attached great importance to developing its capacity for innovation and is determined to become a global champion in certain tech sectors. But targeted US sanctions against Chinese tech companies and individuals have thwarted these efforts – and are thus working as intended.
Trade and investment have traditionally been seen as stabilizing forces in Sino-American relations. But Chinese leaders now place less emphasis on them because their tangible benefits to bilateral ties have been significantly reduced, owing to increased commercial competitiveness and the country’s transition from a low-end, export-led growth model to a high-end, technology-driven economy. China’s rapid progress in manufacturing electric vehicles and semiconductors has instead stoked trade tensions with the US.
But Taiwan is still by far the most sensitive issue in US-China relations. Despite no formal changes to the wording of China’s policy, Chinese strategists largely consider the current situation to be precarious, given Taiwan’s new pro-independence government. This will likely result in China shifting to more active deterrence against Taiwan’s leadership and, by extension, the US. With America similarly strengthening deterrent measures against China, the ingredients for a confrontation in the Taiwan Strait are in place. To prevent the worst-case scenario, Xi should conduct regular face-to-face conversations with whomever US voters elect in November.
China’s main goal is to ensure that any further erosion of Sino-American relations does not hinder economic growth, which underpins the regime’s legitimacy. Chinese policymakers have thus tried to minimize damage from the country’s fallout with the US by expanding its economic and political influence in the rest of the world, most notably in the Global South. This could buy time for China to build economic resilience and accelerate the pace of technological development.
With Trump and Harris vying to sound the toughest on China in the run-up to the election, Chinese decision-makers harbor no illusions that rocky relations with the US will magically improve in the near future. But the Sino-American relationship should not be viewed with excessive pessimism. China’s policy toward the US has always been and will continue to be a product of balanced deliberation that accounts for the state of international affairs and weighs the country’s own needs. That has not changed, despite major shifts in the political landscape under Xi.
It is promising that both sides have recently shown more interest in responsibly managing ties. While the Sino-American rivalry will not disappear overnight, the world’s two largest economies could still avoid conflict – and the catastrophic consequences that would likely follow – no matter who enters the White House next year.
Yu Jie is a senior research fellow on China in the Asia-Pacific Program at Chatham House.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
China is known for its spectacular drone shows, with patterns, mythological figures or even comic book heroes displayed in the night sky. As pedestrians captured on video a few days ago, a drone choreography in Guangzhou was apparently used to congratulate Vladimir Putin on his 72nd birthday. A clip circulating on Chinese social media allegedly shows the Russian president’s head flashing red next to the Guangzhou International Finance Center and the words “Happy B-Day Mr. President.”
